Policy determinants of growth : survey of theory and evidence
Easterly, William R.
Wetzel, Deborah L.
This paper explores the broad themes of the literature on economic growth. It makesthe following two broad conclusions. First, it notes that the efficiency of investment is as important as the level of investment in determining growth performance. Secondly, it states that keeping to a minimum the distortion of resource allocation by government policies makes saving and investment more efficient and promotes long-term economic growth. Policies that contribute to the efficiency of investment and that lower distortions in resource allocation will thus generally encourage growth. Policies that promote investment, liberalize trade restrictions and remove distortions in financial markets are likely to raise a country's long-run rate of growth. It is noted, however, that more research is needed to formulate structural models of growth that give clear guidance on the effect of various policy measures.
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