World Bank Report
Chapter 1
Overview
event in the history of humanity. During most of 4 million years of evolution, people made limited economic progress and their material well-being changed very little. In the last few centuries, however, goods and services started to be produced at increasingly lower cost in hours of effort.The hours of work needed to produce basic goods such as water or heat at the dawn of civilization were several hundred times those needed today (DeLong 2000). Similar increases in productivity have been achieved for an expanding range of goods and services. Most of this progress has taken place in the last two centuries, during which technological progress has been exceptionally rapid, and economic growth unprecedented (figure 1.1). It is only in the last 50 years that mainstream economics has focused on the determinants of Adam Smith’s “natural progress of opulence” and on how growth could be accelerated. Many questions about growth still lack satisfactory answers.Yet few issues are more important for the world’s future than the ability of developing countries to raise both productivity and the rate at which they accumulate capital. This overview chapter first briefly reviews our understanding of growth before turning, in section 2, to the facts and controversies of growth and policy reforms in the 1990s. Section 3 draws the broad lessons coming out of the growth experience of the 1990s, and section 4 offers lessons specific to key
E
CONOMIC GROWTH IS A RECENT
policy and institutional reforms. Section 5 sketches operational implications. Subsequent chapters set out the facts about growth in more detail, and then examine the main areas in which economic and institutional reforms concentrated during the 1990s—macroeconomic stabilization, trade, financial sector, privatization and deregulation, modernization of the public sector, and political reforms. The chapters aim to draw lessons from gaps between expectations and outcomes. Most chapters are
Overview
event in the history of humanity. During most of 4 million years of evolution, people made limited economic progress and their material well-being changed very little. In the last few centuries, however, goods and services started to be produced at increasingly lower cost in hours of effort.The hours of work needed to produce basic goods such as water or heat at the dawn of civilization were several hundred times those needed today (DeLong 2000). Similar increases in productivity have been achieved for an expanding range of goods and services. Most of this progress has taken place in the last two centuries, during which technological progress has been exceptionally rapid, and economic growth unprecedented (figure 1.1). It is only in the last 50 years that mainstream economics has focused on the determinants of Adam Smith’s “natural progress of opulence” and on how growth could be accelerated. Many questions about growth still lack satisfactory answers.Yet few issues are more important for the world’s future than the ability of developing countries to raise both productivity and the rate at which they accumulate capital. This overview chapter first briefly reviews our understanding of growth before turning, in section 2, to the facts and controversies of growth and policy reforms in the 1990s. Section 3 draws the broad lessons coming out of the growth experience of the 1990s, and section 4 offers lessons specific to key
E
CONOMIC GROWTH IS A RECENT
policy and institutional reforms. Section 5 sketches operational implications. Subsequent chapters set out the facts about growth in more detail, and then examine the main areas in which economic and institutional reforms concentrated during the 1990s—macroeconomic stabilization, trade, financial sector, privatization and deregulation, modernization of the public sector, and political reforms. The chapters aim to draw lessons from gaps between expectations and outcomes. Most chapters are