## Openness, Human Development, and Fiscal Policies: Effectson Economic Growth and Speed of Adjustment

_IMF Working Papers, July 1, 1993_

## Source details

**Canonical URL:** [Openness, Human Development, and Fiscal Policies: Effectson Economic Growth and Speed of Adjustment](https://www.imf.org/en/publications/wp/issues/2016/12/30/openness-human-development-and-fiscal-policies-effectson-economic-growth-and-speed-of-1065)

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## Bibliographic details
- Authors: Delano Villanueva
- Published: July 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451965780.001

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### Model and main theoretical findings
- The model postulates that learning through experience plays a critical role in raising labor productivity over time.
- Three major consequences are identified:
  - The steady-state growth rate (of output) becomes endogenous and is influenced by government policies.
  - The speed of adjustment to steady-state growth is faster, and enhanced learning further reduces adjustment time.
  - Both steady-state growth and the optimal net rate of return to capital are higher than the sum of exogenous rates of technical change and population growth.

### Empirical findings and validation
- Simulation results confirm the model’s faster speed of adjustment.
- Regression analysis explains a large part of divergent growth patterns across countries in terms of:
  - The extent of openness,
  - Human development,
  - The quality of fiscal policies.

### Policy-relevant implications
- Government policies can influence the steady-state growth rate, implying an active role for policy in shaping long-run output growth.
- Enhancing mechanisms that foster learning-by-doing can shorten adjustment times to steady-state growth.
- Fiscal policy quality, alongside openness and human development, is a key determinant of cross-country growth divergence and should be a focus for reforms aimed at improving growth and returns to capital.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/openness-human-development-and-fiscal-policies-effectson-economic-growth-and-speed-of-1065_