The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics
By William Easterly
A highly readable and iconoclastic treatment of the determinants of economic growth -- a topic that interests the author (an official at the World Bank) primarily because growth alleviates poverty. The book draws heavily on today's fashionable cross-country statistical research, much of it done or sponsored by the World Bank. Yet it offers a nontechnical review of how views on growth have affected the policies of foreign-aid agencies and international financial institutions. Easterly finds much of the conventional wisdom to be wrong, or at least not supported by statistical evidence. Presumptions that foreign aid increases investment, that high investment ratios lead to higher growth, or that education, population control, and debt relief will stimulate growth all lack empirical support, he charges. He then attempts to explain why growth has been so disparate across countries, and what might be done about these disparities. Although much depends on luck, the key lesson for economic performance is that people respond to the incentives they face. If these incentives are conducive to growth-inducing behavior, growth will occur, bad luck aside. But for a variety of reasons, most poor countries have badly misdirected incentives -- sometimes with the implicit support of aid agencies.