31 Jul 2013  Working Papers

Learning from Double-Digit Growth Experiences

Executive Summary — Double-digit growth in real GDP is defined as a compound annual growth rate of 10 percent or more over a period of eight years or longer. This paper was written as a policy memorandum for the Government of Liberia, which seeks rapid growth in order to reach middle-income status by 2030. For Liberia, current IMF forecasts predict growth in real GDP on the order of 6 to 7 percent per year. The comparative analysis of this paper asks: In what ways do countries growing real GDP at double-digit rates differ from countries growing real GDP at rates of 6-7 percent? Overall, the findings suggest that Liberia is reasonably well positioned to become another country with double-digit growth. Yet as the analysis shows, countries that have attained double-digit growth are not unequivocally a group that one should strive to join. The ultra-rapid growers whose growth has been driven by resources, aid, or remittances have not generally conducted the sorts of reforms to the legal, regulatory, and governance environment that could have generated high growth without such unearned income. They have also not generally invested their rents well in infrastructure or human capital. Moreover, post-conflict double-digit growers have found it difficult to reform or invest well. Key concepts include:

  • Even among the most successful countries, double-digit growth in real GDP has been a rare outcome over the last 50 years.
  • Despite double-digit growth, the correlates of such growth generally leave question marks as to the broad impact on the population of many episodes of economic performance.
  • Although their macroeconomic numbers look better than the slower growers, the double-digit group looks precarious in other respects-notably governance and the regulatory environment.
  • On average, the double-digit growers exhibited a worse performance on every indicator of the quality of the business environment compared to the 6-7 percent growers. For example, legal rights were weaker, it took more time to register property, more money to start a business, and there were higher corporate taxes and informal payments to government officials.
  • Many members of the double-digit group have failed, even after the high-growth episode, to reduce corruption, invest in education, and raise human development indices.
  • Liberia is actively working to improve a number of indicators-physical infrastructure, internet connectivity, governance, and health measures-that appeared in this study as being weaker than those of the double-digit-growth countries.

 

Author Abstract

This extended memorandum identifies episodes of sustained double-digit growth in real GDP, defined as a compound annual growth rate of 10% or more over a period of 8 years or longer. Using a measure of real GDP reported in the World Development Indicators, we identify 33 country episodes of double-digit growth since 1960. The narrative of each episode is presented and key drivers of growth described. The double-digit growth episodes are then compared to episodes of sustained 6%-7% growth on a number of economic and development indicators. Statistical tests show that differences in average episode values between the two groups are significant for the following: amount of FDI received, the share of natural resource rents in GDP, investment, export growth, industrial composition, and public spending on education. Double-digit growth countries also tended to show worse performance on a number of business environment and governance indicators. From this analysis, lessons are drawn for Liberia. We conclude that with a continued inflow of aid, foreign direct investment, and a rapid increase in natural resource production, Liberia has the potential to achieve double-digit growth. However, as experiences of double-digit growth countries show, the challenge will be to convert the surge in unearned income into sustainable growth, sound policy reforms, and effective governance.

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