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The Growth Report • Why have only 13 developing world economies achieved sustained, Commission The Growth Report high growth since World War II? on Growth and Development • Why is engagement with the global economy necessary to achieve high growth? Montek Singh Ahluwalia • Why do some countries’ growth strategies fail to win the public’s Edmar Bacha confi dence? Dr. Boediono Lord John Browne • Why are equity and equality of opportunity important components Kemal Dervis¸ of successful growth strategies? Alejandro Foxley • Why do many countries, blessed with natural resource wealth, Goh Chok Tong not achieve high growth? Han Duck-soo • Why has no country ever sustained rapid growth without high rates Danuta Hübner of public investment? Carin Jämtin Commission on Growth and Development • Why does it not always pay to devalue the exchange rate? Pedro-Pablo Kuczynski When does it? Danny Leipziger, Vice Chair • Why is childhood nutrition so important to economic growth? Trevor Manuel • Why do some economies lose momentum when others keep Mahmoud Mohieldin on growing? Ngozi N. Okonjo-Iweala • Why has no country ever sustained long-term growth without Robert Rubin urbanizing? Robert Solow Michael Spence, Chair • Why should there be an end to energy subsidies? Sir K. Dwight Venner • Why do global warming and the rising prices of food, energy, and Ernesto Zedillo minerals pose challenges to potential future growth in developing Zhou Xiaochuan countries? • Why does the aging of the world population matter for developing The mandate of the countries’ growth and employment prospects? Commission on Growth and Development is to The Growth Report does not have all the answers, but it does identify gather the best understanding some of the key insights and policy levers to help countries achieve high, there is about the policies sustainable, and inclusive growth. and strategies that underlie The result of two years’ work by 19 experienced leaders and 2 Nobel rapid economic growth and prize-winning economists, The Growth Report is the most complete analysis poverty reduction. to date of the ingredients that, if used in the right country-specifi c recipe, can deliver growth and help lift populations out of poverty. The Commission’s audience is the leaders of developing countries. The Commission is supported by the governments of Australia, Sweden, the Netherlands, and the United Kingdom, The William and Flora Hewlett Foundation, and The World Bank Group. The Growth Report Strategies for Sustained Growth ISBN 978-0-8213-7491-7 and Inclusive Development www.growthcommission.org [email protected] SKU 17491 i The Growth Report: Strategies for Accelerating and Sustaining High Growth The Growth Report Strategies for Sustained Growth and Inclusive Development The Growth Report Strategies for Sustained Growth and Inclusive Development COMMISSION ON GROWTH AND DEVELOPMENT Members of the Commission on Growth and Development Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of India, New Delhi Edmar Bacha, Director, Casa Das Garças Institute for Economic Policy Studies, and Senior Adviser, Banco Itaú BBA, Brazil; former Senior Adviser to the Minister of Finance in the implementation of the “Plano Real,” and former President of the National Development Bank (BNDES) Dr. Boediono, Governor, Bank Indonesia; former Coordinating Minister for Economic Affairs, Professor of Economics, Gajah Mada University, Indonesia Lord John Browne, Managing Director, Riverstone Europe LLP; former CEO of British Petroleum p.l.c., United Kingdom Kemal Dervi¸s, Administrator, the United Nations Development Programme; former Minister for Economic Affairs and the Treasury, Turkey Alejandro Foxley, Minister of Foreign Affairs; former Minister of Finance, Chile Goh Chok Tong, Senior Minister in Cabinet and Chairman, Monetary Authority of Singapore; former Prime Minister, Singapore Han Duck-soo, Former Prime Minister, Former Deputy Prime Minister, and Former Minister of Finance and Economy, the Republic of Korea Danuta Hübner, Commissioner for Regional Policy, European Commission; former United Nations Under-Secretary General and Executive Secretary of the UN Economic Commission for Europe; former roles in the Polish government: Polish Minister for European Affairs, Minister for European Integration and Deputy Minister for Foreign Affairs, Minister–Head of the Chancellery of the President of the Republic of Poland, Deputy Minister for Trade and Industry Carin Jämtin, Former Minister for International Development Cooperation, Sweden Pedro-Pablo Kuczynski, Former Prime Minister and former Minister of Economy and Finance, Peru Danny Leipziger, Vice