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thinking small in development

Two years ago Brookings held an event, “What Works in Development? Thinking Big and Thinking Small,” which survives today as a source for excellent working papers from some of my favorite development economists. Today I read Abhijit Vinayak Banerjee’s Big Answers For Big Questions: The Illusions of Macroeconomics, and was struck by a passage seeking to explain the gap in Total Factor Productivity between the US and India:

At least a part of the answer to the TFP puzzle seems comes from massive misallocation of resources within the same economy, something that is not picked up by any of the macro aggregates that are used in growth accounting exercises. These misallocations are not the product of any one distortion but rather the cumulative effect of many, many individual distortions resulting from both government failures and market failures. Read the rest of this entry »

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