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21 Feb 2013Working Paper Summaries

Developing the Guts of a GUT (Grand Unified Theory): Elite Commitment and Inclusive Growth

by Lant Pritchett and Eric D. Werker
Why do some countries successfully initiate episodes of rapid growth while others suffer extended stagnation? Furthermore, why are some countries able to sustain growth episodes over many decades of rapid or steady growth, while other growth episodes end in reversion to stagnation or collapse? This paper represents an initial step in a research agenda aiming to build a unified theory of growth that considers the complex dynamics and varied roles of elites. The analytical model suggested here is capable of generating both transitory and sustained episodes of accelerated growth. As Pritchett and Werker argue, progress on a unified theory of growth would explain, better than current long-run growth theories, the onset of growth episodes. It would also examine how the dynamics of growth interact with existing political and institutional configurations to produce feedback effects on policy and institutions such that some growth episodes end in bust or stagnation while others are continued. Key concepts include:
  • A unified growth theory needs an encompassing model capable of explaining the dynamics of growth rates, both the persistence and the transitions.
  • Conflict across types of elites (political versus economic), within elites (across ethnicity or region or ideology), and in the dynamics of elite formation (the rise of new domains with new elites) all play a role in development dynamics.
  • Part of this research agenda is to recognize that the feedback loops from economic growth on the quality of governmental institutions and state capability can be either positive or negative.
  • It is important to learn how changes can produce rapid growth accelerations even with more or less constant quality of institutions. The source of the initial growth can make that growth process either self-limiting or perpetuating.

Author Abstract

Two key unanswered questions in theories of growth are (a) why some countries successfully initiate episodes of rapid growth while others suffer extended stagnation and (b) why some countries are able to sustain growth episodes over many decades of rapid (or steady) growth while other growth episodes end in reversion to stagnation or collapse. We create an analytical model that is capable of generating both transitory and sustained episodes of accelerated growth. The new feature is a feedback loop from existing economic conditions to the pressures on policy implementing 'institutions'. This feedback loop can be positive (with economic growth leading to improved institutions for inclusive growth) or negative (with economic growth leading to worse conditions for further growth by shutting off the inclusiveness of growth and limiting economic opportunity to existing successes). Whether economic elites use their influence activities with political and bureaucratic elites to create more possibilities for economic structural transformation or, conversely, use their power to entrench their privileged position will, to a significant extent, determine whether episodes of rapid growth can be sustained, will peter out, or even be reversed. The mechanisms for elite commitment to sustained inclusive growth are discussed.

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