Friday, September 02, 2005

Is there a take-off?

As I discussed earlier, the idea of a "take-off" has received renewed interest, particularly with the idea of a "poverty trap". That is, there is a kind of balance of forces, or "equilibrium", in the economy which traps resources into inefficient uses. This inefficiency leads to underinvestment in industries with a high growth potential. There is however a better equilibrium, in which investment in these industries materializes - but there is no natural tendency for the poor economy to take-off from a lower to a higher equilibrium. Hence the need for a Big Push.

The "take-off", interpreted as a Big Push, is not well supported by the evidence, according to this paper by William Easterly of New York University. Virtually all the countries that are wealthy today, got there by gradual increments, rather than by a take-off. The exception? Japan, during the Meiji era. Among currently developing economies, the "take-off" is also very elusive. A major problem is actually defining a take-off - the term itself is difficult to pin down, against the reality of most developing economies, for whom the boom-bust cycle appears to be the norm. (So the Philippines is not so unique after all!) On the balance, only the East Asian high performing economies exhibit a take-off, and that of course only recently.

Because the Philippines is in this region, the East Asian high performing economies becomes the inevitable benchmark by which we gauge our own "take-off". What was the secret recipe of the high performing East Asian economies? Is this recipe replicable in countries like the Philippines?

7 comments:

f said...

i believe krugman once pointed out that the "asian miracle" was really not due to superior TFP growth but your old reliable factor accumulation. makes us think about what's wrong with our institutions that we cant replicate the same in the phil.

there is too much government involvement in the every day running of the economy (which makes sense if you are a politician who's trying to make the people believe that you matter) and this gradually eroded the public's confidence in markets. with too much regulation you have most of the policy making process held hostage by interest groups.

how do you build better institutions?

Econblogger said...

f,

There is some evidence for reverse causation - good economic performance results in good institutions. (From the Journal of Economic Growth. I'll link to the paper soon.) So the decisive role of institutions remains controversial, mainly because defining "good institutions" is so problematic. (Much like the problem of defining a "take-off".) I do agree that misguided anti-market policies accounts for a large part of the Philippines' economic backwardness. Another problem is underprovision of public goods (infrastructure, investment in human capital).

f said...

yes it cuts both ways, one clever paper (American Economic Review) i've seen traces back the current quality of institutions in different countries from colonial times, uses early settler mortality as instrument. it's by mit's daron acemoglu (john bates clark medal winner this year). i beleive he still has the working paper version on his site. definitely the debate on growth and income disparities across countries still has a long way to go.

Econblogger said...

I think I've seen the NBER version of that paper. Quite clever, I agree. Say f, are you an economist?

micketymoc said...

Hm. And all along I thought you guys knew each other!

f said...

i am. i suppose i can't say i'm a socialist :) i wish access to philippine data is easier maybe we need something like an "academic research information act" to open the gates for some enterprising researchers and students out there. although most macro datasets are readily available there are some exiting work left at the micro level too and some data not populalarly available.

Econblogger said...

Which data sets are you looking for? In my experience, I've been frustrated in getting the nationwide nutrition surveys of the DOST (collected by the FNRI).