Dani Rodrik on Economic Growth Paths

Dani Rodrik is one of my favourite academic and political economists. His sharp and insightful views have won him many accolades and respect from both his academic colleagues and political policy makers the world over.  Dani is not afraid to veer away from traditional economic theory and inject heterodox ideals into his analysis. He is not a big fan of unfettered free markets fundamentalism of most of his classical and neoclassical colleagues but rather argues that governments have a significant role to play in helping to develop industrial capabilities and capacities.

For this post I will examine Rodrik’s views as it relates to sustainable economic growth paths and what lessons Guyana can learn from.

Countries develop on two principal paths according to Rodrik, namely, through 1.) Fundamentals and 2.) Structural Transformation.

For Rodrik, by fundamentals he is referring “to the development of fundamental capabilities in the form of human capital and institutions. Long-term growth ultimately depends on the accumulation of these capabilities—everything from education and health to improved regulatory frameworks and better governance.”

And by structural transformation he means “the birth and expansion of new (higher-productivity) industries and the transfer of labor from traditional or lower-productivity activities to modern ones.

Rodrik goes on to argue: “with the exception of natural-resource bonanzas, extraordinarily high growth rates are almost always the result of rapid structural transformation, industrialization in particular.”

I deliberately underlined that important point because it is worth emphasizing. While Guyana has enjoyed a 4% percent annual growth rate over the past 8 years, such success can almost entirely be attributed to the gold prices bonanzas.

High Prices = Economic Growth;   Low Prices= Economic Death

It is time our policy makers start to move away from mere rhetoric and talk of diversification and get on with the process of making it happen.

In future post I will examine some diversification initiatives used by various countries to shift away from commodities only development.