One of the great embarrassments of the economics profession is its inability to explain why some countries get rich and some don’t. Foreign Policy editor Moisés Naím, a former Venezuelan minister of industry, once compared the gap in knowledge to physicists not being able to explain how gravity works.
Next month, the Commission on Growth and Development, a group of policy makers and academics led by Nobel Laureate Mike Spence, will offer its contribution to the growth debate. At a Monday conference, Spence gave something of a preview, presenting research he had done with Mohamed El-Erian, the co-CEO of Pimco, a large fund manager.
Looking primarily at China’s ability to grow an average of 9% annually over 29 years, Spence said a key for poor countries was to focus on exports of manufactured goods. That’s what China had done, as had some other fast-growing nations in Asia. It is “striking that the sustained high-growth cases all chose…to provide incentives for investment in export diversification and to structure in particular foreign direct investment so as to increase the rate of inbound transfer of knowledge and technology to domestic individuals and institutions,” the Spence-El-Arian paper said.
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