Perspectives on Growth: A Political-Economy Framework.
With the evolution of neoclassical growth models, it became increasingly evident that factor accumulation alone was insufficient for sustained growth. Empirically, the growth experience of many countries and the numerous extensive cross-country regressions provided evidence that good policies and sound institutions were important factors in explaining divergent economic outcomes. These factors were playing a significant role in building and sustaining the momentum for growth.
This paper attempts to develop a framework that matches a country’s growth performance to a set of qualitative variables, with particular emphasis on political-economy variables covering institutions and geography. We find that rich natural endowments do not guarantee prosperity; rather, indicators measuring institutional and leadership quality matter to growth performance. Political ideologies and systems notwithstanding, strong institutions and capable leaders are relevant in a) formulating good, pro-growth policies, b) implementing these policies, and c) building social consensus, which allows a country’s population to be aligned with pro-growth policies. Taken together, these factors shed some insights into the art of policymaking for pro-growth outcomes. The paper also illustrates the relevance of these factors in Singapore’s own growth development experience over the past 40 years.
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