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Should our research and policy advice be guided by a modern version of capital fundamentalism, in which capital and investment are viewed as the primary determinants of economic development and long- run growth? No. Capital accumulation seems to be part of the process of economic development, not its igniting source.
This book provides an in-depth investigation of the link between human capital and economic growth. The authors take an innovative approach, examining the determinants of economic growth through a historical overview of the concept of human capital. The text fosters a deep understanding of the connection between human capital and economic growth through the exploration of different theoretical approaches, a review of the literature, and the application of nonlinear estimation techniques to a comprehensive data set. The authors discuss nonparametric econometric techniques and their application to estimating nonlinearities—which has emerged as one of the most salient features of empirical work in modeling the human capital-growth relationship, and the process of economic growth in general. By delving into the topic from theoretical and empirical standpoints, this book offers an insightful new view that will be extremely useful for scholars, students, and policy makers.
Why economists' attempts to help poorer countries improve their economic well-being have failed. Since the end of World War II, economists have tried to figure out how poor countries in the tropics could attain standards of living approaching those of countries in Europe and North America. Attempted remedies have included providing foreign aid, investing in machines, fostering education, controlling population growth, and making aid loans as well as forgiving those loans on condition of reforms. None of these solutions has delivered as promised. The problem is not the failure of economics, William Easterly argues, but the failure to apply economic principles to practical policy work. In this book Easterly shows how these solutions all violate the basic principle of economics, that people—private individuals and businesses, government officials, even aid donors—respond to incentives. Easterly first discusses the importance of growth. He then analyzes the development solutions that have failed. Finally, he suggests alternative approaches to the problem. Written in an accessible, at times irreverent, style, Easterly's book combines modern growth theory with anecdotes from his fieldwork for the World Bank.
How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2004. It is then used to study the international data, using cross-country interest-rate spreads and per-capita GDP. The analysis suggests that a country like Uganda could increase its output by 140 to 180 percent if it could adopt the world's best practice in the financial sector. Still, this amounts to only 34 to 40 percent of the gap between Uganda's potential and actual output. Charts and tables.
May 2000 - Using the word capital to represent two different concepts is not such a problem when government is responsible for only a small fraction of national investment and is reasonably effective (as in the United States). But when government is a major investor and is ineffective, the gap between capital and cumulative, depreciated investment effort (CUDIE) may be enormous. A public sector steel mill may absorb billions as an investment, but if it cannot produce steel it has zero value as capital. The cost of public investment is not the value of public capital. Unlike for private investors, there is no remotely plausible behavioral model of the government as investor that suggests that every dollar the public sector spends as investment creates capital in an economic sense. This seemingly obvious point has so far been uniformly ignored in the voluminous empirical literature on economic growth, which uses, at best, cumulated, depreciated investment effort (CUDIE) to estimate capital stocks. But in developing countries especially, the difference between investment cumulated at cost and capital value is of primary empirical importance: government investment is half or more of total investment. And perhaps as much as half or more of government investment spending has not created equivalent capital. This suggests that nearly everything empirical written in three broad areas is misguided. First, none of the estimates of the impact of public spending identify the productivity of public capital. Even where public capital could be very productive, regressions and evaluations may suggest that public investment spending has little impact. Second, everything currently said about total factor productivity in developing countries is deeply suspect, as there is no way empirically to distinguish between low output (or growth) attributable to investments that created no factors and low output (or growth) attributable to low (or slow growth in) productivity in using accumulated factors. Third, multivariate growth regressions to date have not, in fact, controlled for the growth of capital stock, so spurious interpretations have emerged. This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to understand the importance of public sector actions for economic growth.
"This paper reviews, appraises, and critiques theoretical and empirical research on the connections between the operation of the financial system and economic growth. While subject to ample qualifications and countervailing views, the preponderance of evidence suggests that both financial intermediaries and markets matter for growth and that reverse causality alone is not driving this relationship. Furthermore, theory and evidence imply that better developed financial systems ease external financing constraints facing firms, which illuminates one mechanism through which financial development influences economic growth. The paper highlights many areas needing additional research"--NBER website
"'The Cult of the Market: Economic Fundamentalism and its Discontents' disputes the practical value of the shallow, all-encompassing, dogmatic, economic fundamentalism espoused by policy elites in recent public policy debates, along with their gross simplifications and sacred rules. Economics cannot provide a convincing overarching theory of government action or of social action more generally. Furthermore, mainstream economics fails to get to grips with the economic system as it actually operates. It advocates a more overtly experimental, eclectic and pragmatic approach to policy development which takes more seriously the complex, interdependent, evolving nature of society and the economy. Importantly, it is an outlook that recognises the pervasive influence of asymmetries of wealth, power and information on bargaining power and prospects throughout society. The book advocates a major reform of the teaching of economics"--Provided by publisher.
Karl Polanyi’s The Great Transformation is generally acclaimed as being among the most influential works of economic history in the twentieth century, and remains as vital in the current historical conjuncture as it was in his own. In its critique of nineteenth-century ‘market fundamentalism’ it reads as a warning to our own neoliberal age, and is widely touted as a prophetic guidebook for those who aspire to understand the causes and dynamics of global economic turbulence at the end of the 2000s. Karl Polanyi: The Limits of the Market is the first comprehensive introduction to Polanyi’s ideas and legacy. It assesses not only the texts for which he is famous – prepared during his spells in American academia – but also his journalistic articles written in his first exile in Vienna, and lectures and pamphlets from his second exile, in Britain. It provides a detailed critical analysis of The Great Transformation, but also surveys Polanyi’s seminal writings in economic anthropology, the economic history of ancient and archaic societies, and political and economic theory. Its primary source base includes interviews with Polanyi’s daughter, Kari Polanyi-Levitt, as well as the entire compass of his own published and unpublished writings in English and German. This engaging and accessible introduction to Polanyi’s thinking will appeal to students and scholars across the social sciences, providing a refreshing perspective on the roots of our current economic crisis.
“Timely and important . . . It should be our North Star for the recovery and beyond.” —Hillary Clinton “Sperling makes a forceful case that only by speaking to matters of the spirit can liberals root their belief in economic justice in people’s deepest aspirations—in their sense of purpose and self-worth.” —The New York Times When Gene Sperling was in charge of coordinating economic policy in the Obama White House, he found himself surprised when serious people in Washington told him that the Obama focus on health care was a distraction because it was “not focused on the economy.” How, he asked, was the fear felt by millions of Americans of being one serious illness away from financial ruin not considered an economic issue? Too often, Sperling found that we measured economic success by metrics like GDP instead of whether the economy was succeeding in lifting up the sense of meaning, purpose, fulfillment, and security of people. In Economic Dignity, Sperling frames the way forward in a time of wrenching change and offers a vision of an economy whose guiding light is the promotion of dignity for all Americans.