The Past and Future of Economic Growth

1. The Past and Future of Economic Growth Dani Rodrik SW31/PED-233/Law School 2390 Spring 2013

2. The (changing) global distribution of income Source: Rodrik (2012), via data from Milanovic (2011)

3. Where are individual countries in the global distribution of income? China Nigeria U.S.A. Would you rather be rich in Nigeria or poor in the U.S.?

4. Accounting for the rise in global inequality over the long term

5. The Great Divergence

6. The origins of the Great Divergence: industrialization and de-industrialization

7. The “deep determinants” of development income level (labor productivity) trade, global integration institutions Which are the most important links, how do they differ across contexts, and why? geography culture

8. The “deep determinants” of development income level (labor productivity) trade, global integration institutions Geographical determinism: resource supplies, public health environment, access to trade routes, state formation… geography culture

9. The “deep determinants” of development income level (labor productivity) trade, global integration institutions Cultural determinism: the “protestant ethic”, Confucianism, innate proclivity to entrepreneurship, thrift, etc. geography culture

10. The “deep determinants” of development income level (labor productivity) trade, global integration institutions Trade fundamentalism: globalization, imperialism… geography culture

11. The “deep determinants” of development income level (labor productivity) trade, global integration institutions Institutions fundamentalism: property rights and contract enforcement geography culture

12. What about agency? Ideas, institutional innovations, political strategies… • Exogenous background conditions that change slowly are obviously important, but can they fully explain: • The successive shifts in economic (and political power) from Spain/Portugal to Britain to U.S.? • Japan after Meiji restoration (1868)? • South Korea and Taiwan since the early 1960s? • China after 1978? • Latin America and Africa’s repeated growth-stagnation cycles since 19th century? • The diversity of institutional patterns among “successful” societies? • The divergence in economic performance among poorer nations despite intensification of globalization? A constant cannot explain a change. Future may be less pre-determined than many of the established theories would suggest

13. The two imperatives of economic growth • “Fundamentals”: building broad capabilities in the forms of human capital and effective public institutions • Takes time, requires broad-based complementary investments, and produces steady but moderate growth • “Structural transformation”: emergence and expansion of modern industries • Requires narrower range of reforms (that are often sectoral) to remove/compensate for costs modern industries face, and produces rapid growth until dualism eliminated The set of policies required to foster these two dynamics overlap, but are not same In particular, role of unconventional policies to stimulate new industries (as in East Asia)

14. A typology of growth outcomes

15. A typology of post-war growth outcomes