The bulk of global inequality is accounted for by income differences across countries rather than within countries. Expanding trade with China has aggravated inequality in some advanced economies, while ameliorating global inequality. But the “China shock” is receding and other low-income countries are unlikely to replicate China’s export-oriented industrialization experience. Relaxing restrictions on cross-border labor mobility might have an even stronger positive effect on global inequality. However it also raises a similar tension. While there would likely be adverse effects on low-skill workers in the advanced economies, international labor mobility has some advantages compared to further liberalizing international trade in goods. I argue that none of the contending perspectives -- national-egalitarian, cosmopolitan, utilitarian -- provides on its own an adequate frame for evaluating the consequences.
Growth has accelerated in a wide range of developing countries over the last couple of decades, resulting in an extraordinary period of convergence with the advanced economies. We analyze this experience from the lens of structural change – the reallocation of labor from low- to high-productivity sectors. Patterns of structural change differ greatly in the recent growth experience. In contrast to the East Asian experience, none of the recent growth accelerations in Latin America, Africa, or South Asia was driven by rapid industrialization. Beyond that, we document that recent growth accelerations were based on either rapid within-sector labor productivity growth (Latin America) or growth-increasing structural change (Africa), but rarely both at the same time. The African experience is particularly intriguing, as growth-enhancing structural change appears to have come typically at the expense of declining labor productivity growth in the more modern sectors of the economy. We explain this anomaly by arguing that the forces that promoted structural change in Africa originated on the demand side, through either external transfers or increase in agricultural incomes. In contrast to Asia, structural change was the result of increased demand for goods and services produced in the modern sectors of the economy rather than productivity improvements in these sectors.
Liberal democracy has been difficult to institute and sustain in developing countries. This has to do both with ideational factors—the absence of a liberal tradition prior to electoral mobilization—and structural conditions—the prevalence of mass mobilization along identity rather than class cleavages. This paper considers the conditions under which liberal democracy emerges and speculates about its future in developing countries.
SSA has grown rapidly over the last decade, but a curious feature of this growth was that it was accompanied by little structural change towards non-traditional tradables (such as manufactures). Now that China, the advanced economies, and most emerging markets are all slowing down, the question whether Africa’s high growth can be sustained looms larger. This article looks at this question from the lens of modern growth theory, paying particular attention to structural issues that are crucial for low-income countries. It comes down on the pessimistic side, due to what appear to be poor prospects for industrialization. This article also considers alternative models of growth, based on services instead of manufactures.
I document a significant deindustrialization trend in recent decades that goes considerably beyond the advanced, post‐industrial economies. The hump‐shaped relationship between industrialization (measured by employment or output shares) and incomes has shifted downwards and moved closer to the origin. This means countries are running out of industrialization opportunities sooner and at much lower levels of income compared to the experience of early industrializers. Asian countries and manufactures exporters have been largely insulated from those trends, while Latin American countries have been especially hard hit. Advanced economies have lost considerable employment (especially of the low‐skill type), but they have done surprisingly well in terms of manufacturing output shares at constant prices. While these trends are not very recent, the evidence suggests both globalization and labor‐saving technological progress in manufacturing have been behind these developments. The paper briefly considers some of the economic and political implications of these trends.
A leading economist trains a lens on his own discipline to uncover when it fails and when it works.
In the wake of the financial crisis and the Great Recession, economic science seems anything but. In this sharp, masterfully argued book, Dani Rodrik, a leading critic from within the science, renders a surprisingly upbeat judgment on economics. Sifting through the failings of the discipline, he homes in on its greatest strength: its many—and often contradictory—explanatory frameworks.
Drawing on the history of the field and his deep experience as a practitioner, Rodrik insists that economic activity defies universal laws. But when economists embrace their expertise as a set of tools, not as a grand unified theory, they can improve the world. From successful antipoverty programs in Mexico to growth strategies in Africa and intelligent remedies for domestic inequality, Rodrik highlights the profound positive influence of economics properly applied.
At once a forceful critique and a defense of the discipline, Economics Rules charts a path toward a more humble but more effective science.
Large gaps in labor productivity between the traditional and modern parts of the economy are a fundamental reality of developing societies. In this paper, we document these gaps, and emphasize that labor flows from low-productivity activities to high-productivity activities are a key driver of development. Our results show that since 1990 structural change has been growth reducing – with labor moving from low – to high- productivity sectors – in both Africa and Latin America, with the most striking changes taking place in Latin America. Our results also show that things seem to be turning around in Africa: after 2000, structural change contributed positively to Africa’s overall productivity growth. For Africa, these results are encouraging. Moreover, the very low levels of productivity and industrialization across most of the continent indicate an enormous potential for growth through structural change.
Green growth requires green technologies: production techniques that economize on exhaustible resources and emit fewer greenhouse gases. The availability of green technologies both lowers social costs in the transition to a green growth path and helps achieve a satisfactory rate of material progress under that path. The theoretical case in favour of using industrial policy to facilitate green growth is quite strong. Economists’ traditional scepticism on industrial policy is grounded instead on pragmatic considerations having to do with the difficulty of achieving well-targeted and effective interventions in practice. While these objections deserve serious attention, I argue that they are not insurmountable. A key objective of this paper is to show how the practice of industrial policy can be improved by designing institutional frameworks that counter both informational and political risks.