How Much Farther Can We See?
|
67
from the transfer of labor to the newly emerging or expanding cities— voracious users of capital—and technology embodied in (imported) production equipment (Bosworth and Collins 2007). Durlauf, Kourtellos, and Tan (2008: 344) conclude from their review of old and new models that the new growth theories account for less than 1 percent of the total variation in growth of income per capita. Physical capital accumulation accounts for 40 percent. This is the traditional model of development— with a larger role for market forces, but recognizably akin to the conventional wisdom of the 1970s. Whether policy making has been enriched by the research on knowledge and human capital is an open question.
Resource Balances and Capital Flows The 1980s and a part of the 1990s were a time of domestic resource imbalances that were mirrored by current account deficits and mounting external debts. The Bank’s response in the 1981, 1985, and later WDRs was to call for adjustment, which involved an increase in revenue effort by mobilizing financial resources through a deepening of the banking system, a strengthening of regulatory and governance-related institutions to enhance efficiency, and an easing of restraints on overseas capital flows. The issues of resource equilibrium and adjustment have faded from the WDRs because of several developments. First, a perception exists that the capital intensity of growth is on a decline. Certainly middle-income countries are investing less, but they are also growing more slowly. Whether incremental capital-output ratios will trend downward in low-income countries remains to be established. Second, because of the expansion of trade from 2003 to 2007, many developing countries have been less pressed for resources.24 The substantial increase in foreign direct investment (FDI) and in the flow of private portfolio capital to countries in South Asia and Sub-Saharan Africa has eased resource constraints in the two regions that were previously short of capital (table 3.1 and figure 3.1). This situation has reinforced debt-forgiveness deals that have attempted to reduce the burden of past accumulated external obligations on some of the poorest countries. 24. An associated—and surprising—factor is that investment rates in developing countries are not spiraling upward. The global pool of savings is large and growing, but profitable opportunities to invest those savings are not.
DETTD_51-88.indd 67
11/13/08 5:42:49 PM