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Q1: What factors did economists think the engine of growth? (Kusakabe 2005) :1
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InputDate: 7/16/2006

Reference: Kusakabe, Motoo. 2005. ICT and National Innovation System: Is ICT Engine of Growth?, Presentation for the International Workshop on Workforce Development For Knowledge Economy, 7-13 September 2005, Seoul, Korea
A: During the post World War II period, there were major changes in the developmental thinking by the economists and developmental community. This classification of growth factor, which I used, is roughly corresponding to the evolution of the developmental thinking of the past decades:
Financial Gap Approach ('50s and '60s)
until 1970s, classical developmental economists thought that the main driver of the economic growth was investment in physical capital and savings. This led to the approach taken by the development institutions that if there is a gap between the desired growth rate and the one supported by domestic savings, international donor community can fill the gap by providing foreign aid to be invested in mainly in the physical capital and infrastructure (financial gap approach) As for the trade policies, development economists at this stage considered that export of primary commodities is vulnerable to the price fluctuation and they recommended an "import substitution" approach.

Macro/Structural Policies (80s and 90s)
Since early 1980s, after the financial crisis in Latin American countries, mainstream of developmental community shifted towards so called ?gstructural adjustment approach?h , or ?gWashington consensus?h which put emphasis on the right macro and structural policies. Macroeconomic policy has been addressing the restoration of balanced budget and prudent monetary policy. However, short-term macroeconomic policies alone could not solve the long-run structural issues which were the root cause of the economic issues. Structural policies focused on open up the barriers for foreign trade and investment, and liberalization of prices and financial markets.
Human Capital (90s)
in 1990s, when the first phase of structural adjustment policies had brought a severe impact on the level of living standard and people?fs opportunity to build their capacity, developmental community turned their eyes on human capital development, such as basic education and health. UNDP started publishing human development index.

Governance (90s and 2000s)
in 1990s and 2000s, governance has become the major focus of the developmental community, as many economists found that without a good governance, economic aid does not produce any growth in the recipient economies. Development community put more emphasis on the public sector reform, investment climate, corporate governance and anti-corruption in the developing countries.

Technology, Innovation, Knowledge
Innovation, technical progress and knowledge have been identified as the major engine of growth since Schumpeter's theory of innovation & entrepreneurship and Solow's neo-classical growth theory. During the whole period of post-World War II economic development, increased emphasis has been put on the role of innovation, entrepreneurship and ICT, but most prominently, in latte half of 1990s and 2000s, when US economy recovered from the long-term slump through so-called "new economy". Numerous growth accounting indicated the importance of ?gtechnological progress?h rather than capital accumulation in the growth. Rapid growth of U.S. economy led by the significant productivity growth caused by the ?gnew economy?h and ICT made many economists to put more importance to the innovation and entrepreneurship.

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Q2: What are the sources of growth? (Rodrik 2001) :2
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InputDate: 7/23/2006

Reference: Rodrik, Dani. 2002. Institutions, Integration and Geography - In Search of the Deep Determinants of Economic Growth. papers were produced for a conference in April 2001, hosted by Dani Rodrik.
A: The total output of an economy is a function of its resource endowments (labor, physical capital, human capital) and the productivity with which these endowments are deployed to produce a flow of goods and services (GDP). We can express this relationship in the form of an economy-wide production function, with a representing total factor productivity. Note that a captures not only the technical efficiency level of the economy, but also the allocative efficiency with which resource endowments are distributed across economic activities. The growth of per-capita output can in turn be expressed in terms of three proximate determinants: (a) physical capital deepening; (b) human capital accumulation; and (c) productivity growth.
Growth Accounting: interpretation should be careful
Conceptually, this is a straightforward decomposition, and it has given rise to a large literature on sources-of-growth accounting. But one has to be careful in interpreting such decompositions because accumulation and productivity growth are themselves endogenous. This prevents us from giving the sources-of-growth equation any structural interpretation.

Deeper determinants of the factor accumulation and productivity growth
it is best to think of accumulation and productivity change as proximate determinants of growth at best. While there is no shortage of candidates, I find a three-fold taxonomy useful:
1. geography;
2. integration (trade); and
3. institutions.
Geography.
Geography plays a direct and obvious role in determining income because natural resource endowments are shaped in large part by it. The quality of natural resources depends on geography. Commodities such as oil, diamonds, and copper are marketable resources that can be an important source of income. Soil quality and rainfall determine the productivity of land. Geography and climate determine the public-health environment (the inhabitants?Eproclivity to debilitating diseases such as malaria), and shape the quantity and quality of human capital.
Geography also influences growth via the other two factors. Geography is an important determinant of the extent to which a country can become integrated with world markets, regardless of the country's own trade policies. A distant, landlocked country faces greater costs of integration. Similarly, geography shapes institutions in a number of ways. The historical experience with colonialism has been a key factor in the institutional development (or lack thereof) of today's developing countries, and colonialism itself was driven in part by geopolitical considerations?consider the scramble for Africa during the 1880s.

