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Economic growth across countries during the last 30 years or so has displayed 'dual' divergence between developed and developing countries, and among developing countries. The structural transformation has been either slow or of an anomalous nature. The study addresses these and suggests how they can catch-up with developed world.



1. Introduction: Towards an Explanation of the Uneven Growth Experiences

The typology of growth experiences is diverse. It includes a few ‘successful’ convergences but more commonly truncated convergences, growth collapses and development traps. The ‘successful’ ones, although ‘divergently upward’, have been highlighting substantial changes in their economic structure in several dimensions generating new dynamic activities with reallocation effects. Their rapid structural transformation and sustained economic growth have been mostly set first by the dynamic manufacturing sector, which has the potential for higher productivity gains than other sectors since it offers special opportunities for capital accumulation, economies of scale, technological progress, linkage effects and operation of Engel’s Law; second by strengthening economic linkages both within the national economy and by participation in the world market; and third by the development of institutional capabilities. The diversification of manufacturing, including high-technology exports, witnessed by the fast-growing economies also reflects the pattern of structural change and technological upgrading. In this creative race, the global value chain for upgrading the manufacturing, production networks and vertical trade have been expedited rapidly, bringing them to the forefront of rapid expansion. In this growth dynamics, declining transport costs and scale economies have interacted, providing stimulus to the ‘virtuous circle’.
Mohan L. Lakhera

2. Determinants of Economic Growth in Developing Economies

In the preceding chapter we examined some major results relating to the unevenness of cross-country economic growth and also the growth traps through a consideration of the empirical evidence of? convergence, global inequality over a five-decade period through the estimates of Gini coefficients and a brief statistical analysis of the cross-country distribution of per capita income, including manufacturing value added (MVA). The present chapter provides a further exploration of why some countries have been more successful than others. There have been a number of reasons for this: First, through taking up distinct cognate critical methodological and theoretical approaches which suggest different vantage points for the slow growth and cross-country differences in economic growth; Second, it examines the ‘miracle’ economies’ policy experiences to achieve the steady growth and the policy convergences among them which may provide lessons to the developing economies that are equated with poor ones experiencing low levels of growth and also calling into question the differences in development strategies as being factors responsible for the diverse performances and low growth traps. Third, it identifies potential economic growth determinants through an econometric model that uses panel data after examining all the observable variables; and, finally, it ends up by presenting the main challenges for the developing economies to overcome the trap.
Mohan L. Lakhera

3. Growth and Structural Transformation — Major Asian Countries’ Experiences

The preceding chapter highlighted the significant determinants of economic growth in developing economies. The explanatory variables, in particular investment, R&D, together with human capital, are broadly in line with the modern growth theory, providing forces that are internal to the economic system and also govern and create technological knowledge and its diffusion given the appropriate institutions. Improving and broadening the vision of innovation has a multivariate characterization calling for technological and institutional capabilities and a developmental state with a balancing market power to create enabling environment and critical underpinnings for markets and capabilities for technical innovation and participation through encompassing the existence of product cycles (see Vernon, 1966) and quality ladders (see Helpman, 2004).
Mohan L. Lakhera

4. Manufacturing: Diversification and Sophistication

Distinct winners and losers have emerged in the world economic scene in which the manufacturing sector, through a combination of positive externalities and higher productivity growth, has played a decisive role in the countries’ inclusive growth path and the process of structural transformation. Manufacturing has played a crucial role in achieving the commanding heights in the growth of the successful entrepreneurial economies. One important motivation for the focus on manufacturing has been its potential to absorb labor from the agricultural sector. This is reflected by the gains registered by East Asian economies and others such as Israel, Spain, and the countries that made up the former Yugoslavia. A globally competitive manufacturing sector creates a sustainable economic ecosystem, encourages domestic and foreign investment, and improves a country’s balance of payments; not only does it create jobs within the sector but its effects also spill over into areas such as financial services, infrastructure development and maintenance, customer support, logistics, information systems, healthcare, education and training, and real estate. A strong manufacturing sector boosts a country’s intellectual capital and levels of innovation, underwriting research and development, pushing the technological envelop and driving the growth in demand for highly skilled workers and scientists.
Mohan L. Lakhera

5. Productivity Growth Experiences in the Manufacturing Sector

Productivity dynamics in the manufacturing sector has played a crucial role in the knowledge-based developed economies and also in the successful developing economies. In fact, much of the cross-country variation in growth rates is attributable to differences in productivity growth in manufacturing which has the highest capacity for accelerated technical change and innovation. It is through increases in productivity that countries have enjoyed good prospects for growth and firms could invest in new technologies, and enhance labor efficiency and so forth.
Mohan L. Lakhera

6. Transport Infrastructure for Sustained Growth

Transport — an increasingly important sector — must be seen in a dynamic context for its ability to promote scale economies, and improving the comparative advantage of goods and services which make specializations particularly valuable and is one of the key features of development in the world economy. By drastically reducing the trade cost, it has increased the volume of trade and radically altered its nature leading to the further diffusion of industrial revolution — which generally means a more spatial concentration of production with maximization not just in the volume of world trade and efficiency gains, but also in the overall social and economic optimization working through several ways — creating new investment opportunities, improving the manufacturing supply chain, opening new markets, trade and profit opportunities, alleviating poverty and with all this enhancing the total factor productivity (TFP) gains. Its dynamic stimulation and linkages to the economy are multiple and complex because it has a direct effect on production and consumption and generates developmental and spillover effects.
Mohan L. Lakhera

7. Major Findings, Challenges and Opportunities

The large universe of less developed economies — the slow-growing low-income and low-middle-income countries — have been unable to catch up with the more dynamic industrialized countries. Divergences in economic performance among the developing economies are so high that for many their per capita incomes are lower than they were a few decades ago. The drivers of growth, the diversification of the production structure — shifting capital and labor from low- to high-productivity sectors — policies and the processes; and the institutions appropriate for implementing, administering and enforcing such policies are arguably the common problems.
Mohan L. Lakhera

Technical Annex: Concepts and the Estimates of Two-input and Three-input Industry-wise TFP Growth Models of India’s Manufacturing Sector

The issues around total factor productivity growth (TFPG) mostly relate to conceptual, methodological, and estimation problems. The differences in the productivity results following different methods have also become a matter of public debate. Most of these issues are much documented and discussed in the literature and also given in our references. Here we will discuss what directly concerns us. We have already presented the estimates of four-input model of India’s manufacturing sector in chapter 5. Here we will present the results of the two-input and three-input models. Before that some conceptual issues are taken up.
Mohan L. Lakhera


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