From Growth Theory To Growth Policy Design

And among those who believe in a role for growth policy, the debate on how to think about the appropriate growth policy design, and on how to use theory for that purpose, is not settled either. Advocates of the so-called “Washington Consensus” argue that the combination of macroeconomic stabilization, market liberalization, and privatization, should lie at the heart of any growth package no matter the country’s level of technological or institutional development. On the other hand, in their paper on “Growth Diagnostics”, Haussmann, Rodrik and Velasco (2002) argue that Asian countries have achieved fast growth without (fully) conforming to the Washington Consensus recommendations. They instead propose to use the combination of an AK growth model and observed factor prices to try and identify the binding constraints on growth in the various countries they consider. More recently, the Spence Commission (see Spence (2009)) takes a more pragmatic approach to evaluate the growth effects of various policies in different types of countries, developed or emerging, endowed in natural resources or not. They point at education and inclusive growth being as important as market flexibility.