Title: The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics
Author: William Easterly
By: Alejandro Schtulmann and John Geary
Editorial: Westview Press (2003)
RECOMMENDED BOOKS is a collection of summaries of recent works relevant to the challenges
of ethics and development, and the mobilization of social capital.
The Elusive Quest for Growth by William Easterly constitutes a thorough analysis of the models
that have been in force in economic growth policies in the past fifty years and the role
international organizations have had in this process. Throughout his book, the author explains
why the search for economic growth in the developing world has resulted in an extremely difficult
task (although not impossible). William Easterly was an esteemed economist of the World Bank
and his experiences as an expert inside the institution provide a frame of reference for his book.
In his book, Easterly analyzes the underlying thought behind development theories and explains
how these have been based on changing paradigms of solid theoretical foundations. In reality
however, these models have not stimulated economic growth because they have not taken into
account various factors. The solution that Easterly proposes is that government, donors, and
individuals involved in the process direct the incentives for growth. The author admits however,
that this is a difficult objective to achieve.
Structure and Content
The book is divided into 14 chapters that covers diverse perspectives about the difficulties in
generating economic growth. These perspectives are supported by specific cases and
experiences from developing countries. The following presents the author’s principal ideas and
Easterly begins the book by discussing the various ideas that have dominated the discourse on
economic growth. The author points our that the initial and predominant idea in economic growth
was based on the Harrod-Domar model, which proposes a direct relationship between the level of
investment in an economy and its domestic growth domestic. Given that the levels of saving are
extremely low or non-existent in the majority of developing countries, the investment capital
required for a country’s national development consequently has needed to come from the
exterior. Accordingly, the development policies emphasized the need to promote investment flows
to developing countries. This theory of the “finance gap” was reinforced by the “boom” or “take-
off” model proposed by Rostow which drove an explosion of external financing in the U.S.
throughout the 1970’s.
Another economic theory with enormous influence in the development world is the Solow growth
model. This theory suggests that economic development cannot be generated from investments
in machinery and equipment because at a certain point, the margin of return on investment will
decrease because developing countries do not have the technological development necessary to
absorb the capital invested in infrastructure. Therefore, continuing economic growth will depend
on technological changes that can bring higher levels of productivity. Previously, the Solow
growth model was widely applied under the assumption that technology transfers can help poor
countries reach growth levels similar to developed countries.
Nevertheless, Easterly points out that this theory is extremely simplistic. The author illustrates his
conclusions with the example of Tanzania. In Tanzania, the World Bank financed a shoe
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company that had the appropriate machinery and production technology, but never was able to
produce more than 4% of its production capacity because it did not have the adequate materials
or supplies, and the machines were not designed for such a climate.
Easterly analyzes other factors strictly linked to economic growth theories. Education level is
constantly presented as one of the principal determinants of economic growth, yet Easterly finds
little empirical evidence for this correlation. The author shows that in Africa, education level of the
90’s are much higher than those in the 70’s, yet efforts to achieve economic growth in this region
of the world have failed in the majority of the cases. One of the reasons Easterly puts forth is that
advances in education must be accompanied by adequate productive capital and the capacity for
absorption of new technologies. The author points out that the supply of knowledge is higher
than the demand and supply cannot be absorbed.
Population controls have also been part of past economic growth theories. Uncontrolled
population growth is frequently argued to be one of the largest obstacles to development and
bring the potential of resulting in great catastrophes. Easterly argues the contrary by suggesting
that population growth can have more positive than negative effects since it increases the number
of ideas and initiatives in the population. Population growth can also drive technological
innovation, because there is greater pressure to optimize available resources; this is an idea
Ester Boserup originally proposed.
Previously, Easterly criticized the contradiction between loans and the international community’s
condemnations about the debt. The author explains that as long as national governments realize
that donor agencies will continue sending money without conditioning it upon their performance in
reforms, incentives for implementing the correct policies disappear. To illustrate his point,
Easterly provides the case of Zambia, which despite its failure to comply with any of the
conditions to reduce inflation levels, received 12 loans from the World Bank as part of its
adjustment program between 1980 and 1994. In another example of how loans without condition
can provide incentives for the continuance of bad policies, Easterly shares the example of the
national railroad system in Kenya, where in 1972 the World Bank identified the need to carry out
reforms for its modernization and granted 19 settlement loans (losing a significant amount of
money). Twenty-five years later the railroads have not been modernized.
On the other hand, Easterly also explains his skepticism with respect to the Highly Indebted
Countries’ Initiative, in which the debt of such countries is cancelled. The author proposes that
certain governments’ accumulation of debt has largely been cases of irresponsibility which
compromised the countries’ future to finance current standards of living. Easterly documents his
hypothesis by showing a correlation between the levels of pardoned debt and the levels of
Having analyzed the models and many failures that development policies of multilateral
institutions have guided in the past, the author proposes his vision of economic growth which is
based on incentives. Incentives, the author asserts, can guide economic decisions. Easterly
uses the case of the textile manufacturing industry in Bangladesh and shows how knowledge spill
over can create benefits for third parties without any additional costs, while also creating specific
returns for investors, and provide tremendous gains for the economy as a whole.
Knowledge is a complementary factor for growth. Greater gains are achieved by a society with
more knowledge. However, for investment in education to be profitable there should be a
minimum rate of return. One of the problems with investment in knowledge is that the individual
investor cannot obtain returns on this investment, while others enjoy the gains without any cost.
What results is extremely low levels of investment. On the other hand, societies with low levels of
education cannot break the vicious circle with the low returns on knowledge. Nevertheless,
Easterly points out that this occurs on the national or regional level where human capital
concentrates in the larger cities and people reap greater benefits for knowledge than in smaller
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localities with lower levels of training. 0.25"
To illustrate the impacts that technological development can have in the productivity of an
economy, Easterly provides various examples of how the new technologies and industries have
constituted the largest source of growth, although such innovations have also caused the
destruction of old industries and technologies. The author indicates that the continual process of
creative destruction also complicates the incentives for the continuation of innovation. Innovators
cannot capture all the returns of their innovations because others can imitate them, even with the
existence of patents. At an unprecedented pace of technological progress, the new technologies
leave present technologies obsolete making it increasingly less attractive to innovate. Easterly
points out that ironically, the faster the rate of innovation in a society, the lower the returns are for
Easterly dedicates a chapter to speak about the natural disasters that generally affect the
developing world with greater intensity. The author notes that disasters do not only severely
affect individuals, but entire societies as well. Not only are poor countries more prone to natural
disasters and wars, but also to diseases such as AIDS. The author points out that in addition to
being a human tragedy, AIDS is affecting young people at their most productive age, which also
results in great losses of knowledge and human capital.
Previously, Easterly called attention to the fact that there is little correlation between rates of
economic growth by country throughout various periods in history. These discrepancies, the
author points out, cannot be attributed necessarily to changes in economic policies. Cycles of
bad luck, natural disasters, and the fall in prices of raw materials, have also played an important
role in the economic decline of various regions.
For Easterly, corruption is one of the larger obstacles for economic growth. Nevertheless, the
author points out that there is a distinct difference between centralized and decentralized
corruption. Decentralized corruption drives a higher rate of theft?, given those receiving bribes
compete to obtain their share of spoils. This type of corruption, Easterly proposes, can have
extremely harmful economic effect in the growth of a country. Such decentralization also makes
corruption all the more difficult to punish. In a system of centralized corruption, the corrupt
individual cannot ask for bribes past a certain level, because he or she knows there are economic
limits that he cannot pass. The effect of this type of corruption is less negative upon growth.
The last determining factor is the level of polarization that exists internally within a society,
whether it be a result of ethnic, religious, socioeconomic, or other types of differences. Easterly
indicated that this polarization can be the principal obstacle in creating incentives for economic
To illustrate this point, the author explains the case of Ghana, where different ethnic differences
have driven the country’s government to freeze the price of cacao, which is produced principally
by the Ashanti population that makes up the political opposition. In addition to affecting the
Ashanti population, this measure had a disastrous effect on the national production of cacao.
Socio-economic inequality also has a serious negative impact on the growth of a country and
upon democracy. For example, the economic elite of a country will vote against the transfer of
resources to public education, although education contributes to the economic growth a country.
Growth guides the political participation of the majority of voters, but such a transfer for education
still represents a threat to the interests of the economic elite. With this, Easterly concludes that
the consensus of the middle classes is a determining factors for growth along with low levels of
Easterly is witness to the lack of education, health and other basic services while traveling in the
developing world, but he also finds hope in the stories of success. The author arrives to the
conclusion that providing the right incentives is key to economic growth. In other words, growth
requires the following: government incentives that encourage technological adaptation and
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promote primary level education; donors direct aid to countries that implement effective policies 0.25"
so the aid can have positive results; a policy that is not polarized between antagonist groups;
and, needs foundation of consensus for investing in the future.
Although the book criticized many of the policies of the World Bank and the IMF, the author
recognizes multilateral institutions’ enormous importance in the development policies of the
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