Thursday, February 4, 2010

Why is it so hard to explain the sources of economic growth?

Here is an interesting paper (in Polish) by Prof. Malaga from the Poznan University of Economics on "O niektórych dylematach teorii wzrostu gospodarczego i ekonomii" (Some dilemmas about the theory of economic growth and economics". It nicely lays out the multiple "known unknowns" about the true sources of economic growth.

I wonder though about the "unknown unknows" - all factors, seemingly irrelevant to economic growth, which ultimately prove to be key to explaining past economic performance. One factor, which comes to my mind, is the power of nationalism, which I think could explain the rapid rise of most of Asia (Japanese Meiji reforms had a deliberate objective of strenghtening Japan against Western European and American imperialism; Korean reforms were in turn a response to Japanese imperialism, with Japan occupying Korea in the first part of the XX century; finally, Chinese reforms could be construed as a response to a 150 year long political and economic decline of China) or that of the Baltic States (unprecedented economic reforms implemented in early 1990's were widely seen as fundamental to limit/eliminate the countries' vulnerability to Russia).

This brings me to a question of whether countries in the EU can develop quickly enough in the future, given that nationalisms are on the decline... Could national safety a debilitating factor in development as long as it minimizes the need for growth enhancing reforms? This idea is a long shot, but something important to ponder.

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