www.quora.com/How-can-a-third-world-country-increase-its-GDP-per-capita
You’ve asked what Harvard’s Lant Pritchett calls the “trillion dollar question.” Pritchett has spent a lot of his career documenting that poor countries tend to stay poor precisely because they cannot sustain rapid growth long enough to lift themselves to true prosperity. Instead, many such countries experience repeated bursts of growth, but those tend to be followed by downturns that push them back onto a slow-growth or no-growth path. Those that have achieved and sustained rapid growth, like the East Asian Tigers, have been able to pull themselves from abject poverty into real prosperity within a couple of generations.
I’d point to two complementary ways of thinking about the matter. The first is the broad lessons from countries that have succeeded in sustaining rapid growth for decades at a time. The Commission on Growth and Development, also known as the Spence Commission, did an impressive job of distilling the lessons from the success of 13 countries that maintained rapid growth since the 1950s. I cannot adequately summarize it in this space, but would encourage everyone interested in this topic to read it: https://openknowledge.worldbank …
Among the lessons from the Spence Commission are the importance of relying on market signals, of taking advantage of the opportunities available in world markets, of saving and investing a lot, both in efficient infrastructure and in education and health (with a strong emphasis on the need for ensuring that all children finish school with strong basic skills). In addition, they emphasize the crucial role of leadership: if a nation’s political leaders consider growth just one among many priorities, growth will generally be allowed to slip off the table. Only a government that views growth as essential, and is prepared to sacrifice the interests of some of its political supporters to achieve it, is likely to carry the job through to completion. The volume I mention contains lots of valuable suggestions along these lines.
But frankly, the problem with taking the advice of the Spence Commission – or any other comprehensive analysis of development issues – is that it tends to be toocomprehensive. Almost all developing countries suffer from a wide variety of policy and institutional distortions, but they also tend to have limited capacity to undertake a lot of different reforms at once, as well as limited political capital/will to do so. As Pritchett likes to remind us, if a poor country had the capacity to fix all its problems at once, it wouldn’t be poor. So the problem is, where to begin?
For that purpose, I would point to the work of Ricardo Hausmann, Dani Rodrik, and Andres Velasco on “growth diagnostics,” which is aimed at sorting through the available evidence to narrow down that wide range of problems to the one or two or three that represent the “binding constraints” to achieving a burst of accelerated growth over a three to five-year period. A lot of donor agencies have put a lot of effort into this approach, but tend to run into the problem that the “binding constraints” tend to be problems that are particularly hard to crack politically – the interest groups that benefit from those distortions are too well-entrenched. But I think it could be quite different if used by the planning team in a reform-minded government itself, creating a greater sense of local ownership. But I hasten to add, maintaining rapid growth for two or three or four decades requires much more than identifying one set of “binding constraints,” taking some appropriate policy actions, and then going back to business as usual. Instead, solving one set of constraints will ensure that another emerges as the next set that need to be addressed – and on and on and on. If it were easy, more countries would have done it. But I suspect that that’s ultimately what needs to be done.