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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper explores the causes of India’s productivity surge around 1980, more than a decade before serious economic reforms were initiated. Trade liberalization, expansionary demand, a favorable external environment, or improved agricultural performance did not play a role. We find evidence that the trigger may have been an attitudinal shift by the government in the early 1980s, which, unlike the reforms of the 1990s, was pro-business rather than pro-market in character, favoring the interests of existing business rather than new entrants or consumers. A relatively small shift elicited a large productivity response because India was far away from its income possibility frontier. Registered manufacturing, which had been built up in previous decades, played an important role in determining which states took advantage of the changed environment.

Abstract: The authors examine the relative importance of the growth of physical and human capital and the growth of total factor productivity (TFP) using newly organized data on 145 countries that span more than one hundred years for twenty-four of these countries. For all countries, only 3 percent of average output growth per worker is associated with TFP growth. This world average masks interesting variations across countries and regions. Of the nine regions, TFP growth accounts for about twenty percent of average output growth in three regions and between ten and zero percent in the other three regions. In three regions, TFP growth is negative on average. The authors use priors from theories to construct estimates of the relative importance of the variances of aggregate input growth and TFP growth for the variance of output growth across countries. Across all countries, variation in aggregate input growth per worker could account for as much as 35 percent of the variance of the growth of output per worker across countries, and variation in TFP growth could account for as much as 87 percent of that variance. Much of the importance of the variance of TFP growth appears to be associated with negative TFP growth.

This article reviews the evidence on the importance of finance for economic well-being. It pro-vides data on the use of basic financial services by households and firms across a sample of countries, assesses the desirability of universal access, and provides an overview of the macro-economic, legal, and regulatory obstacles to access. Despite the benefits of finance, the data show that use of financial services is far from universal in many countries, especially develop-ing countries. Universal access to financial services has not been a public policy objective in most countries and would likely be difficult to achieve. Countries can, however, facilitate access to financial services by strengthening institutional infrastructure, liberalizing markets and facilitating greater competition, and encouraging innovative use of know-how and tech-nology. Government interventions to directly broaden access to finance, however, are costly and fraught with risks, among others the risk of missing the targeted groups. The article con-cludes with recommendations for global actions aimed at improving data on access and use and suggestions on areas of further analysis to identify constraints to broadening access. Finance matters for economic development. There is considerable evidence today for a strong causal relationship between the depth of the financial system (as measured,

Contrary to the predictions of standard theoretical models, non-industrial countries that have relied more on foreign finance have not grown faster in the long run. By contrast, growth and the extent of foreign financing are positively correlated in industrial countries. We argue that the reason for this difference may lie in the limited ability of non-industrial countries to absorb foreign capital – especially because of the difficulty their financial systems have to allocate it to productive uses, and because of the proneness of these countries to exchange rate appreciation (and, often, overvaluation) when faced with such inflows. Our paper suggests that the current anomaly of poor countries financing rich countries may not really hurt the former’s growth, at least conditional on their existing institutional and financial structures. Our results do not imply that there is no role for foreign finance in the process of economic development or that it is natural for all types of capital to flow “uphill”. Indeed, the patterns of foreign direct investment flows have generally been more in line with the predictions of theory. However, there is no evidence that providing additional financing in excess of domestic savings is the channel through which financial integration delivers its benefits.

This study is an attempt to review broadly what the last decade reveals about which policies for crisis prevention or crisis management seem to work and which do not. The empirical investigation tries out a variety of methodological approaches: reasoning from examples of prominent crises of the last eight years, formal probit analysis, a regression tree analysis, conventional regression analysis, and a look at the typical profile of financing during the sudden stop preceding a crisis. The authors seek to draw greater attention to policy decisions that are made during the phase when capital inflows come to a sudden stop. Procrastination---the period of financing a balance of payments deficit rather than adjusting---had serious consequences in some cases. Crises are more frequent and more severe when short-term borrowing and dollar denomination external debt are high, and foreign direct investment (FDI) and reserves are low, in large part because balance sheets are then very sensitive to increases in exchange rates and short-term interest rates. Our point is that these compositional measures are affected by decisions made by policymakers in

This paper considers how growth regressions should incorporate dualism and structural change. If there is a differential across sectors in the marginal product of labour, changes in the structure of employment can raise aggregate total factor productivity. This paper develops empirical growth models that allow for this effect in a more flexible way than previous work. Estimates of the models imply sizeable marginal product differentials, and reveal that structural change can explain a significant fraction of the international variation in TFP growth. Preliminary and incomplete. Do not quote nor circulate without authors ’ explicit permission.

Do high levels of human capital foster economic growth by facilitating technology adoption? If so, countries with more human capital should have adopted more rapidly the skilled-labor augmenting technologies becoming available since the 1970’s. High human capital levels should therefore have translated into fast growth in more compared to less human-capital-intensive industries in the 1980’s. Theories of international specialization point to human capital accumulation as another important determinant of growth in human-capital-intensive industries. Using data for a large sample of countries, we find significant positive effects of human capital levels and human capital accumulation on output and employment growth in human-capital-intensive industries.