President for Poverty Reduction and Economic Management, the World Bank Group; Commission Vice Chair Trevor Manuel, Minister of Finance, South Africa Mahmoud Mohieldin, Minister of Investment, Arab Republic of Egypt Ngozi N. Okonjo-Iweala, Managing Director, the World Bank Group; former Minister of Finance and Foreign Affairs, Nigeria Robert Rubin, Chairman of the Executive Committee, Citigroup Inc.; Former Secretary of the Treasury, United States Robert Solow, Nobel Laureate in Economics; Institute Professor Emeritus, Massachusetts Institute of Technology, United States Michael Spence, Nobel Laureate in Economics; Professor Emeritus, Stanford University; Commission Chair, United States Sir K. Dwight Venner, Governor, Eastern Caribbean Central Bank, St. Kitts and Nevis Ernesto Zedillo, Former President of Mexico; Director, Yale Center for the Study of Globalization, United States Zhou Xiaochuan, Governor, People’s Bank of China MONTEK SINGH AHLUWALIA PEDRO-PABLO KUCZYNSKI EDMAR BACHA DANNY LEIPZIGER DR. BOEDIONO TREVOR MANUEL LORD JOHN BROWNE MAHMOUD MOHIELDIN KEMAL DERVI¸S NGOZI N. OKONJO-IWEALA ROBERT RUBIN ALEJANDRO FOXLEY ROBERT SOLOW MICHAEL SPENCE GOH CHOK TONG SIR K. DWIGHT VENNER HAN DUCK-SOO ERNESTO ZEDILLO DANUTA HÜBNER CARIN JÄMTIN ZHOU XIAOCHUAN © 2008 The International Bank for Reconstruction and Development / The World Bank On behalf of the Commission on Growth and Development 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org www.growthcommission.org E-mail: [email protected] [email protected] All rights reserved 1 2 3 4 5 11 10 09 08 This report is a product of the Commission on Growth and Development, which is sponsored by the following organizations: Australian Agency for International Development (AusAID) Dutch Ministry of Foreign Affairs Swedish International Development Cooperation Agency (SIDA) U.K. Department for International Development (DFID) The William and Flora Hewlett Foundation The World Bank Group The fi ndings, interpretations, and conclusions expressed herein do not necessarily refl ect the views of the sponsoring organizations or the governments they represent. The sponsoring organizations do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the sponsoring organizations concerning the legal status of any territory or the endorsement or acceptance of such boundaries. All queries on rights and licenses, including subsidiary rights, should be addressed to the Offi ce of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@ worldbank.org. ISBN: 978-0-8213-7491-7 eISBN: 978-0-8213-7492-4 DOI: 10.1596/978-0-8213-7491-7 Library of Congress Cataloging-in-Publication data has been requested. Cover design: Naylor Design Contents Members of the Commission on Growth and Development iv Preface ix Abbreviations xiii Overview 1 Introduction 13 PART 1 Sustained, High Growth in the Postwar Period 17 What Is Growth? 17 The 13 Success Stories 19 The Art of Policy Making 28 The Role of Government 29 PART 2 The Policy Ingredients of Growth Strategies 33 High Levels of Investment 34 Technology Transfer 41 Competition and Structural Change 43 Labor Markets 45 Export Promotion and Industrial Policy 48 Exchange Rates 49 Capital Flows and Financial Market Openness 51 Macroeconomic Stability 53 Savings 54 Financial Sector Development 56 Urbanization and Rural Investment 57 Equity and Equality of Opportunity 60 Regional Development 63 The Environment and Energy Use 65 Effective Government 66 The Quality of Debate 67 Bad Ideas 68 Contents vii PART 3 Growth Challenges in Specifi c Country Contexts 71 Sub-Saharan Africa 71 Small States 77 Resource-Rich Countries 80 Middle-Income Countries 82 PART 4 New Global Trends 85 Global Warming 85 Rising Income Inequality and Protectionism 91 The Rise of China and India and the Decline of Manufacturing Prices 93 The “Adding-Up” Problem 94 The Rising Price of Food and Fuel 96 Demographics, Aging, and Migration 98 Global Imbalances and Global Governance 101 Statistical Appendix: The World Economy and Developing Countries since WWII 105 1. Evolution of Global GDP and Per Capita GDP 107 2. Population: Trends and Forecasts 118 3. Poverty 124 4. Socioeconomic Indicators 132 5. Infrastructure 139 6. Global Trends 144 Glossary 167 Acknowledgments 171 viii Contents Preface This report brings together the views of a Commission of 19 leaders, mostly from developing countries, and 2 academics, Bob Solow and me. The lead- ers carry with them decades of accumulated experience in the challenging work of making policies that infl uence millions of people’s lives: their job prospects, their health, their education, their access to basic amenities,
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