Trade.
The significance of integration in the world economy as a driver of economic growth has been a persistent theme in the literatures on economic history and development economics. An influential article by Jeffrey Sachs and Andrew Warner (1995) went so far as to argue that countries that are open to trade (by the authors?Edefinition) experience unconditional convergence to the income levels of the rich countries. Leading international policy makers from the World Bank, IMF, WTO, and OECD frequently make the case that integration into the world economy is the surest way to prosperity. The traditional theory of trade does not support such extravagant claims, as it yields relatively small income gains that do not translate into persistently higher growth. However, it is possible to tweak endogenous growth models to generate large dynamic benefits from trade openness, provided technological externalities and learning effects go in the right direction. Capital flows can enhance the benefits further, as long as they go from rich countries to poor countries and come with externalities on the management and technology fronts.

Institutions.
Institutions have received increasing attention in the growth literature as it has become clear that property rights, appropriate regulatory structures, the quality and independence of the judiciary, and bureaucratic capacity could not be taken for granted in many settings and that they were of utmost importance to initiating and sustaining economic growth. The profession's priors have moved from an implicit assumption that these institutions would arise endogenously and effortlessly as a by-product of economic growth to the view that they are essential pre-conditions and determinants of growth (North and Thomas 1973).

Reference:
North, Douglass C., and R. Thomas, 1973. The Rise of the Western World: A New Economic History, Cambridge University Press, Cambridge, 1973.

Sachs, Jeffrey, and Andrew Warner, 1995. Economic Reform and the Process of Global Integration,?EBrookings Papers on Economic Activity, 1995:1, 1-118.

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Q3: Why has Africa suffered the Growth Tragedy? (Easterly & Levine, 1997) :3
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InputDate: 7/23/2006

Reference: Easterly, Wiliam R. and Ross Levine. 1997. Africa's Growth Tragedy: Policies and Ethnic Divisions. Published in Quarterly Journal of Economics v112, n4: 1203-50
A: Explaining cross-country differences in growth rates requires not only an understanding of the link between growth and public policies, but also an understanding of why countries choose different public policies.
Ethnic diversity helps explain policy differences
This paper shows that ethnic diversity helps explain cross-country differences in public policies, political stability, and other economic indicators. In the case of Sub-Saharan Africa, economic growth is associated with low schooling, political instability, underdeveloped financial systems, distorted foreign exchange markets, high government deficits, and insufficient infrastructure. Africa's high ethnic fragmentation explains a significant part of most of these characteristics.

Infrastructure
Many studies of Africa cite the poor state of infrastructure. Infrastructure variables have the same rationale for inclusion in the growth regression as human capital variables: they raise the marginal product of private investment in physical capital, and thus the growth potential.

We do, however, find a strong link between growth and telephones per worker as shown in regressions (2) and (5) in table 5. The coefficient on telephones per worker indicates that it is associated with perhaps I percentage point of Africa's 2.3 percentage point lower growth relative to the rest of the sample. We are dubious that the direct effect of phones is really this large, but it may be a good indicator of the poor state of infrastructure in general.

Ethnic Diversity
Wars, institutional weakness, and even bad policies may reflect a more fundamental characteristic of African societies, great ethnic diversity. High ethnic diversity may lead to increased civil strife, political instability, and destructive competitions for rents by ethnic factions.

To examine the effects of ethnic diversity, we use a variable constructed by Mauro (1993) based on data originally collected by an institute in the Soviet Union in the 1960s.The variable, ETHNIC, measures the probability that two randomly selected individuals in a country will belong to different ethnolinguistic groups. ETIC will increase with the number of ethnolinguistic groups and will increase the more equal is the size of the groups. ETHNIC is significantly correlated with growth, controlling for other factors. The coefficient on the ethnic diversity variable implies that it accounts for 0.8 percentage points of the 2.3 percentage point gap between Africa's growth and the rest of the sample, i.e., Africa's greater than average ethnic diversity accounts for about 35% of its growth differential with the rest of the world. While ethnic diversity is negatively associated with growth and Sub-Saharan Africa has great ethnic diversity, the Sub-Saharan Africa dummy variable tends to remain significant in the Table 5 regressions that include the ethnic diversity variable. We still cannot account for Sub-Saharan Africa's slow growth.

Ethnic diversity and contagion are the important impediments for growth
The two most novel features of our results are our findings on ethnic diversity and contagion. Both findings require further investigation into the mechanisms at work. What are the mechanisms by which ethnic diversity results in high black market premia and low spending on public goods? What other mechanisms explain the link from ethnic diversity to growth? What causes neighboring countries to imitate each others' policies? Why is there a spillover to your growth from your neighbor's growth? The findings on the role of ethnic diversity and contagion in Africa point towards interesting directions in further research on both the fundamental determinants of bad policies and the interactions between neighboring country policies and growth performance.

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