Determinants of Economic Growth

The level of income in an economy at any point in time represents the accumulated growth in incomes over time, so investigating what produces higher incomes is really investigating the determinants of economic growth. But that investigation is complicated by the fact that country experiences with growth are enormously varied and often confusing. Numerous potential growth determinants have been identified over the years, but mapping reliable channels of growth has been a major problem for analysis. Economic outcomes are often confounded by many causes, and more explanations have been offered for per capita income as an outcome than there are economists, sociologists, and political scientists, not to mention politicians and policymakers. What determines your relative welfare today? Religion? The weather? Your culture? Does democracy promote economic, social, and political progress? Or is democracy the ultimate luxury good, desired by those who can afford it? What further confounds the search for channels of growth is that what matters for growth differs over time. In the 16th century, geography likely played a critical role. For example, territories with access to the sea fared better than landlocked areas, as did those in a Mediterranean, agriculture-friendly climate. In the 19th century, the strongest determinant became the ability to capitalize on technological change—that is, the capacity to partake in and profit from the Industrial Revolution. After World War II, reconstruction and American aid likely provided the primary impetus for growth. And since 1980, the approximate start of the era of globalization, catching up with the technological frontier is likely the major reason developing economies have grown at rates of more than 5 percent. But that is all conjecture. In the end, the question remains the same: Is there one basic set of causes, levers that can be pulled, to enhance growth?