How Do National Policies Affect Long-Run Growth? · A Research Agenda

The authors suggest that there are important opportunities to empirically evaluate the theoretically predicted channels from policy to growth. They propose a research agenda based on the endogenous growth literature, designed to address the questions: How do national policies affect long-run growth? Which policies strongly affect long-run growth? Do policies explain why some poor countries have stagnated and others have advanced? Do policies explain successive periods of rapid growth and stagnation in the same country? And to what extent do national policies rather than external influences explain the stagnation of many countries in Africa, Latin America, and Asia in the 1980s? The authors discuss five national policies: fiscal policy; monetary policy; trade intervention; financial policies; and openness to foreign capital. Their analytical framework is based on the simple idea that all factors of production can be increased by investing in human or physical capital. Economic growth will be related to policies that affect the incentive to invest and the efficient use of capital and intermediate inputs. Such a framework can be used to consider which policies affect the long-run growth rate rather than affecting simply the level of income once and for all.