Neil McCulloch Globalisation Team Leader Some Random Thoughts on Growth

Growth Incidence Curves

Reflecting big differences in real GDP Growth rates

CAD vs CAF CAD CAD: firms in prioritised areas cannot survive in open competitive markets because they are in conflict with the comparative advantages determined by their endowments  They need subsidies, but these can’t be afforded, so governments use administrative measures (e.g. Monopolies, suppressed interest rates, overvalued currencies, price controls on inputs  These controls then lead to shortages in funds, forex and raw materials CAF Follow the comparative advantage of the country at every stage of development  As countries develop, their endowments change, as to relative factor prices and so the strategy can also change

Processes for effective growth policy Ensuring that all voices are heard, including those of the poor and marginalised Accountability mechanisms Dialogue – between public and private sectors Do good technical analysis Monitor, evaluate and kill things that aren’t working Build effective systems for domestic resource mobilisation

Gross domestic product or ‘grossly deceptive product’? Non-market transactions –The ‘care’ economy (underestimation of housewives/husbands work) –Subsistence agriculture Distribution, nature and quality of goods produced Leisure time The hidden economy –Illegal activities –Informal sector Economic ‘bads’ –No distinction between green and polluting industries

Complements to GDP NameYearProducer/Developer Index of Sustainable Economic Welfare/ Genuine Progress Indicator 1989Herman Daly, John B. Cobb Green GDP1993Bureau of Economic Analysis, USA Genuine Savings1995The World Bank Ecological Footprint1990William Rees, Mathis Wackernagel Subjective Well-being1967Warner Wilson Gross National Happiness1972King Jigme Singye Wangchuck - King of Bhutan Human Development Index1990Mahbub ul Haq, Amartya Sen (UNDP) Happy Planet Index2006New Economics Foundation Living Planet Index1998World Wide Fund for Nature

Conclusions We all know that growth is important We also know that we don’t really know how to create it (far less pro-poor, inclusive, sustainable growth) => focus on building effective processes for deciding growth policy Growth is not the ultimate objective There are several well developed measures which provide more rounded assessments of progress => standardise their use in the UK, EU and G20

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