It is not entirely clear from the literature what explains “the TFP blackbox”[6]
I think there is too much epistemic humility—throwing our hands up in the air— about what causes growth. For instance, many make fun of cross-country growth regressions and believe them to be pointless, yet even Nobel prize winner Deaton actually does believe that we have learned something from them. We actually know a bunch and even perhaps there now fewer broad policy prescriptions ala the Washington consensus, there’s this whole field of Growth Diagnostics (see appendix, that tries to find out which policies would try to work on the growth bottleneck on a country basis).
I’m increasingly convinced that the randomistas around Duflo and Banerjee, despite perhaps having important and valuable things to say on microeconomic issues and program evaluation, have very little relevance for macro, and have very odd non-mainstream opinions on growth and macroeconomics.
Their ‘Foreign affairs’ contains an interesting error: “Between 2014 and 2016, a total of 582 million insecticide-treated mosquito nets were delivered globally. Of these, 75 percent were given out through mass distribution campaigns of free bed nets, saving tens of millions of lives.”
They actually repeat this mistake in their recent book ‘Good economics for hard times’:
“The magazine Nature concluded that insecticide-treated net distributions averted 450 million malaria deaths between 2000 and 2015.” which probably based on an old GWWC article, but they mix up deaths and cases. (Says something about their priors that they believe that bed nets have saved half almost half a billion lives and they’re off by two orders of magnitude. It’s the Nobel prize in economics equivalent of believing that Michael Bloomberg could give every American $1m.)
In their book they seem to arguing for something like degrowth or no growth : “Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars, or no cars at all.”
What we see instead is “Divergence, big time”[8]. Valiant attempts have been made to explain this divergence[9], in vain[10], and attempts continue to be made.
The source you cite is from the mid-90s, but now are more recent paper concludes:
Unconditional divergence is no longer true and has not been so for decades.
Poorer countries have been slowly catching up with richer ones since the mid-1990s.
Middle-income countries have had the highest growth rates since the mid-1980s.
I’d love for someone to get on the bottom of this.
My naive view was that poorer countries have now often very fast growth rates because they can use fast catch up growth whereas richer countries at the frontier can’t grow that fast anymore because ideas are getting harder to find and so there’ll be convergence. Not sure about per capita growth rates though.
Such theoretical problems make it hard for the Systemistas to give precise prescriptions on what needs to be done at a macro level. This lack of a precise prescription is possibly what makes the Randomistas highly skeptical of the Systemistas. The failure of prescriptions like the Washington consensus[11] add to their skepticism.
My sense is that this is also a really overstated point and that many smart people believe that many of these policy prescriptions were roughly correct in retrospect. From my appendices doc:
The “Washington Consensus for example are a set of “economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries” by the IMF, World Bank and US treasury, which inspired a wave of reforms in Latin America and Subsaharan Africa.
These policies are (including a few recent suggestions):
Thanks for writing this!
Some (critical) comments for the sake of brevity mostly based on relevant related material from my Appendices to Growth and the case against randomistas (which you might be interested in):
I think there is too much epistemic humility—throwing our hands up in the air— about what causes growth. For instance, many make fun of cross-country growth regressions and believe them to be pointless, yet even Nobel prize winner Deaton actually does believe that we have learned something from them. We actually know a bunch and even perhaps there now fewer broad policy prescriptions ala the Washington consensus, there’s this whole field of Growth Diagnostics (see appendix, that tries to find out which policies would try to work on the growth bottleneck on a country basis).
I’m increasingly convinced that the randomistas around Duflo and Banerjee, despite perhaps having important and valuable things to say on microeconomic issues and program evaluation, have very little relevance for macro, and have very odd non-mainstream opinions on growth and macroeconomics.
Their ‘Foreign affairs’ contains an interesting error: “Between 2014 and 2016, a total of 582 million insecticide-treated mosquito nets were delivered globally. Of these, 75 percent were given out through mass distribution campaigns of free bed nets, saving tens of millions of lives.”
They actually repeat this mistake in their recent book ‘Good economics for hard times’:
“The magazine Nature concluded that insecticide-treated net distributions averted 450 million malaria deaths between 2000 and 2015.” which probably based on an old GWWC article, but they mix up deaths and cases. (Says something about their priors that they believe that bed nets have saved half almost half a billion lives and they’re off by two orders of magnitude. It’s the Nobel prize in economics equivalent of believing that Michael Bloomberg could give every American $1m.)
In their book they seem to arguing for something like degrowth or no growth : “Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars, or no cars at all.”
This seems to be kind of crazy to me (Max Roser writes about the importance of economic growth here.)
The source you cite is from the mid-90s, but now are more recent paper concludes:
Unconditional divergence is no longer true and has not been so for decades.
Poorer countries have been slowly catching up with richer ones since the mid-1990s.
Middle-income countries have had the highest growth rates since the mid-1980s.
See src
If you follow down the citation trail of your paper, there’s another Kremer paper that argues for convergence but it’s cited by Acemoglu and he apparently has issues with this analysis: https://scholar.google.co.uk/scholar?as_ylo=2021&hl=en&as_sdt=2005&sciodt=0,5&cites=8319625129287884734&scipsc=
I’d love for someone to get on the bottom of this.
My naive view was that poorer countries have now often very fast growth rates because they can use fast catch up growth whereas richer countries at the frontier can’t grow that fast anymore because ideas are getting harder to find and so there’ll be convergence. Not sure about per capita growth rates though.
My sense is that this is also a really overstated point and that many smart people believe that many of these policy prescriptions were roughly correct in retrospect. From my appendices doc:
The “Washington Consensus for example are a set of “economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries” by the IMF, World Bank and US treasury, which inspired a wave of reforms in Latin America and Subsaharan Africa.
These policies are (including a few recent suggestions):
Fiscal discipline
Reorientation of public expenditures
Tax reform
Financial liberalization
Unified and competitive exchange rates
Trade liberalization
Openness to DFI
Privatization
Deregulation
Secure Property Rights
Corporate governance
Anti-corruption
Flexible labor markets
WTO agreements
Financial codes and standards
“Prudent” capital-account opening
Non-intermediate exchange rate regimes
Independent central banks/inflation targeting
Social safety nets
Targeted poverty reduction