Distribuci´on y propiedades generales de las nubes moleculares

robust, such as primary school enrollment rates and years of openness, are seen as confirming widespread beliefs that commitment to education and openness to international trade are important preconditions for economic growth.

Other determinants found to be robust in the Sala-i-martin et al. study point to important inherited differences across countries but yield no practical policy implications, because they are factors over which policymakers have little control. Such factors include the fraction of the country’s area in the tropics, its population density in coastal areas, the fractions of the population that are Confucian, Muslim, and Buddhist, its degree of ethnolinguistic fractionalization (mea- sured by the probability that two people randomly drawn from the population speak the same language), and whether the country was a Spanish colony.5

However, other determinants highlighted as robust in the Sala-i-Martin et al. study serve more to raise big questions than to explain growth performance. For example, the determinant they rank as the most robust is a dummy variable indicating whether or not the country is in East Asia. This just raises the question: What was it about countries in East Asia that allowed them to grow faster than the rest of world (after controlling for differences in other policy variables and socioeconomic conditions)?

3.4B

The micro-level underpinnings of rapid economic

growth

Cross-country regressions can offer some general insights into the determinants of growth, but they fall far short of identifying the practical steps that policymakers in any specific country should take to speed growth. Fortunately, when we use tools of economic analysis to identify the micro-level underpinnings of rapid economic growth, we discover a more promising way to search for context-specific policy recommendations. In this section we offer a brief sketch of the micro-level underpinnings of growth. Part III of the text offers a more thorough discussion of the micro-level underpinnings of development outcomes, including economic growth.

As discussed in Section 3.3, the proximate sources of economic growth are physical and human capital accumulation, technical change, improvements in efficiency, and reductions in waste. Thus we begin our search for insights regarding successful growth by identifying the people and choices that drive factor accumulation and TFP growth. After identifying them, we may begin studying the forces that strengthen or weaken people’s incentives toward growth- enhancing choices.

Many people and organizations contribute to factor accumulation and TFP growth. Increases in physical capital are brought about by farmers, small business operators, formalfirms (domestic or foreign), and community groups, when they construct or purchase buildings, equipment, inventories, roads, communication networks, and other physical assets. Human capital accumulates when families educate and provide good nutrition to their children, when adults enter literacy programs, and when workers and employers undertake job training. Tech- nology advances when inventors develop and disseminate new ideas, and when farmers and entrepreneurs put new ideas into practice. Efficiency improves when entrepreneurs find better ways to avoid disruptions and when inefficient producers close up shop while new entrepreneurs open more productive enterprises.

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They alsofind that initial GDP per capita has a robustly negative effect on growth rates (in regressions that control appropriately for other important growth determinants like education variables). This means that after controlling for other critical socio- economic conditions and policy variables, poorer countries do tend to grow faster, even though unconditional correlations like that in Figure 3.1 show no such tendency.

All this asset creation and TFP growth is possible only if the human beings who provide labor for production are willing to make big changes in their ways of life. Some must give up work on their families’ farms to take up work in factories or call centers. Some must migrate from their small home communities to larger towns or cities. Some must take the risk of leaving jobs in oldfirms to find jobs in new ones.

Notice that the many growth-enhancing choices we have just described are precisely the choices through which people invest in building better futures for themselves and their families, as we described in Chapter 2. Knowing that people care about the future, we know they are willing to undertake such investments when they perceive that the benefits of improved future prospects are great enough to outweigh the costs, and they are able to make such investments when they have ways offinancing the up-front costs. Thus:

Digging deeper into the determination of growth rates requires close examination of the conditions under which people are willing and able to undertake the diverse investments required for successful economic growth.

In Part III we will learn that well-functioning markets can play important roles in motivating and facilitating investment. Goods markets provide entrepreneurs with opportunities to sell produce, thereby allowing them to reap returns on investments that expand their productive capacity. Rising demands for particular goods raise the goods’ prices, signaling to entrepreneurs that investment in those sectors would be particularly valuable. Labor markets provide young people with incentives to invest in education and training when labor markets cause wages for scarce skilled labor to rise above wages for unskilled labor. Similarly, labor markets encourage workers to move into sectors and regions where rising demand raises wages. Throughfinancial markets, potential investors who see lucrative investment opportunities, but who have no cash, may obtainfinancing for up-front investment costs.

Unfortunately, we will also learn in Part III that markets can fail to provide private indi- viduals with adequate incentives or financing for some worthy investments. For example, as readers may have learned in earlier economics courses, markets fail to provide adequate incentive for private investment in public goods, which provide services that are valuable to many people and that cannot be denied to anyone wishing to use them. Private investors see little opportunity to gain from investment in rural roads (when it is impossible or uneconomical to charge tolls for road use) because they would enjoy only the benefits of their own road use while bearing the full cost of road construction. We will see that many important infrastructure assets, technological ideas, and legal institutions have such public goods qualities.

The public goods problem is just one of many diverse failures in goods, labor, orfinancial markets that can present obstacles to investment and that we will examine in Part III. Unfortunately, even if these problems affect only a few of the many kinds of investment necessary for growth, they can slow down the entire growth process, because lack of investment in one area can slow investment in others. For example, without investment in rural roads, markets in rural areas remain stunted, discouraging private investment in the expansion of farms and businesses (Chapter 8).

Private institutions (as defined in Chapter 2) sometimes arise to help circumvent market failures and facilitate beneficial investments. Community groups, for example, sometimes manage to undertake investment in community-level public goods by developing institutions that encourage cooperation. Sadly, nonmarket institutions, too, can fail for a variety of reasons (that we will examine in Chapter 12). When markets and private institutions fail, governments and NGOs may step in, hoping to improve growth and development performance by encouraging critical investments that private markets and institutions do not adequately support, but they succeed only when policies are well designed and the public institutions through which they are implemented provide good governance (challenges we examine in Chapter 13).

This highly abbreviated portrait of the decisions, markets and institutions that underlie growth suggests that:

Growth is likely to be most successful where physical and institutional circumstances inherited from the past are the most propitious for the development of markets and for the development of current private institutions that encourage investment; where policies are well designed for encouraging critical investments not supported by markets and private institutions; and where policies are implemented through high-quality public sector institutions.