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Removing the constraints for growth: Some guidelines

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  • Calderón, César
  • Fuentes, J. Rodrigo
Abstract
One strand of the empirical growth literature has cast doubt on the ability of the policy recommendations from Washington Consensus in enhancing growth. They argue that not only the design but also the policy mix has an important country-specific component (e.g.Hausmann, Rodrik, & Velasco, 2005; Zettelmeyer, 2006). We argue that the effectiveness of policies in promoting growth depends upon the set of structural policies implemented or already existing in the country. This paper empirically examines the role of policy complementarities in explaining economic growth from two dimensions. First, we construct a regression-based policy index in the same vein of Burnside and Dollar (2000), and we decompose this index afterwards into domestic and outward policy indices. Second, we evaluate the role of policy complementarities in the growth process by interacting our policy index with structural features of the country that affect growth. We find that human capital increase growth as expected but it is neither a complement nor a substitute of economic policy. On the other hand institutions and financial depth are complements with economic policy. This could be an explanation why some countries have stabilized their economies but they are not growing faster, this could be due to low financial development or bad institutions.

Suggested Citation

  • Calderón, César & Fuentes, J. Rodrigo, 2012. "Removing the constraints for growth: Some guidelines," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 948-970.
    • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:6:p:948-970
    DOI: 10.1016/j.jpolmod.2012.04.007
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    More about this item

    Keywords

    Policy; Complementarities; Economic growth;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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