¶ … Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" by William Easterly. In it he talks at great length about the various methods used by global banking institutions to promote growth in poor and developing countries. He describes several panaceas, or approaches, which have been used over the years by these financial institutions, such as the World Bank and the IMF. In most of the cases, there is a spotlight shone upon the shortcomings of each of the approaches.
Throughout his book, Easterly uses the expression "people respond to incentives."
The primary problem facing poor countries is the policies of institutions that should be helping them. Throughout Easterly's book he gives multitudes of examples in which the facts do not support the methods of aid that are currently being used. Some of the methods are even based on outdated or false economic theories.
One prime example is Domar's growth rate theory. Domar wrote his theory in a series of articles in 1946. These articles assumed one essential point: that the amount of machinery was linked to productivity. Since that time, data has been collected that clearly states that there is no connection between the two. Domar was writing in the wake of the Great Depression. Unemployment was at an all time high, therefore Domar concluded that labor would be available to whatever extent it was needed to operate newly purchased machinery. Domar intended his theory to be used to bring about growth over the short-term, not the long-term. In fact, Domar himself repudiated his own theory in 1957, just eleven years later. Despite this, his idea gained in popularity and the financial institutions responsible for giving aid to these countries have based the financial gap policies on this disproven theory.
Many countries are also hampered by a lack of infrastructure. The success and failure of certain programs, like the financial gap approach, are...
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