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F and D logo
A quarterly magazine of the IMF
  March 2006
Volume 43, Number 1

Understanding Growth

Rethinking Growth

Roberto Zagha, Gobind Nankani, and Indermit Gill
Economists are reconsidering what they really know about economic growth and how to go about formulating policies in the absence of reliable models. A recent growth study by the World Bank concludes that there is no unique, universal set of rules to guide policymakers. The answer lies instead in less reliance on simple formulas and the elusive search for "best practices," and greater reliance on deeper economic analysis to identify each country's one or two most binding constraints on growth.

Getting the Diagnosis Right
Ricardo Hausmann, Dani Rodrik, and Andrés Velasco
A look at a new growth diagnostics framework to help countries prioritize reforms. Once policymakers have identified the one or two most binding constraints holding back growth, they should focus on lifting those, setting aside for later other reforms that are desirable but not essential for growth.

Getting Out of the Rut
Danny Leipziger and Roberto Zagha
Results from a World Bank pilot study testing a new growth diagnostics framework suggests that the approach brings fresh insights to growth analysis but remains difficult to carry out.

The Quest Continues
Lant Pritchett
What exactly do economists know and not know about growth? And what direction should future research and policymaking take? Economists may have to abandon the quest for a single growth theory, focusing instead on developing a collection of growth and transition theories tailored to countries' particular circumstances.

Breaking Down Barriers to Growth
Martin Neil Baily and Diana Farrell
Europe and Japan have suffered a sharp economic slowdown over the past decade. To rekindle growth, they need to encourage competition (especially in the services sector), which will, in turn, boost productivity growth, the most desirable source of growth in all economies.

spacer Levers for Growth
Simon Johnson, Jonathan D. Ostry, and Arvind Subramanian
The quality of a country's institutions has long been recognized as key to achieving sustained economic growth. But improving such institutions is a slow and difficult process. Can other policy levers help kick-start growth when strong institutions are absent? New research suggests that macroeconomic stability, trade liberalization, and avoiding an overvalued exchange rate can sustain a self-reinforcing spiral of reform and growth.

Growing Pains
Catherine Pattillo, Sanjeev Gupta, and Kevin Carey
Africa's growth is finally picking up. But is the improvement sustainable? While some countries' growth accelerations have lasted for 10 years or more, they still need to do more to dramatically reduce poverty and avoid accumulating excessive debt.

Also in This Issue

Examining Global Imbalances
Philip R. Lane and Gian Maria Milesi-Feretti
A new data set on external assets and liabilities reveals that U.S. investors have earned much higher returns on their assets than they pay on their liabilities. As a result, the United States has been able to run large current account deficits over the past four years without experiencing a major deterioration in its net external liabilities.

Going too Fast?
Paul Hilbers, Inci Otker-Robe, and Ceyla Pazarbaşıoğlu
Many countries in Central and Eastern Europe have experienced a rapid expansion of bank credit in recent years. While such credit growth is part of a normal and expected catching up process, it does involve significant risks. Countries would therefore do well to implement policies that limit the vulnerability of their real and financial sectors.

New Customs
James T. Walsh
Customs administrations are here to stay. They play an important revenue collection role (especially in developing countries), combat smuggling, administer the complex provisions of proliferating trade arrangements, and increasingly address security concerns. So what is the best way to modernize them and minimize their negative impact on trade?


Letter from the Editor

Letters to the Editor
Aid recipients must be more accountable; Why not limit new borrowing?; Redesigning aid.

People in Economics

The Quiet Integrationist
Jeremy Clift
Profile of Haruhiko Kuroda, President of the Asian Development Bank. On top of addressing the risks of a bird flu pandemic and the effects of the Asian tsunami and the deadly eathquake in Pakistan, Kuroda has outlined an ambitious agenda for a new financial architecture for Asia.

Back to Basics

Regressions: Why Are Economists Obsessed with Them
Rodney Ramcharan
Regression analysis is a statistical tool used by economists to quantify the relationship between one variable and the other variables that are thought to explain it. These days, running thousands of regressions is commonplace and easy. But what exactly are regressions and what are their potential pitfalls?

Picture This

Globalization at Work
Dorothea Schmidt
The world economy has been expanding strongly, leading to healthy growth in both employment and labor productivity. But unemployment remains widespread, especially among young people. A chart-based look at global employment trends.

Book Reviews

Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy, Moisés Naím

Fair Trade for All: How Trade Can Promote Development, Joseph E. Stiglitz and Andrew Charlton

Rules for the World: International Organizations in Global Politics, Michael Barnett and Martha Finnemore

Straight Talk

Separate and Unequal
Raghuram Rajan
Microfinance is increasingly being touted as a miracle cure for poverty. But instead of focusing solely on microcredit for the poor, we should make financial services available for all, says the IMF's Economic Counsellor.

Country Focus

Since the end of its civil war in 1992, Mozambique has made impressive progress on growth and poverty reduction.