Published by EH.NET (August 2003)
Dani Rodrik, editor, In Search of Prosperity: Analytic Narratives on Economic Growth. Princeton, NJ: Princeton University Press, 2003. ix + 481 pp. $59.50 (cloth), ISBN: 0-691-09268-0; $32.50 (paper), ISBN: 0-691-09269-9.
Reviewed for EH.NET by Richard Pomfret, Department of Economics, University of Adelaide (Australia).
Dani Rodrik, Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University, has brought together an all-star cast to produce a series of country studies, or as the book’s subtitle calls them, analytic narratives on economic growth. There are two chapters on India (by Gregory Clark and Susan Wolcott and by Brad de Long), individual country chapters on Botswana (Daron Acemoglu, Simon Johnson and James Robinson), Indonesia (Jonathan Temple), Mauritius (Arvind Subramanian and Devesh Roy), Venezuela (Ricardo Hausmann), China (Yingyi Qian), Bolivia (Daniel Kaufmann, Massimo Mastruzzi and Diego Zavaleta), Mexico (Maite Careaga and Barry Weingast) and Pakistan (William Easterly), and two-case chapters on Australia and California (Ian McLean and Alan Taylor), Vietnam and the Philippines (Lant Pritchett) and Poland and Romania (Georges de Menil). The papers were originally presented at a conference at Harvard in April 2001 and the reasonably rapid turnaround time ensures that they remain fresh. One pity is that the commentators’ comments from the conference are not included; given the quality of the participants, the discussion must have been lively.
The book is conceived as moving beyond the restrictions of cross-country growth empirics to analyze country-specific factors in greater depth, and in particular to identify the nature of positive and negative institutions. An important advantage of the narratives over cross-country econometrics is that they allow identification of growth reversals or unexpected onset of growth. Several chapters identify good initial conditions associated with poor growth performance (e.g. India 1873-1980) or poor initial conditions associated with good growth performance (e.g. Indonesia 1966-96), or surprising reversals (e.g. Venezuela after 1980). A second important advantage is the understanding of time-lags, e.g. Indonesia’s success between 1966 and 1996 contained the seeds of its post-1997 problems which would not be found in a search for contemporaneous causes in the post-1997 period.
The case study approach has drawbacks. In renouncing a common comparative yardstick or testing a universal model something is lost. The Indian studies, for example, are unsure whether India has been a success or failure — compared to the US or UK, India was a growth failure in the century up to the 1980s, but compared to Africa it has been a success story. Pritchett calls for using a “toy collection,” i.e. a set of at least six simple models that are needed to capture the varieties of growth experience, but his narratives of Vietnamese and Filipino growth then come close to being atheoretical or, at least, country-specific explanations. The contrast between Indonesia’s positive reaction to the oil windfall of the 1970s and Venezuela’s negative reaction is striking to the reader of the two chapters, but little attempt is made to explicitly compare the two countries’ experience or that of other oil exporters — an exercise that would shed light on the contrasting outcomes.
Nevertheless, the book is tremendously valuable for the quality of the individual contributions, even if the introduction overstates the book’s originality in assembling country studies informed by growth theory. Many contributions to development economics or to economic history have this characteristic, as most of the authors acknowledge. The discovery of idiosyncratic processes (the good luck of Indonesia with respect to the Green Revolution and the oil shock or of Mauritius with respect to special treatment of its sugar and apparel exports) or of the importance of wise politicians (as in post-independence Botswana or Mauritius) may surprise theorists but is normal fare for economic historians or development specialists.
The country-study approach inevitably brings specific features to the fore, but what generalizations can be made on the basis of these narratives? Perhaps unsurprisingly given the volume’s editor, institutions rule and the Sachs view that geography dominates is routed. Also, trade liberalization gets little credit for success, even though the success stories (Australia, Botswana, India post-1980, Indonesia 1966-96, Mauritius, Mexico and Poland) are all open economies and China’s rapid growth followed opening. The Australia study, for example, dismisses trade restrictions as a cause of relatively poor performance in the period from the 1890s to the 1950s because protectionism only increased after the start of the growth slowdown, but it may still be the case that protectionism exacerbated a slowdown initiated by demography, drought and financial crisis, and that the post-1983 trade liberalization led with a time-lag, to the better performance of the 1990s.
What emerges surprisingly clearly is the importance of macroeconomic stability. Despite all of the regime’s flaws, the secret of the economic success of Suharto’s New Order was the rapid fall in inflation after 1966 and subsequent maintenance of low inflation. Price stability also features in the Polish and Chinese narratives and behind the scenes in other growth successes. When inflation starts to rise in other countries, it is an indicator that the government has lost the plot in terms of achieving economic growth. Of course, that still begs the question of why some regimes are willing and able to control inflation while others are not, and the Bolivian chapter illustrates that misgovernance can trump low inflation to ensure poor growth.
The book is well-produced, even though the gloomy cover design shrieks poverty rather than prosperity. There are a few errors (e.g., reference to India’s joining the WTO in 1995 as a major turning point when it was simply a name-change from GATT membership or the statement that Australia’s currency floated for “much of the twentieth century”), but these are minor. All told the book is a useful bridge between book length studies of the individual countries and the broad-brush comparative literature, and the felicitous style of most of the authors makes the chapters a pleasurable as well as an enlightening read.
Richard Pomfret is Professor of Economics at the University of Adelaide (Australia). His recent books include Constructing a Market Economy: Diverse Paths from Central Planning in Asia and Europe (Edward Elgar, 2002), The Economics of Regional Trading Arrangements (rev. ed., Oxford University Press, 2001), Central Asia Turns South? Trade Relations in Transition (Brookings Institution, 1999), Development Economics (Prentice-Hall Europe, 1997), The Economies of Central Asia (Princeton University Press, 1995), The Economic Development of Canada (second edition, Nelson Canada, 1993), and Investing in China, 1979-89: Ten Years of the Open Door Policy (Iowa State University Press, 1991).