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The Washington Consensus ReconsideredTowards a New Global Governance$
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Narcís Serra and Joseph E. Stiglitz

Print publication date: 2008

Print ISBN-13: 9780199534081

Published to Oxford Scholarship Online: May 2008

DOI: 10.1093/acprof:oso/9780199534081.001.0001

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Growth Diagnostics *

Growth Diagnostics *

(p.324) 15 Growth Diagnostics*
The Washington Consensus Reconsidered

Ricardo Hausmann

Dani Rodrik

Andrés Velasco

Oxford University Press

Most well-trained economists would agree that the standard policy reforms included in the ‘Washington Consensus’ have the potential to be growth-promoting. What the experience of the last fifteen years has shown, however, is that the impact of these reforms is heavily dependent on circumstances. This chapter argues that this calls for an approach to reform that is much more contingent on the economic environment. It is possible to develop a unified framework for analyzing and formulating ‘growth strategies’ which is both operational and based on solid economic reasoning. The key step is to develop a better understanding of how the nature of the binding constraints on economic activity differs from setting to setting. This understanding can then be used to derive policy priorities accordingly, in a way that would use the scarce political capital of reformers efficiently. The methodology that it proposed here can be conceptualized as a decision tree. The first questions concern what keeps the level of domestic investment and entrepreneurship low. At each node of the decision tree, the kind of evidence that would help answer the question one way or another is discussed. The chapter draws on the experience of three specific countries: El Salvador, Brazil, and Dominican Republic. Aside from providing a useful manual for policy makers, this approach has the advantage that it is broad enough to embed all existing development strategies as special cases. It can therefore unify the literature and help settle prevailing controversies.

Keywords:   Washington Consensus, economic growth, economic environment, political capital, scarcity, El Salvador, Brazil, Dominican Republic

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