True growth

Understanding Economic Growth
OECD Observer

“The end of World War II marked the beginning of a long period of prosperity in most countries now members of the OECD… and in many countries per capita incomes tended to catch up with American levels,” OECD Chief Economist Jean-Philippe Cotis observes in his foreword to Understanding Economic Growth.

Mr Cotis continues: “The history of the past two decades tempered to a great extent that initial enthusiasm. In the major countries of continental Europe, per capita incomes stopped converging towards American levels as of the early 1980s, before falling in relative terms throughout the 1990s. Japan has suffered a similar reversal of fortune during the past 15 years.”

What happened? Why did some countries surge ahead, even those that had already reached a high level of innovation and growth, while others lagged behind? Such questions revived the debate over the underlying causes of economic growth, and Understanding Economic Growth is the fruit of the extensive OECD Growth Project.

The analysis focuses on the growth patterns of OECD countries during the last decade and identifies the fundamental drivers of growth, like human capital, R&D and innovation. It also looks at how and why countries respond differently to these drivers. It examines growth at the macroeconomic level, as well as industry and firm level, and analyses the contribution of information technology at each of these levels.

Packed with over 50 tables and figures, Understanding Economic Growth provides unique data to better understand the truth beyond the hype of the so-called new economy. What was the real contribution of IT to economic growth?

According to Mr Cotis, it plays a very important role, albeit one that “does seem to depend a great deal, in turn, on the regulatory and institutional framework in which technological innovation takes place.” The study points to empirical evidence that the opening up of product and services markets and the flexibility of the regulatory framework contribute to growth, as well as opening the way for small, highly innovative firms to flourish. But there is no magic formula that bypasses the fundamentals. As Understanding Economic Growth underlines, no one can overlook the contribution that sound macroeconomic policies – low and stable inflation, moderate tax burdens, openness to international trade – make to economic growth.

©OECD Observer No 243, May 2004




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