Governance, dynamic growth, and policy reform

Abstract

Economic growth manifests itself in terms of a sustained increase in output levels over a significant period of time. In the dynamic growth process, increases in both the quantity and the quality of the factors of production enhance output levels. The increases in the quantity of inputs are due to growing labour forces and capital accumulation, while the quality of inputs is raised by technological progress which raised the marginal productivities. For developing countries which cannot afford large investment in research and development, foreign direct investment and the transfer of technology are vehicles for raising productivity. We are interested in the package of economic policy reform that ensures the continued momentum of growth even in the presence of external shocks. Although the shocks from adverse terms of trade could reduce the growth rate, appropriate economic reform would firmly establish the system that can bring the economy back to the pre-shock growth path much faster than when there is no significant policy reform.