Search

• Economic miracles, such as the Asian miracles, are not statistical accident to be ignored, and they are not as rare as commonly assumed i.e., the distribution of cross-country long-term growth follows a Power law. • Disentangling the role of policies from luck implies that economic miracles are alike, and every failure is a failure in its own way. High and sustained growth depends on maintaining the best possible policies while not being too unlucky. • The relatively few successes in achieving high and sustained growth such as the Asian miracles should constitute a focal point for the study of development policies. • In contrast, results derived from a large pool of development failures should be taken with skepticism, especially if it is based on the study of growth in the short to medium run. We show evidence that development "miracles," such as the Asian Miracles, may not be that rare as the distribution of cross-country long-term growth follows a Power Law. We propose a growth theory, disantangling the role of policies from luck, which is consistent with this stylized fact and predicts that high growth depends on maintaining the best possible policies while not being too unlucky. We argue that miracles are all alike and every failure is a failure in its own way, suggesting that the few growth miracles hold more clues about good policies than the vast number of growth failures. We infer important implications for the study of economic development. [ABSTRACT FROM AUTHOR]

• Using the IMF country reports for 1978-2019 and text analytics, we identify four narratives about growth economics. • With a vocabulary of more than 100 concepts, we find much lower occurrence of concepts from growth theory. • Major events such as economic crises and political leadership changes tend to affect the direction of growth narratives. • We propose a nexus of the pool of economic ideas, power structure, and trigger events to interpret the shift in narratives. The debate among economists about an optimal growth recipe has been the subject of competing "narratives." We identify-four major growth narratives using the text analytics of IMF country reports over 1978–2019. The narrative "Economic Structure"—services, manufacturing, and agriculture—has been on a secular decline overshadowed by the "Structural Reforms"—competitiveness, transparency, and governance. We observe the rise and fall of the "Washington Consensus"—privatization and liberalization—and the rise to dominance of the "Washington Constellation," a collection of many disparate terms such as productivity, tourism, and inequality. We interpret these changes through the lens of a nexus of the changing pool of economic ideas, the power structure within organizations, and the shocks that trigger a shift of narratives and their translation into policies. [ABSTRACT FROM AUTHOR]

Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. We argue that one can learn from these miracles and we suggest that three key principles were behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability. [ABSTRACT FROM AUTHOR]

Abstract: We study the effects of permanent and temporary income shocks on precautionary saving and investment in a “store‐or‐sow” model of growth. High volatility of permanent shocks results in high precautionary saving in the safe asset and low investment or a “volatility trap,” namely, big savers invest relatively little. In contrast, low volatility of permanent shocks leads to low precautionary saving and high or low investment, depending on the volatility of temporary shocks. Empirical evidence shows a nonlinear relationship between investment and saving and that investment is a hump‐shaped function of the volatility of permanent shocks, as predicted by the model. [ABSTRACT FROM AUTHOR]