Economic Growth and Development: Theory and Policy

This is a capstone course that enables students to deploy a variety of analytical tools to process and interpret the data and formulate a coherent diagnostic that can make sense of simultaneous observations about growth and social outcomes within a particular context. It covers the theory and practice of the Economic Complexity and Growth Diagnostics frameworks, drawing on empirical research, case studies, and real world-data to map opportunities for productive diversification, identify the most binding constraints preventing them from materializing, and formulating data-driven policy strategies to overcome them.

The course covers a range of topics in development economics. It begins with an overview of Malthusian dynamics, the Great Acceleration and modern growth models, emphasizing the role of productivity and technology. The course then explores Hidalgo and Hausmann’s (2009) Economic Complexity framework, which takes stock of place-specific productive capabilities and defines a place-specific roadmap to potential diversification opportunities that can be tapped by redeploying them. The course also reviews Hausmann, Rodrik and Velasco’s (2008) Growth Diagnostic framework, a methodology for identifying the most binding constraints to an objective function (private investment, growth). The four principles of differential diagnostics are illustrated with practical examples that showcase their deployment to test for binding constraints across relevant production factors, such as finance, human capital, infrastructure, market failures (coordination and information externalities), government failures (taxation, regulations, property rights, and corruption) and macroeconomic risks. We will devote some sessions to diagnosing macroeconomics as a constraint, in order to equip students with practical basic principles and analytical tools that enable them to understand the macroeconomic context of reform in a particular place.

Taken together, Economic Complexity and Growth Diagnostics form an innovative conceptual framework that allows policymakers to focus limited resources on the most impactful issues. The course concludes with several lectures on policy formulation and implementation. These include frameworks to think about how to build the state capability needed to mobilize and implement reforms using Andrews, Pritchett and Woolcock’s Product-Driven Iterative Adaptation (PDIA) approach.