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Growth Miracles and Growth Debacles: Exploring Root Causes

Author(s):Bhattacharyya, Sambit
Reviewer(s):Dawson, John W.

Published by EH.Net (September 2012)

Sambit Bhattacharyya, Growth Miracles and Growth Debacles: Exploring Root Causes. Cheltenham, UK: Edward Elgar, 2011. viii + 203 pp. $110 (hardcover), ISBN: 978-1-84844-631-1.

Reviewed for EH.Net by John W. Dawson, Department of Economics, Appalachian State University.

Sambit Bhattacharyya?s new book on economic growth reviews aspects of both theory and evidence from the modern growth literature.? The review will be useful and interesting to anyone ? laymen, students, or trained economists ? who desire a better understanding of modern growth theory and evidence.? Economic historians may be particularly interested in its application of modern growth theory to various countries at different stages of development and over time.? The level of technical difficulty should allow undergraduates and even laymen to digest the main conclusions.? Although some limited mathematical modeling and model estimation (regression analysis) are discussed, the general conclusions are adequately discussed and summarized.

The book is broadly divided into two parts.? Part I discusses theories of the causes of growth and presents some evidence on these theories.? Part II discusses policies for promoting growth and provides some evidence on these policies.

Part I opens with a discussion of some basic facts about growth across countries and over time.? The time frame for much of this discussion is over the period AD 1 through the early 2000s using Maddison?s widely-cited long-term data.? Other data are used for shorter, more recent periods.? This opening chapter provides a useful perspective on growth and sets the stage for the focus on institutions that follows throughout most of the book.? The remaining three chapters in Part I provide the core of this part of the book.? Chapter 3 provides a comprehensive review of the root causes of growth.? Chapter 4 summarizes the empirical evidence on growth.? Chapter 5 presents the author?s ?unifying framework? for explaining growth across countries and at different stages of development.

Chapter 3 begins with a brief summary of the Solow model and the importance of factor accumulation in explaining growth.? The discussion quickly turns to the distinction between the so-called ?proximate? and ?root? causes of growth, where factor accumulation is a proximate cause and deeper determinants such as institutions, culture, and geography are potential root causes.? The clear explanation of the distinction between the proximate and root causes is one of the strong points in this review of growth theory.? It is easy for newcomers to conclude from their first look at the growth literature that modern growth theory is largely an endless search for significant explanatory variables in cross-country growth regressions.? Rather, the proximate vs. root causes distinction shows that growth is really a process whereby the root causes influence the proximate causes.? In this setting, variables measuring root and proximate causes cannot simply be mixed together and included in cross-country growth regressions.? This view of growth results from looking at the growth literature in its entirety instead of focusing on each study in isolation.? The review in this chapter does a good job of presenting modern growth theory from this perspective.? There is extensive discussion of institutions, religion and culture, geography, disease, trade openness, human capital, state formation, and war in the context of the root causes of growth.? The discussion also devotes considerable attention to the history of Africa throughout.? This is interesting because Africa is often viewed as an exception in many treatments of growth.

Chapter 4 provides some empirical evidence on growth across countries.? The presentation is not intended to be a comprehensive review of the vast empirical growth literature.? Rather, it provides a nice overview of the type of data, analysis, and evidence that is common in this literature.? The distinction between proximate and root causes of growth carries through to this chapter.? Basic econometric problems ? such as endogeneity, measurement error, and omitted variables ? which are often ignored in empirical growth analysis are discussed.? One limitation of the discussion in this chapter is that attention is restricted to level regressions rather than growth regressions.

In Chapter 5, the author presents his ?unifying framework? for understanding the root causes of growth.? The framework is largely narrative in nature rather than mathematical.? The attempt is to ?explain the interrelationship between institutions, diseases and economic development.?? The framework uses a ?stages of development? approach which is likely to be particularly appealing or at least interesting to historians.? The framework is based on the stages of development in Western Europe, but is then applied to growth trajectories in Africa, China, India, the Americas, Russia, and Australia.? The development process is divided into four stages.? The first stage is a Malthusian era where geography and disease play a crucial role.? The second stage is characterized by conflict, militarism, and increases in food production and population density.? The third stage is a period of state-led wealth acquisition.? In the fourth stage, the nature of the state changes to give rise to rapid technological progress, industrial revolution, mass production, and the rise of a capitalist system.

In Part II of the book, the focus is on policies for growth.? Both theory and evidence are discussed.? By and large, the focus is on institutions and policies toward trade openness.? Chapter 6 focuses on the relationship between institutions and trade.? This chapter presents considerable empirical evidence on the trade-development relationship with measures of institutions included in the analysis.? The overall conclusion is ?a reasonably robust correlation between trade openness and economic development when the complementarities between institutions and trade are taken into account.?? The discussion of institutions and trade policy continues in Chapter 7, but the focus turns to whether trade policy directly influences institutional development.? Evidence is presented that trade liberalization positively impacts institutions.

In Chapter 8, the focus turns to the relationship between institutions and growth.? Specifically, institutions are unbundled to determine which institutions are most important for growth.? This unbundling classifies institutions in four areas: market-creating, market-regulating, market-stabilizing, and market-legitimizing. Strong market-creating and market-stabilizing institutions are found to be good for growth.? Market-regulating institutions can reach a point at which they are bad for growth by providing disincentives for investment.? Market-legitimizing institutions seem not to matter for growth.

The book concludes with Chapter 9 which provides a road map for future growth in terms of policy making.? Recommended growth policies involve property rights, rule of law, contract enforcement, regulatory institutions, macroeconomic stabilization, representative politics, human capital investment, access to markets, and trade.

John W. Dawson is Associate Professor in the Department of Economics at Appalachian State University in Boone, North Carolina, USA.? He is co-author of ?Federal Regulation and Aggregate Economic Growth,? forthcoming in the Journal of Economic Growth.

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative