The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics

by William Easterly

Why economists' attempts to help poorer countries improve their economic well-being have failed. Since the end of World War II, economists have tried to figure out how poor countries in the tropics could attain standards of living approaching those of countries in Europe and North America. Attempted remedies have included providing foreign aid, investing in machines, fostering education, controlling population growth, and making aid loans as well as forgiving those loans on condition of reforms. None of these solutions has delivered as promised. The problem is not the failure of economics, William Easterly argues, but the failure to apply economic principles to practical policy work. In this book Easterly shows how these solutions all violate the basic principle of economics, that people—private individuals and businesses, government officials, even aid donors—respond to incentives. Easterly first discusses the importance of growth. He then analyzes the development solutions that have failed. Finally, he suggests alternative approaches to the problem. Written in an accessible, at times irreverent, style, Easterly's book combines modern growth theory with anecdotes from his fieldwork for the World Bank.

Genres: Economics, Nonfiction, International Development, History, Africa, Economic Development, Business

356 pages, Paperback

First published January 1, 2001

About the author

William Easterly is Professor of
Economics at New York University, joint with Africa House, and Co-Director of NYU's Development Research Institute. He is editor of Aid Watch blog, Associate of the National Bureau of Economic Research and Co-Editor of the Journal of Development Economics. He is the author of The White Man’s Burden: How the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (Penguin, 2006), The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics (MIT, 2001), 3 other co-edited books, and 59 articles in refereed economics journals. William Easterly received his Ph.D. in Economics at MIT. He was born in West Virginia and is the 8th most famous native of Bowling Green, Ohio, where he grew up. He spent sixteen years as a Research Economist at the World Bank. He is on the board of the anti-malaria philanthropy, Nets for Life. His work has been discussed in media outlets like the Lehrer Newshour, National Public Radio, the BBC, the New York Times, Wall Street Journal, the New York Review of Books, the Washington Post, the Economist, the New Yorker, Forbes, Business Week, the Financial Times, the Times of London, the Guardian, and the Christian Science Monitor. Foreign Policy magazine inexplicably named him one of the world’s Top 100 Public Intellectuals in 2008. His areas of expertise are the determinants of long-run economic growth, the political economy of development, and the effectiveness of foreign aid. He has worked in most areas of the developing world, most heavily in Africa, Latin America, and Russia. William Easterly is an associate editor of the American Economic Journals: Macroeconomics, the Journal of Comparative Economics and the Journal of Economic Growth.

Taken from his website.

Reviews

[Paul · Rating 4 out of 5]

Recently went back and re-read this book. As other reviewers mentioned, I am curious to see what Easterly would say of this more optimistic earlier work, but regardless this text is an excellent, accessible history of economic development in the 20th century. Easterly explains the progression of economic thought and the fate of the 'latest and greatest' foreign aid ideas spurred by ever changing growth theories.

Contrary to some of the spurious one-line reviews below, this book is definitely not the work of a laissez-faire ideologue. Easterly is, however, quite critical of the aid establishment's record (though, once again, optimistic about the potential for aid as poor gov'ts grow increasingly competent and decreasingly corrupt).

Easterly is concerned with economic growth, and he adroitly explains how aid of all shapes and forms has largely failed to positively impact development. If you'd like to see some of the good aid has done, you will have to look to improvements in quality-of-life, not the subject of this book, which can be found in Charles Kenny's draft "The Success of Development." How much credit should go to NGOs and how much to commercial firms who lowered the price of living well through technological innovation is up for debate, but it's important to remember that Easterly is talking specifically about the aid establishment's impact on economic growth.

Highly recommended, along with White Man's Burden, Daron Acemoglu, Douglas North's new book, Dani Rodrik's articles, and yes -- some Collier too! (Just ignore Sachs)

[Петър Стойков · Rating 4 out of 5]

Уилям Ийстърли е икономист и известен специалист по международно развитие, който в настоящата книга влиза в задочен спор с колегата си Джефри Сакс относно методите, с които Западът се опитва да помогне на развиващите се държави и да изкорени бедността.

Кои са двата най-срамни и тревожни факта, свързани с бедните държави, според както ги описва авторът: 1.) Милиони деца умират от малария годишно, въпреки че една доза лекарство струва само 12 цента и 2.) въпреки че Западът е дал до сега 2.7 трилиона долара за борба с бедността в развиващите се страни, от 50 години положението е същото и децата все още не могат да си позволят тези 12 цента за лекарство.

Именно това е основната теза на книгата - че досегашните опити на международните хуманитарни и други организации за справяне с бедността не работят и че амбициозните им "планове на хилядолетието" и други гръмки инициативи до сега не са успели да променят нищо и са само хвърлени на вятъра пари.

Ийстърли разглежда всяка една голяма инициатива в последните 50 години на Световната банка, ООН и другите по-големи организации за международно развитие и показва как и защо почти нито една от тях не е постигнала целите си, въпреки огромните бюджети, а след това развива своите виждания и дава примери за това как един по-икономически ориентиран, по-човечен, по-близък до нуждаещите се', по-малко централизиран и планиран подход би дал по-добри резултати.

Отлично четиво за тези, които наистина се интересуват от изкореняването на човешката мизерия и нещастие по света, а не от безсмислени, но "благородни"жестове.

[Brandon · Rating 4 out of 5]

The Elusive Quest for Growth by William Easterly is a depressing book. Not only is it a consistent reminder of the dire state of a large portion of humanity, but it's also a stunning indictment of the best and brightest of economics. See, economists have been trying for decades to make countries grow, and they can't seem to figure it out. Every approach has basically failed. The book's first half goes through these failed theories. Easterly's central thesis always looms in the background - people respond to incentives. Theoretically, it's a simple idea, but one that has been ignored for the past century.

The first victim of Easterly's scathing critique is the investment gap approach. The idea is that with enough foreign investment and aid, countries can reach self-sufficient growth stages. There's one immediate red flag with this, though. Mere investment can't lead to long-term growth because of diminishing marginal returns. Plus, countries with a lot of unskilled labor will likely not use this influx of money to buy high-tech capital. They will instead use it to buy lots of low-tech equipment for their large supply of unskilled workers. If there is no incentive to invest in the future, people will not invest.

He then discusses Solow's model, which is slightly better but still deeply flawed. Solow rightly points out the diminishing returns problem and suggests that technology can alleviate diminishing returns in the short run. Again though, this doesn't exactly escape the problem of diminishing marginal returns. These countries usually have a very small return to investment which doesn't indicate the fantastically high initial growth that economists predicted.

The next attempt was an amended version of Solow’s model by adding human capital to the mix. Did this work? Human capital is undoubtedly important for growth, but enrolling a bunch of kids in school won’t magically fix any country’s problems. If the kids have no incentive to learn, they won’t. In some instances, this can actually make growth worse because families rely on their children to produce output, and school takes them away from their productive capacities. If there isn’t a high demand for skills, then you will end up just having highly skilled people in low-skilled jobs.

Another mistaken idea is one with a distinctly Malthusian sound to it. It says that we need to limit population growth by introducing contraception to developing countries. This, of course, ignores incentives. People aren’t having many kids because they don’t have condoms; they are having kids because they need them. They need workers for the business or a retirement plan. More people also increase the chances of a genius being born. The best contraceptive is GDP growth if one looks at the developed world.

The next two targets are loans and debt forgiveness. Loans were usually adjustment loans, but the developing nations usually didn’t accept the changes that the loans were contingent on, but the loans were still given. It actually creates two bad incentives. One is that the governments get more money for how bad they are doing. Two, and this is similar to problems with aid and investment, is that it makes developing nations more beholden to foreign donors than their own citizens. Okay, why not forgive their debt to let them use the money for more productive purposes. Turns out that the countries will just keep borrowing in anticipation of future debt forgiveness. These aid and loan programs should be contingent on genuine, prior reforms. This way, they are only given to countries who have shown that they are willing to improve on their own accord.

The next part discusses some promising new ideas, but I found these to be much less interesting since they weren’t specific action plans. Instead, they were more general musings. Technology, for one, is incredibly important for growth because it can actually lead to increasing returns to scale. Technology also leaks, so countries should adopt foreign technology when applicable and open themselves to trade. This leads right into creative destruction, where Easterly says governments should institute strong property rights and create incentives to innovate and invest. Unfortunately, as chapter 11 tells us, a lot of growth ultimately comes down to luck. Pure, contingent happenings that nobody can predict.

Governments, of course, are important, and they can absolutely kill growth by having high inflation, protectionist trade policies, negative real interest rates, and high budget deficits. Corruption also hurts, but centralized, coordinated corruption isn’t as bad, though still not good by any means. Polarized government and population can also hurt because people are unwilling to compromise and work together. Governments should subsidize the future, invest in infrastructure, create incentives, and open themselves to trade.

The book itself is data-heavy, and while this serves as good evidence for what Easterly says, it doesn’t make for an engaging read. The second half is much less interesting than the first but still important. Anyone interested in economic growth or global development should give this book a read. It’s essential.

[Camille · Rating 3 out of 5]

William Easterly may have still been a little idealistic when he wrote his first major book. While his cases are interesting, his general thesis remains that altogether the World Bank and IMF aren't so bad, they just mess up a little. After the publication of his latest manuscript (White Man's Burden...), it's funny to think what Mr. Easterly would say today. That said, his book is a good introduction to international economic aid/development aid from the perspective of an Economics wonk. Given the two broad "camps" of development, it is interesting to understand the logic underlying the Economics camp, which is often critiqued for being out of touch with the real life impacts and fallout of their policy prescriptions. Easterly is one of the first contemporary writers, after Sen and Stiglitz, to begin a critique of the conventional wisdom and tactics used within the Economics camp, specifically the World Bank/IMF camp, itself.

[Jim · Rating 5 out of 5]

This is an outstanding book. If you are interested in economics, or how the world works you should read this. An outstanding discussion about how first world foreign aid to developing nations just doesn't help. Outstanding writing, and easy to read, comprehend.

After you have read it, it is worth reading a book by Jeffery Sachs "Ending Poverty in our Time." The contrast between the two authors and their approaches is well worth understanding. Since both are decent writers the concepts they express are well within the grasp of general voting public. Sachs and Easterly are in a bit of a war of words about economic growth. Both distinguished scholars, both fighting it out with ping-pong op-eds in the Washington Post and other papers.

[Wendelle]

1."this book's official motto: people respond to incentives. Aid should have been made conditional on matching increases in the country's national savings rate." This is the book's central idea and official recommendation... however, isn't it true that IMF tried this by imposing harsh requirements of austerity on loans or aid on countries, and it didn't help, as Joseph Stiglitz notes about Brazil's previous situation.

2. The book's central message is that global aid is based on a failed economic model, the Harrod-Domar model. The author explains that the Harrod-Domar model suggests that economic growth grows proportionally with investment and savings. Economic growth is key for per capita increase in income, the only other alternative for the poor to be richer is wealth redistribution. Poor countries have low investment, and therefore cannot get economic growth through investment. Therefore, donors can help countries to achieve economic growth by compensating for lack of investment with aid money. Thus, the 'financing gap' between savings and investment is closed with free aid. The author thinks this is a failed model because it assumes the recipient country will use aid for investment, when in reality, he says, they just use it for consumption.

3. The author says that technological innovation, not investment, is key to economic growth, because investment will always be injured by diminishing returns.

4. The author says it's fallacious to believe that technological change is bad for workers because it puts them out of work ('the Luddite fallacy, one of the silliest ideas' he calls it). This is a fallacy, he says, because

'labor-saving technology is identical to output-per-worker-increasing technology...With more output per workers, there is more income for each worker.'
This seems to assume that the profit goes to the workers, instead of accumulating well into the capitalist pockets of Jeff Bezos, who definitely wins from the acceleration of automation in his business. Marx will have something to say about the author's ideas as quoted above.

5. The author says education contributes to economic growth mostly in countries with minimal potential for lobbying the government. He claims education as a driver of growth works best when people are incentivized to see it as an investment for their future. However, is this really a good thing? Sure, the quest for top education is a great incentivizing force in hypercompetitive countries such as South Korea. However, this causes great levels of desperation too, as the cost of failure academically is very steep, causing the person to be left behind in society.

6. Leaks, matches, and traps explain how a wrong environment can curtail a poor individual, or how the ''right' environment can help a rich individual

[Frank Stein · Rating 5 out of 5]

Unquestionably the best book I've read all year.

William Easterly, a former economist at the World Bank, effectively criticizes the misguided policies of the Bank and the IMF over the last 50 years, and shows how faddish and rarely-examined economic theories caused these institutions to pour trillions of dollars into undeveloped countries with almost nothing to show for it. The critique is made even more poignant because Easterly still sincerely believes that economic growth in the Third World can change lives for the better (he peppers the book with "intermezzos," short vignettes of poverty and struggle in poor countries), and he still believes the First World has a duty to help. He just admits we haven't found a viable solution to Third World poverty quite yet.

The book starts by showing how a 1946 paper by Evsey Domar, on capital expansion during business cycles, somehow became the fundamental model for international aid for the next 60 years, even though the model had nothing to do with Third World growth and Domar explicitly repudiated it by 1957. Yet, once combined with the "take-off" growth theory of Walt Whitman Rostow (published in 1960), the simple belief that economic growth only required filling the "funding gap" between saving and investment has guided the Bank up to the present day.

Easterly then goes on to examine how the pure investment in machines, factories, dams, and infrastructure that this theory encouraged actually does little to promote growth (in many countries like Guyana investment aid could reach as high as 8% of GDP even as growth was sharply negative). He explains the "New Growth Theory" led by Robert Solow, Paul Romer, and Robert Barro, which has overturned our old conception of growth, and shows how technology and virtuous circles are essential for maintaining positive results.

He also attacks many of the simple solutions proposed by development economists to end Third World poverty. For one, education cannot explain the gap between rich and poor countries (otherwise capital would move to educated workers in poor countries, in reality educated workers in poor countries move to rich countries to work with capital there). He also shows that population growth has almost no correlation with economic growth, and therefore attempts to increase per capita wealth through birth control are doomed (population growth declined in the 1970s to 1990s even as Third World per capita growth declined in tandem). He also attacks debt forgiveness programs, which have actually been going on since the 1979 forgiveness of $6 billion in debt to 45 poor countries. Every round of debt forgiveness since has only caused profligate and corrupt governments to spend their countries into an even deeper deficit (Cote D'Ivoire used cheap concessional loans to build two new capitals in two successive presidents' hometowns(!)). Unfortunately, the most indebted countries are usually the most corrupt, and they know that their waste encourages more forgiveness and then more loans, creating a dangerous and vicious cycle.

This book was written back in 2000 so many of his critiques have become incorporated in bank policy since that time, but this is still a fantastic book on development history. Perhaps what is most exciting though, is his demonstration that ideas can have real consequences, for good or ill, and that thoughtful change can be a real force for good in the world. Despite the often depressing subject matter, I frankly found the book inspiring.

[Branimir · Rating 4 out of 5]

This is the first book I read from W. Easterly and I am really satisifed with the level of detail and his approach. Caution: it is not a light read due to the plentitude of information and facts that are stored inside (thus somewhere in the middle I needed a rest, thus taking anothr book :)).

Easterly has worked for the World Bank as an economist and senior adviser at the Macroeconomics and Growth Division. As such he has experience from the kitchen that allows him to summarize what has been done in the past years (by the big world economies) for the problems of the financially-hindered countries. He shows why even though there is vast amount of cash that is poured in projects that should enbetter the life of many, results are not so impressive. He also compares the measurable effects based on the staring point of eachmarket where measures has been applied.

It's an interesting and educational read, for sure. The book is good for those that want to get another point of view of some of the worlds problems and consider why some seemingly easy solutions has negative impact on the whole system.

[Oliver Kim · Rating 4 out of 5]

A nice primer on development economics circa 2000. Lots of good stuff here on the failure of aid and debt relief, as well as a nascent recognition of the importance of institutions. In hindsight, Easterly was a tad too pessimistic -- the next twenty years of data, driven by China's growth, were probably better than anyone hoped for. But given how poor development's track record was, I suppose pessimism was warranted.

Even for an academic, Easterly is a poor writer, but shining through his wooden prose is a genuine concern for people in developing countries. Little vignettes on the lives of ordinary people separate each chapter. Some of the stories are heartbreaking. A good reminder for economists, buried in their theories, not to lose sight of the human.

[Minh Nhật · Rating 5 out of 5]

cuốn sách có 14 chương mà chương cuối là chương kết luận, đọc xong 12 chương trình định cho 4 sao thì thấy hơi quá, nhưng đọc tới chương 13 thì ko cho 5 sao hơi phí. Không ngờ phần cuối lại áp dụng game theory một cách rất tài tình vào phân tích vì sao các chính sách thúc đẩy tăng trưởng lại không được áp dụng dù cho ai cũng biết, đặc biệt là giới quan chức tham nhũng/bốc lột, ... , là tăng trưởng đem lại lợi ích cho tất cả mọi người(đặt trong đk lý tưởng là người ta có đủ kiến thức biết chính sách nào tốt).

[Cricket · Rating 3 out of 5]

An overall good introduction to development economics. However if you’re an optimist, you might have some trouble with this book, as I did. He rarely reflects on the possibilities of development and mostly focuses on past failure. Which is important, just kind of rough for an optimist to continue reading.

[Maggie · Rating 3 out of 5]

This book was certainly a product of its time (2001). Easterly makes generalizations about "poor" countries, neutrally presents if not justifies as economically sound IMF/USAID policies of attempting to control births in these countries in order to prevent resource shortages, and tells an interesting story about his colonizing ancestor and the contributions he made to industrializing and thus "economically growing" the U.S.. There are some valuable insights that are backed by data/studies and it's good for its generality, but it certainly contributes to a school of thought that I think has been slightly improved upon by later authors.

[Kaveri Sarkar · Rating 3 out of 5]

A lot of big claims…

[Tobi Lawson · Rating 5 out of 5]

Lovely book, written in the typical escorting poetic style of Bill Easterly. What I loved most about this book (as someone who works on development) is that the fundamental lessons of how countries become rich have not changed, no matter the shiny new thing that experts are pursuing. Making sound macroeconomic policies, setting the right institutional incentives, openness to trade etc are still timeless advice for at least avoiding poverty traps in an economy.

[Eric · Rating 3 out of 5]

Easterly is more concerned with witticisms than he is in a full-fledged analysis of the principles of growth. All of his wisdom for growth comes straight from the neo-liberal playbook except for a few situations in which government can step in to pick up the slack where social benefits will be greater than the benefits won by entrepreneurs, as in the case of technological innovation.
As is common in the 'scientific' economic literature, a berating of 'do-gooders' is obligatory, and Easterly doesn't shy from his hard-nosed dismissal of anyone he thinks is silly enough to ignore the universal law of unintended consequences or the economic rationality of every decision humans make. Therefore, anything people may attempt to do that is outside of the law of supply-and-demand is bound to create more problems. Generally, I think this is a load of BS, and even more to the point, is plain old subterfuge. This book, as do most books by professional economists, hide the nature of capital and the dynamics of power involved in capital.

[Manuel Fernandez · Rating 5 out of 5]

Muy buen libro sobre la historia del desarrollo económico en este siglo y las recetas fallidas para replicar.

[Gavin · Rating 4 out of 5]

Extremely important and readable empirical summary of the (C20th) failure of directed "development" aid (that is, capital aimed at a self-sustaining anti-poverty outcome).

[Parker Hewitt · Rating 4 out of 5]

This book is very good for a quick overview of the literature of economic development up until the point of its publications (unfortunately, this book is around 20 years old). That being said it clears up a great many things about attempts that have been made to help poor nations grow rich and the massive and obvious blunders that have been made along the way. Easterly is a good writer, he uses strong, simple and intuitive analogies to illustrate points (I've already made us of the pancake example for explaining diminishing returns) and he makes the wise decision to include short biographies about individuals who are or have been living in the types of areas that most need aid today. Easterly points out how bad government and corruption destroy growth, as does creating bad incentives, which is largely because of bad government but also because of decisions made due to bad incentives at institutions like the World Bank. The financing gap is a great example of where the incentives were screwed all to hell. Apparently development economists had managed to do all this work about how economies grow without taking into account the politics of the nations in question and so wouldn't think twice about handing out money to the most corrupt governments in the world. Even programs that have the right idea, that being that incentives matter, were flawed because the aid-receiving governments realized they could promise to reform, reform a little bit for a temporary period, turn back and then start over again because the WB and IMF weren't serious about taking away loans. Debt forgiveness let leaders borrow more against the future, which took away incentives to invest. The whole thing was a mess.

He hammers the point of incentives mattering throughout the book and helps illustrate how exactly that plays out in the many different cases of failure throughout the development world. The entire second part of the book about traps, leaks and matches, and especially the example of the Bangladeshi garment industry were incredibly insightful. That part alone is worth the cost of entry (which happened to be quite low for me anyway, since I got this book used). And even though Easterly is very strongly in favor of markets, he admits that governments have a place in helping to break people out of poverty traps, namely by subsidizing knowledge acquisition and the adoption of new capital and technologies, which could allow for people to take greater advantage of leaks and matching. Knowledge tends to have greater social returns than private returns, so governments need to implement some policy to bring the private returns on investment for knowledge creation up to match the level of social return. On top of this, there are increasing returns to knowledge, and a society that already has a lot of knowledge can make better use of new knowledge than can a low knowledge society. He also highlights the role of luck in development.

Negative real interest rates, high inflation, black market premiums, arbitrary and favoritistic enforcement of property rights, corruption, restrictions on trade, huge deficits, and bad public services are all examples of where governments can harm incentives for all forms of economic activity, including the incentives for saving. The biggest complaint I have about this book is that Easterly makes no real attempt to answer the question of how the societies that have high knowledge and good institutions got that. It would have been nice to have a chapter dedicated to at least a brief overview of the way England and the other "pioneering" economies escaped the poverty trap. I would have also liked to see more analysis of what the countries that were escaping the poverty trap were doing right. What exactly was going on with Korea, Singapore, Hong Kong, etc.? Specific focus here would have made this book all the more better.

I would highly recommend this book to anyone who wants to understand the past attempts to aid others, what the data says about their

[Tomislav · Rating 4 out of 5]

A critical overview of development economics. First part of the book discusses economic theory and history of the field. Easterly is critical of traditional models of growth and "capital fundamentalism", the idea that investment and growth of capital are primary determinants of development. He contrasts it with empirical evidence and some memorable anecdotes. He does not go into intellectual history to explain why such materialist and mechanistic views are dominant in economic theory; instead he tries to prove empirically that they do not work. He also criticizes some common misconceptions about technology, population growth, education and international aid.

The rest of the book deals with numerous topics related mostly to political and institutional issues. It covers a lot, from poverty traps, effects of agglomeration and scale, lack of trust in ethnically divided societies, different types of corruption, to simply bad luck. The book might seem somewhat outdated because it was written just as China was becoming one of the biggest success stories. But despite missing the lessons from that important experience, most of the insights are sound and relevant. Easterly advocates the focus on incentives as the starting point of analysis and policy, although he does not promote any quick and easy solutions. Politically, he seems moderate, seeing the market as the primary driver of growth but allowing for state intervention in certain situations. Although very critical of past mistakes, he is not completely against international aid, but insists that it must be given less generously, only in cases when it incentivizes governments to continue with some tangible improvements in policy.

It is not a very cheerful book, as it deals mostly with cases of failure and with countries that are unable to escape their misery. Chapters are followed by short stories about individuals and families who directly experience poverty and other related problems. It is quite an interesting read and it is still relevant today; there are still poor countries, and Easterly’s ideas about the importance of institutions, incentives and human behavior certainly became more appreciated among economists.

[Kevin Vejrup · Rating 4 out of 5]

The book presents plenty of interesting concepts related to development economics and complement them with great historical examples. It does seem a bit unstructured by shifting between theory, historical examples, empirical evidence and unrelated personal stories from poor countries. Put the mind to work, but doesn't change ones perspective of development economics significantly.

In the 1950's where the first African countries got independence (Ghana 1957), the most supported growt theory was the gap-financing/Harrod-Domar model. According to which growth depended on investment, and as savings were low, aid should finance investment.

Robert Solow wrote in 1956-57 that growth was not determined by investment (in steady state), but by technological progress. Solow did not apply the model to poor countries and Easterly argues that it should not have been.

The Luddite Fallacy is the silly idea that technological progress will lead to unemployment, whereas it really allows increased production. The name stems from workers in Nottingham in 1811, who lost their jobs to knitting machines and therefore smashed them.

Easterly shows the poor effect of adjustment loans (loans to promote policies of growth), which were very used to a great extent from 1970's to 1990's. The adjustment loans were poorly set up and had perverse incentives for both donor and receiver.

The solution to growth is increasing returns to knowledge. That is the idea that a skilled individual is more valuable together with an individual with the same skill - knowledge being more complements than supplements.

Backward areas have an advantage in implementing new supplemental technology as they have not vested interest in the old technology it is replacing. These arguments are exemplified by economic historian Mokyr in the English loss as technological leader after the industrial revolution. Path depency also explains technological progress, i.e. camels (who has no use of roads) caused a path depency towards few roads and railroads. Other technologies are complemental (technology that benefits from existing technologies), which supports status quo.

He reviews government policies that ruin growth by good use of examples:
-Inflation of Israel in 1973-1985
-Black markets (due to fixed exchange rates) in Jamaica and Ghana
-Budget deficit in Mexico from 1970 by the Redistribution with Growth program leading to inflation, fall of fixed exchange rate in 1982 and defaulting on government debt
-Restrict trade due to infant industry argument thus restricting specialisation

Besides these policies corruption and internal division can hinder growth. Internal division is examplified by Ghana, where the majority Akan groups set up a huge 'tax' on cocoa, which were produced by the minority Ashanti group. More generally he finds that countries with high inequality are more likely to establish growth hindering redistributional policies, like Hugo Chavez in Venezuela (written before the fall of oil prices). The opposite situation of minority elites in power may be why the Roman Empire, Ming Dynasty, the Mughal Empire or the Ancient Egyptiants did not start the industrialization. East Asia growth miracles benefitted from lower inequality and less ethnically diverse than South America and Sub-Saharan Africa.

[Arbraxan · Rating 4 out of 5]

In The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics William Easterly, a researcher at the World Bank, offers a thoughtful and at times scathing account of development economics' endeavor to foster economic growth in the world's poorest countries in the post-war era. The book is divided into three parts: First, Easterly makes the case for economic growth as the primary vehicle through which the poor can be lifted out of poverty. Second, he critically reviews the trends and fads in both development economics and the international development community. Third, he analyzes a list of factors keeping economic growth in check and what can be done about these factors. The book's mantra is that "people respond to incentives" (actually, this is the mantra of most economists). Even if you take nothing else away from his book, Easterly wants you to know that only development policies which align people's incentives with economic growth will succeed and that not taking people's responses to incentives into account when designing or implementing development policies is just begging for failure to happen.

Growth matters because it helps the poor - doesn't it?

After a short prologue introducing the book's topic and mapping its contents, Easterly begins his argument by arguing that growth matters because it helps the poor. For this purpose he dresses a stark image of the plight poor people are living in and describes the sad hallmarks of poverty: high infant mortality and morbidity, insufficient nutrition, lack of economic opportunities, vulnerability to oppression, etc. What is the remedy to these problems? Economic growth. While credible, it is important to understand that economic growth does not imply a decrease in poverty: if the bulk of economic growth accrues to the middle and upper classes, even a slight level of inflation could outstrip the lower classes' income growth and result in a net deterioration of their living standards. (Some further details on Ravallion and Chen's as well as Dollar and Kraay's research would have been welcome.)

How to lose friends and alienate people, or: Easterly's rant against the development establishment

Having explained why economic growth matters, Easterly lists a number of "panaceas" (I seriously doubt that development experts thought of their policy proposals as "all-healing" silver bullets, otherwise there wouldn't have been enough material for six chapters...) which have been certified by development economists and other experts (for a rant against "experts", see Easterly's "The Tyranny of Experts", 2014) to help economic growth. These are: foreign aid, education, condoms, conditional loans, debt forgiveness. These six chapters introduce the reader to the financing gap approach, capital fundamentalism and other ideas of development economics.

Let me begin by saying that throughout the text, I agree with 90% of Easterly's argumentation, but disagree with a large swath of his interpretations of empirical evidence: Sometimes Easterly's measures seem peculiar, with trivial parts warranting long explanations while the more exotic parts are left unaddressed: This smacks of data mining. Quite a few times the book presents original research that has never been published or replicated, which I am biased against. Very often, Easterly is able to show that the development policies he criticizes cannot be shown to have fostered growth, but he is likewise unable to conclusively demonstrate that they indeed have not fostered growth. If a policy A is implemented and growth is negative, should you conclude that policy A has failed or succeeded in fostering growth? Certainly not the latter, but neither the former. You cannot conclude anything because you lack a proper counterfactual. This part also contains a few howlers, e.g. the author's apparent assumption that condoms are only distributed as a means to limit unwanted population growth (and not as a means to prevent the spread of STDs).

Although Easterly makes an attempt at humility by admitting that he as shared some of the positions he now criticizes in the past, the chapters are basically a roundhouse kick against nearly everything the international development community has been doing for the past few decades. Against this backdrop, it is not so surprising that Easterly was left from the World Bank not too long after the publication of his book.

Six reasons why growth has failed to materialize

The worst part of bashing having ended, Easterly moves on to identify the six factors that have kept economic growth in developing countries in check: Insufficient diffusion of knowledge and skills mismatches; resistance against technical change; luck; bad economic policies; corruption; ethnocultural polarization. This part is again plagued by the same empirical issues as the previous one, but again Easterly's arguments are lucid and make sense. The luck chapter was the worst of the third part, the corruption chapter perhaps the best (Easterly argues convincingly why centralized corruption is usually better than decentralized corruption). Finally, the 14th and last chapter wraps up the previous ones.

What else?

Easterly's The Elusive Quest for Growth is something akin to a starting point for the whole 2000s popular development literature. Jeffrey Sachs' impassioned plea for more foreign aid - private or public - in The End of Poverty (2006) can be read to some extent as a reply to The Elusive Quest for Growth. The End of Poverty in turn provoked Easterly into writing The White Man's Burden (2007), a thorny rebuttal of Sachs' arguments, followed by Sachs' Common Wealth (2008). The whole Easterly-Sachs debate then sprouted off into Paul Collier's The Bottom Billion (2007) on poverty traps and Dambisa Moyo's call-to-arms against foreign aid in Dead Aid (2009). If anything, the debate called to attention the identification problems tarnishing development economics and the question which development policies are effective (and how much). Efforts to remedy these issues motivated a strand of excellent academic research in the 1990s and 2000s, which was later popularized in two equally excellent books, Poor Economics (2011) by Abhijit Banerjee and Esther Duflo and More than Good Intentions (2011) by Dean Karlan and Jacob Appel.

[John Turlockton · Rating 2 out of 5]

There are some useful parts in this book. Eg, the chapter on the failure of international aid to lead to development, and the points about education and the funding gap are interesting arguments, but even these parts present a strawman against which to argue, conflate many things together and call it 'aid' and present alot of correlation as causation. The second part of the book is basically garbage, the only good chapter is I think 11 on some of the second-order causes of low growth (high inflation, high deficit, high black market premium). He implied that in the second part he would get to some of his proposed solutions to low growth but instead these chapters are just full of un-supported abstract theorising about things that are besides the point entirely. One chapter is dedicated to luck, eh, ok, some countries can have some bad luck, you don't need a chapter listing all the bad luck stories out there. Similar the chapter on his un-supported theory of 'matches and leaks'. Bill, I don't care about this, talk about how countries can develop, or previous attempts that have been made to that end. The chapter on corruption is also just a very long way of saying 'corruption is bad', oh geez, thanks Bill, didn't know that /s. I would recommend looking for another book that makes the same point but argues it better.

[Ted Tyler · Rating 5 out of 5]

Economic systems tend to be evaluated by "who" guides the market. The usual choices are 1) the government 2) the market self-regulates. As a graduate student, I found both of these choices to be dissatisfying and incomplete. I would offer up a third choice: 3) incentive-structures. Bill Easterly waxes poetically about how the market and the government set and respond to incentive structures. While he isn't the first person to bring-up this third idea, Easterly does so in a manner that is easy to comprehend and apply. He would argue that both the market and the government can be the causes or solutions to economic failures. It's all a matter of looking at how people respond to incentive structures: saving money, spending money, stealing money, hoarding goods, buying, selling, investing, etc. I appreciate that Easterly argues for understanding and deciphering the cultural preferences and norms about how an economy works, those official and unofficial "rules" and values. These things are difficult to measure and quantify, so most economists avoid dealing with them. This is a must-read for understanding how people make decisions and how their behavior changes as you provide a different set of incentives.

[Samantha Laufer · Rating 2 out of 5]

I found Easterly to be too pessimistic about economic growth and aid prospects to developing countries (although I could be overly optimistic). He singles out different growth panaceas over the years, such as capital accumulation, education, and population control, and contends that none of these can be the sole reason for economic growth in a country. Although Easterly is correct, that each of these factors alone will not enable a country to escape poverty and achieve high growth rates, I think he deemphasizes the role that each of these factors can play in contributing to economic growth when multiple of these growth factors are invested in together. I also think he overlooks the welfare of the individual in these policies, when aggregating up to GDP growth. Furthermore, Easterly's writing style seems to consist of repeating himself throughout paragraphs with multiple quotes from different sources that say the same thing and long lists of dates and countries. I found this writing style to lack engagement and flow. However, he does provide some basic and helpful political economy and economic explanations for why growth in many tropical countries failed between 1950-2000.
2.5 stars.

[Meir Brooks · Rating 3 out of 5]

A great read for anyone interested in economics and the economics of growth. Much less dogmatic (and a bit more academic) that his later books like White Man's Burden and Tyranny of Experts, but still has that sharp tone and example-studded style.

The book is brimming with insights about economic growth and what does and mostly what doesn't help. He seems somewhat less pessimistic than his later books, and the vignettes each chapter add a lot of flavor.

While the book is somewhat outdated (published in 2001), that almost gives it an edge, as you can evaluate its claims against subsequent reality. Easterly warns against the populism of Chavez years before the meltdown he and Maduro caused. Some points hold up less well, but again, this is as much an advantage as a disadvantage-- you can judge him by the whole package, warts and all, and I think the book still has a lot to teach today.

[B · Rating 4 out of 5]

Good book, not a huge fan of the style of writing (it is hard to make economics a fun read in my opinion, and I was an economics major). However, Easterly's passion for the subject comes through, and he presents very logical, almost common-sense arguments for how to actually help poor countries. Providing people, governments, bureaucrats, and aid agencies with the right incentives is the solution - figuring out what the incentives are and how to implement them is the problem. Easterly presents a few ideas here, but one chapter that I found particularly illuminating was the last one on homogenous vs heterogenous societies. The latter are much more likely to be mired in poverty. Without going into too much depth, this was a really interesting look at at least one of the potential causes of poverty.

[Karen Zhang · Rating 4 out of 5]

Thr author is an economist for developing countries and used plenty of figures and charts to illustrate the ineffective policies people promoted in under-developed countries. Though I was aware of the ineffectiveness of some policies of international organizations, it is still eye-opening to learn that investment didn't lead to economic growth for many countries and high level of low-interest loan to GDP is associated with low level of economic growth...

There is no single method that will stimulate economic growth, we need to will use a series of tools to improve fiscal policy, gocernment capability, reduce race issues, boost middle-income classes etc, before we can achieve meaningful economic growth target.

[Martine · Rating 3 out of 5]

This book shows, point by point, how aid and institutions have been used in the past decades to help poor countries rise from poverty and why most of it hasn't worked. The traps and misconceptions that abound and how this could be different. Easterly has obviously tried to make his story relatable and close to the practical world by including snipets from the life of a few individuals in poor countries around the world, but even so it's a rather intellection read. It's also by now a bit outdated, making me wonder if anyone concerned with poverty eradication has followed his advice since the writing of this book and how that has panned out. Are his theories simply another misadventure?

[Adam Suski · Rating 4 out of 5]

A mildly outdated debate on the modern economic, societal, and governmental source of poverty. Easterly strategically selects key aspects to discuss, purposely omitting the ones that could blur or complicate the picture too much. The book effectively navigates between personal experiences, with IMF and World Bank as often side actors, international examples, and straight-up academic definitions. Sometimes it might be hard to navigate, prior interest or minor economic knowledge is advisable.

PS. 'Tropics' from the title is somehow outdated today synonym for Global South or simply developing countries.

[Robin Ferdous · Rating 4 out of 5]

Brilliant book.

The main take away is this: people respond to incentives.

The argument is that growth is the most reliable way to improve living standards for everyone, thus the best tool to combat poverty is to get poor-growing countries into industrial and productive nations.

However, understanding growth and implementing measures to facilitate it are difficult to say the least. Every panacea failed, thus far, because the interventions did not properly understand and leverage incentives.