Unleashing growth: The decline of innovation-blocking institutions
Klaus Desmet, Stephen L. Parente, 18 May 2013
Innovation is the beating heart of modern growth. This column argues that innovation-blocking institutions weaken when markets expand and competition intensifies. The rise and decline of medieval Italian crafts guilds offer valuable insights into this process. Policies that promote greater market integration and stronger competition are key steps in lowering the barriers to innovation.
Two hundred years ago, during the Napoleonic Wars, the Luddite movement rocked the English industrial landscape. Dissatisfied with falling wages and increased competition from mills employing cheap rural labour, the Luddites broke into factories at night, smashing spinning frames and power looms.
Topics: Economic history, Productivity and Innovation
Tags: growth, guilds, institutions
Why reforms fail: Political-economy forces and agriculture in Africa
M. Ataman Aksoy, Bernard Hoekman, 15 May 2013
Increasing agricultural productivity and expanding the agribusiness industry in sub-Saharan Africa is critical for poverty reduction, food security and economic growth. Numerous recent national, regional and G20-level programmes have been initiated to that effect. This column discusses new research showing that political economy forces have a major bearing on the success or failure of agricultural reform programmes. To be successful, policymakers must bear in mind the extent to which existing elites are affected by the redistribution associated with increasing returns for rural producers.
There are many hypotheses on why some nations fail and others become successful (see Acemoglu and Robinson 2012). While the debate rages on, an area of agreement is that the strength of institutions and their ability to adjust to shocks is an important factor.
Tags: Africa, growth
Eurozone: Looking for growth
Laurence Boone, Céline Renucci, Ruben Segura-Cayuela, 25 March 2013
What happens after the crisis ends? This column estimates the long-term effects of the current cyclical downturn on Eurozone economies. In the absence of any real impetus for bold reform, estimates show that the damage will indeed be long lasting, permanently impairing growth for an ageing population that requires higher growth capacity more than ever before.
The financial crisis that erupted in 2008, prolonged by a sovereign crisis in the Eurozone, led to a massive contraction in trade, as well as in investment in physical and human capital; thus undermining the foundations of future growth. This may well continue as growth will not rapidly rebound while deleveraging slowly proceeds across Eurozone economies.
Topics: Europe's nations and regions, Productivity and Innovation
Tags: Ageing, Eurozone crisis, growth, productivity, Solow
China and the end of extrapolation
George Magnus, 31 January 2013
In 2013, China is at an important crossroads in its economic development. This column argues that we cannot continue to extrapolate from China’s recent economic record. If growth is to remain high and stable, choosing the right course will require nothing less than a significant change in China’s economic model, brought about by what might be the most important political reforms since the 1980s. Whether or not its growth performance tips it into the middle-income trap depends on engaging with and implementing widespread reforms that may be incompatible with the primacy of the Communist Party.
That the Chinese economy is slowing down as it quickly matures should come as no surprise. The global economic conditions of the two decades leading up to the financial crisis were exceptional; things are far more sober now.
Many of China’s development achievements are unrepeatable. Only once can you:
Tags: China, Communist Party, growth, middle-income trap
Investing in UK prosperity: skills, infrastructure and innovation
Tim Besley, John Van Reenen, 31 January 2013
The latest GDP figures confirm that the UK economy has been more or less flat-lining since the financial crisis began. This column presents the LSE Growth Commission’s integrated recommendations for reigniting UK growth, arguing that an inability to achieve sustainable growth is rooted in longer-term problems arising from a failure to invest, notably in skills, infrastructure and innovation. The UK must engage evidence-based policy, in both word and deed, if it is to overcome international competition and myriad global changes.
At the beginning of 2013, the outlook for the UK economy looks bleak even for a British winter. Output has been depressed for a longer period than it was even in the Great Depression, with GDP still below the peak level of early 2008.
Topics: Europe's nations and regions, Global crisis
Tags: growth, UK
Growth and political change: Transition duration is critical
Caroline Freund, Melise Jaud, 24 January 2013
The Arab world is undergoing a major political transition. The final outcomes of the changes are far from certain. Nevertheless, there have been and will continue to be economic consequences from the moves towards democracy. This column looks at 90 attempts at transition and finds that countries with rapid transitions, irrespective of whether they are successful or failed, experience swift recoveries and a long-run growth dividend of about one percentage point relative to pre-transition growth levels.
The Arab world is undergoing a major political transition. The final outcomes of the changes are far from certain in nations where they have occurred. The geographical spread of the changes is also far from clear at this point. Nevertheless, there have been and will continue to be economic consequences from the moves towards democracy (see Besley and Kudamatsu 2007).
Topics: Development, Politics and economics
Tags: democracy, growth, political change, transition
What economic model is Egypt going to adopt?
Mohsin Khan, 8 November 2012
Since the Arab Spring, Egypt has seen some political transformation. But what of its economic policy? This column debates whether Egypt, under its newly elected president, will pursue both badly needed short- and long-term economic reform, or succumb to myopic populism.
The dramatic political developments since the Arab Spring have generated uncertainty and subsequent debate over the future of economic policies and economic reforms in the Arab world. This column asks:
Topics: Development, Global crisis, Politics and economics
Tags: Africa, development, Egypt, growth, Middle East
Returning to growth in the UK: Policy lessons from history
Nicholas Crafts, 25 October 2012
A return to growth is urgently needed in the UK. Recovery from severe recessions was achieved in the 1930s and the 1980s in the presence of fiscal consolidation. This column examines the lessons from those experiences for today’s policymakers.
Returning to growth after the crisis is proving elusive for the UK economy. Compared with the aftermath of the similarly severe recessions of 1930-1932 and 1979-1981, in mid-2012 the UK was well below the levels reached at the equivalent points, 1934 Q2 and 1983 Q3 (Figure 1).
Topics: Economic history, Macroeconomic policy
Tags: 1930s, growth, UK recessions
Germs, Social Networks and Growth
Alessandra Fogli, Laura Veldkamp, 21 October 2012
Does the pattern of social connections between individuals matter for macroeconomic outcomes? This paper uses network analysis tools to explore how different social structures affect technology diffusion and thereby a country’s rate of technological progress.
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Tags: development, disease, economic networks, growth, pathogens, social networks, technology diffusion
Vietnam’s economic development: Policies, challenges and prospects for the future
Sarah Chan, 24 October 2012
Vietnam’s recent economic performance has been marred by large swings in economic and financial conditions. This column argues that the inability to respond quickly to changing conditions, the pro-growth bias of the State Bank of Vietnam, as well as a 'stop and go' policy style partly explain this. It adds that inefficient state-owned enterprises and weaknesses in the banking system need to be addressed expeditiously.
Facing cyclical and structural challenges that are arguably as significant as any moment since the 1997 Asian financial crisis, Vietnam’s real GDP growth has markedly decelerated in recent times. From an annualised performance of 6.8% in 2010, it fell to 5.9% in 2011 falling further to 4.4% in the beginning of 2012.
Topics: Development, Macroeconomic policy
Tags: growth, monetary policy, Vietnam