OVERVIEW

The conventional wisdom among economists about development policies has evolved considerably in the last quarter century.  The Washington consensus of the late 1980s was guided by the belief that there was a short list of specific policy reforms that promoted growth. But subsequent experience showed that the expectations raised by this agenda were misplaced. Countries adopting the agenda generally underperformed, while growth
superstars in Asia typically departed significantly from the accepted rules of good behavior.

The disappointments around the Washington Consensus led to a broadening of the development agenda.  Reform-minded thinking today revolves largely around governance and institutional reform. The danger with this approach is that it leads to an impossibly broad and ambitious agenda that is insufficiently differentiated according to the needs of individual countries. Moreover, the surprising frequency of spontaneous growth episodes in countries with weak institutions, the sharp disparities in regional developments within national economies subject to the same general rules, and the periodic successes of economies that either change their institutions piecemeal or grow before fixing their institutions (e.g.,China), all bly suggest problems with the current emphasis on broad institutional reform as a precursor to growth.

The purpose of the New Thinking on Growth and Development Policy program is to develop the tools needed to formulate growth strategies and development policies and at the same time strengthen participants’ understanding of recent thinking in the areas of growth, macroeconomic policies, evaluation of development policies and institutions.

Four considerations guide the design of this program. First, while development is a broad concept entailing the raising of human capabilities in general, the central challenge that developing nations face is increasing economic growth rates. Higher levels of living standards are the most direct route to achieving improvements in social and human indicators.

Second, trying to come up with an identical growth strategy for all countries, regardless of their circumstances, is not likely to prove productive. Growth strategies are likely to differ according to domestic opportunities and constraints. There are of course some general, abstract principles—such as property rights, the rule of law, market-oriented incentives, sound money, and sustainable public finances—that are desirable everywhere. But turning these general principles into operational policies requires considerable knowledge of local conditions.

Third, it is not particularly helpful to provide governments with a long, unprioritized list of reforms, which may not be targeted at the most binding constraints on economic growth and development. Governments face administrative and other constraints, and their political capital is better used alleviating binding constraints than in going after too many targets at once. Growth strategies require a sense of priorities.
 
Fourth, any growth strategy or development policy should be informed by the need to evaluate the impact of the strategy. In some cases this may affect how the policy is implemented while in other cases the design of the strategy can lend itself to evaluation.  

In this course participants will learn to:

• Develop a framework for “growth diagnostics”—that is, a strategy for figuring out policy priorities. The strategy will seek to identify the most binding constraints on economic activity, and then work out a set of policies that, once targeted on these constraints at any point in time, is likely to provide the biggest bang for the reform buck.

• Identify specific market failures (including market failures that result from government interventions) and assess the policy responses & failures.

• Take a “process” view of growth—to identify and mitigate the key constraints to growth for developing economies. The problem is less about getting growth started than removing obstacle after obstacle from its path.

• Identify how program evaluations can affect policy-makers ability to recognize what constrains Growth and why.