Development-Thinking-JL-Rejoinder - 1 Development Thinking...

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1 Development Thinking 3.0: The Road Ahead ------------------ Justin Yifu Lin Development economics appeared after World War II with the intention of helping developing countries industrialize their economies, reduce poverty and narrow their income gaps with advanced countries. However, the developing countries that followed its recommendations to formulate their development policies failed to achieve the intended goals. In a paper on New Structural Economics: A Framework for Rethinking Development published in the most recent issue of the World Bank Research Observer, I took up the challenge of synthesizing half a century of various approaches proposed by development economics, and suggested a way forward. I am very fortunate and honored that my paper was critically discussed in the same issue of the journal by Anne Krueger, Dani Rodrik, and Joseph Stiglitz, who are among the best minds and most respected experts in the profession—two of them happen to be my predecessors as Chief Economist at the World Bank. I basically argue that early researchers who launched development economics as a sub-discipline of modern economics focused on market failures and advocated old structuralist, state-led development policies. These policies did not properly account for comparative advantage and failed to create competitive industries. In reaction, a second wave of development thinking inspired by neo-liberalism focused on government failures and recommended Washington Consensus–type of policies that also failed to deliver sustainable, inclusive growth and poverty reduction in developing countries. Looking at the economic history of all successful economies since the Industrial Revolution, I have suggested a general framework for engaging in a third phase of development thinking that focuses on structural change, driven by changes in endowment structure and comparative advantages. That framework, encapsulated in the idea of New Structural Economics (NSE), would help the state play a proactive facilitating role in structural transformation. It would also require policy makers to be more disciplined in designing and implementing strategies around the function of the market. As could be expected, Anne Krueger, Joseph Stiglitz, Dani Rodrik, and I all agree on the importance and need to reignite the debate on development recipes—especially in light of the current global financial and economic crisis. But we also have subtle and important differences of ideas on the true lessons from economic history and economic theory. My biggest divergence of views is with Anne Krueger who questions whether the fundamental technological changes and industrial upgrading, which I consider to be at the heart of, and crucial to, the mechanics of growth, must take place early in the economic development. She contends that “only later in the development process does upgrading become a major part of industrial growth once there has been significant absorption of rural labor—much of it happening in
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This note was uploaded on 01/25/2012 for the course COMM 321 taught by Professor Erinmcclellan during the Spring '11 term at Boise State.

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Development-Thinking-JL-Rejoinder - 1 Development Thinking...

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