This post is a summary of three articles with the same subject: the review of the book with the title above, published in 2012 by the former chief economist of World Bank and now director for economic research at Peking University, China, Justin Yifu Lin. The first with the title above, published at http://press.princeton.edu/titles/9812.html. The second, with the title of, "The little we know on how poor countries get rich." Published at http://www.rossgittins.com/2013/02/the-little-we-know-on-how-poor.html, on February 16,2013. The third, with the title of, "Development optimism from Justin Lin: review of, 'The quest for prosperity". Published at http://blogs.worldbank.org/publicsphere/development-optimism-justin-lin-review-quest-prosperity, on January 22,2013.
The first non-westerner to be chief economist of the W. B. focuses on what developing nations can do to help themselves. Lin examines how the countries that have succeeded in developing their own economies have actually done it. He shows that economic development is a process of continuous technological innovation, industrial upgrading and structural change driven by how countries harness their land, labor, capital and infrastructure. Countries need to identify and facilitate the development of those industries where they have a comparative advantage. Where they can produce products most effectively and use them as a basis for development. Lin show how nations can grow 8% or more continuously for decades, significantly reduce poverty and become high-income countries in the span of one or two generations.
In his book, Lin reviews the progress of development economics and sums up the latest thinking. The sad truth is that, since the world war II, only 13 countries have made the transition to being high-income economies, many progressing from the bottom only to get caught in the "middle-income trap." He says, "most successful developing countries have expanded their manufacturing bases and moved into more sophisticated industrial products by defying conventional wisdom. In their development process, they pursued an export-promotion strategy instead of an import-substitution strategy". Lin arque that there is no simple and uniform formula for countries to follow, even so, the W. B. growth report identify five points of resemblance among all successful countries. First, they made the most of globalisation, importing ideas, know-how and technology. Second, they maintained a stable macro-economic environment. Third, they had high rates of saving and investment. Fourth, they adhered to a market system to allocate resources. Their government did not resist market forces in reallocating capital and labor from industry to industry. Fifth, they had committed, credible and capable governments. The growth report also identified a series of "bad ideas" to be avoided by policymakers in their search for economic growth. The list includes subsidising energy, using employment in the public service to reduce joblessness, reducing budget deficits by cutting spending on infrastructure, imposing price control to stem inflation, banning exports for long periods, and measuring education progress by the increase in schools buildings.
The book takes his paper on growth identification and facilitation and boils his thinking down into what he calls, six recipes for developing country.
1 - Find a country similar, but that is doing much better, then imitate it.
2 - Find out what is holding the industries, sort these things out first and then remove them ( infrastructure, credit, red tape, etc ).Lin draws heavily on Dani Rodrik and Ricardo Hausmann`s work on growth diagnostics.
3 - Attract global investors. Openness to FDI ( foreign direct investment )
4 - Government need an active industrial policy to spot and support local innovation and tech upgrading.
5 - Recognize the power of industrial parks. Export-processing zones as the best way to overcome dilapidated infrastructure and get exporting quickly.
6 - Provide resources to the rights industries.
