Promoting Economic Growth in Developing Countries

I found a nice paper that addresses an issue occasionally touched on here – economic growth (and the lack thereof) in the developing world. It’s an IMF working paper by Philippe Beaugrand, one of the IMF’s Africa specialists, and it nicely summarizes one school of thought about how to make poor countries grow richer. As he puts it in the introduction: “It’s entrepreneurship, stupid!”

How does one encourage productive entrepreneurship? Beaugrand provides a convenient seven step summary:

  • Peace and stability: establish a credible political system that ensures legitimacy and continuity.
  • Governance and the rule of law: maintain law and order; enforce property rights; avoid capricious changes in the legal and regulatory framework; set up a credible judiciary.
  • Mentality: drum up support for economic and social reforms, encourage innovation, and place economic success at the forefront of the political discourse.
  • Economic incentives: adopt sound economic policies including hard budget constraints, open competition, a neutral tax system, no nontariff barriers and low tariffs, basic protection for FDI, etc.
  • Basic infrastructure: ensure the provision of a minimum array of public services, especially as regards the transportation network and utilities.
  • Access to capital: develop efficient financial intermediation systems [i.e. a sound banking system]; mobilize external savings, but with prudent debt management.
  • Education: build up human capital – raise literacy and gain access to up-to-date knowledge.

It’s a good list, heavy on the institutional issues that have been increasingly emphasized by development economists over the past decade (though I’m not sure I’ve ever seen “mentality” enumerated as a separate institutional requirement). The hard part, of course, is actually doing these things.