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This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the period from 1970 to 2008, it shows that initial debt is inversely related to subsequent growth, controlling for other determinants of growth. On average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated over the medium to long run with a slowdown in real per capita GDP growth of approximately 0.2 percentage points per year, with the impact somewhat smaller in advanced economies than in emerging market economies. Some evidence indicates nonlinearity, with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Moreover, when a country's economic and financial position vis-à-vis the rest of the world is weak or the share of its foreign currency-denominated debt is large, the adverse impact of initial public debt on subsequent growth tends to be much more pronounced than when these factors are at more moderate levels.

This chapter examines some stylized facts about the primary fiscal balance, a key determinant of public debt dynamics which, together with the level of the public debt stock and the differential between the interest rate on public debt and GDP growth, forms the basis for projecting the future path of a country's public debt. More specifically, the chapter estimates the empirical relationship between the primary fiscal balance and its underlying determinants using both country fixed-effect and dynamic-panel data methods. It provides an illustrative example showing how to apply the empirical findings to predict a country's primary fiscal balance on the basis of economic fundamentals. While achieving a large primary fiscal surplus is not unusual, sustaining it over an extended period is quite uncommon. The chapter shows that real economic growth has a significant positive impact on the primary fiscal balance, and that countries tend to run higher primary fiscal balances when faced with higher debt-to-GDP ratios.

This chapter has three main parts. The first part reviews the patterns of growth and structural change in Indian GDP, highlighting key turning points over the period since the country’s independence. Based on shifts in policy orientation, four distinct phases of GDP growth and structural change are identified and analysed from 1950 onwards. This chapter also examines the growth and sectoral composition of employment, productivity growth, and patterns in average wages/salaries in India. Structural changes are examined in terms of the broad tripartite division of the economy into the agriculture, industry, and services sectors. In the second part, the chapter focuses on the manufacturing sector and examines growth and structural change in from the perspective of value added and employment within the sector. The third section investigates patterns of poverty and their linkages with structural change and growth in the Indian economy as a whole and manufacturing in particular.

China has maintained a phenomenal rate of growth over the last two decades (until very recently), with annual GDP growth averaging about 10 percent. What accounts for this impressive growth performance? How long is this growth pattern likely to last and what are the risks? This chapter attempts to address these questions by providing a critical evaluation of the combination of macroeconomic and structural policies that has resulted in high rates of growth in recent years. The main argument is that the set of policies that has generated impressive headline GDP growth masks a number of problems that have led to unbalanced growth and portend serious risks for the future. It then discusses the main elements of a reform agenda that would ensure the sustainability of China's growth, improve the economic welfare of its citizens in a commensurate manner, and make the economy more resilient to shocks.

This chapter investigates the extent to which real income growth for households around the middle is seen to diverge from growth in national income per head—the most widely-used metric for assessing overall macroeconomic performance. While the concentration of income gains at the top of the distribution examined in Chapter 3 is one potential explanation, it is by no means the only one. A range of distinct factors that may contribute are described and their importance assessed across countries and over time. The implications are brought out both for understanding what drives ordinary living standards and for how they are best monitored and assessed.

This chapter provides a critique of formal debt sustainability analysis, including the Maastricht Treaty fiscal rules, stressing the problems of one-size-fits-all approaches. It examines patterns in public debt accumulation, including the roles of rent-seeking behaviour and economic, financial, and geo-strategic crises. The chapter looks at macroeconomic drivers of debt sustainability, notably GDP growth, as well as at structural drivers, in particular sector balance and dependency. The chapter also investigates the roles of cultural, ideological, and institutional drivers of debt sustainability. They include the ideological character of governments, cabinet duration and type of government, electoral cycle, domestic fiscal institutions, fiscal rules, veto players, economic culture, public opinion, state traditions, and governing competence of elites. The analysis of these drivers leads to the conclusion that formal debt sustainability analysis fails to address key determinants of public debt, notably governing competence.

This chapter compares trends in financial integration within Asia with those in industrialized countries and other regional groups. Declines in cross-country dispersion in equity returns and interest rates suggest increased Asian integration, with the process interrupted by crises and global volatility. Cross-border equity and bond holdings have also increased, but Asian countries remain considerably more financially integrated with major countries outside the region than with those within the region. The chapter also discusses whether potential benefits of regional financial integration, such as increased risk-sharing and stability of the investor base, have materialized.

This chapter analyses the structural context within which protest networks emerged, focusing on socio-economic factors. Drawing on social movement theory and revolution studies, this chapter looks at changes in key economic factors affecting people’s livelihood such as GDP growth rate, unemployment, food prices and inflation, and their possible impact on protest movements. Also examined are the links between rising food prices and the Mahalla protests of 2008 and the January 2011 uprising; between fluctuations in GDP growth rate and the anti-Iraq war and pro-democracy protest waves; and between various economic factors and the workers’ protest wave of 2006–2008. The possible relationships between demographic changes, employment and key protest moments are also examined: the 2011 uprising occurred a decade after the peaking of Egypt’s so-called ‘youth bulge’. Also looked at are changes to Cairo’s urban make-up and how these facilitated the rise of a mixed-class protest movement and the development of innovative tactics that helped to outwit the police.

This chapter investigates empirically the relation between GDP growth and health expenditures. Since Newhouse (1977) an extensive empirical literature has sought to assess whether health care is a luxury (income elasticity above one) or a necessity (elasticity below one). This is still an unsettled issue, which is unfortunate since most projections of future expenditures rely on assumptions regarding this elasticity. An income elasticity greater than one implies that consumers' preferences drive health expenditure above income growth and could explain the increase in the share of health care in GDP.

Chapter 10 reviews the factors responsible for the strong dependence of developing countries on foreign capital and foreign aid, as well as the cyclical capital inflows and long-term development problems entailed by such a situation. It then discusses a family of models, some of which were developed after the debt crisis and recession of the 1980s and 1990s. These models aim to determine the amount of foreign loans and grants required to reach a preset rate of growth of GDP. It finally assesses the macroeconomic and growth impact of high dependence on foreign finance and foreign aid.

This chapter illustrates the features of the external sector of commodities-exporting and investments-importing developing countries. It discusses in particular the value of the price and income elasticities of commodity exports and compares them with those of capital goods and intermediate inputs imported from the industrialized countries. It then illustrates the Thirlwall model that shows that unfavourable values of such import and export elasticities may reduce the rate of growth of GDP compatible with balance of payments equilibrium. Such a conclusion tends to suggest a need for a structural diversification of the economy of developing countries out of the resource sector.

This chapter outlines the contours of change experienced by developing countries in the world economy, situated in historical perspective, which provides answers to the questions posed at the outset, to recapitulate the essentials of an untold story. It considers prospects, in terms of possibilities and constraints, for countries that have led this process of catch up during the six decades from 1950 to 2010 and for countries that might follow in their footsteps. It also contemplates the future of developing countries in the world economy, which is obviously uncertain and unpredictable, to speculate how this catch up might reshape, or be influenced by, the international context.

Higher household debt has been associated with lower future GDP growth across a broad set of 80 countries over the period from 1950 to 2016. Several institutional factors, such as flexible exchange rates, capital account openness, and higher financial development and inclusion, appear to mitigate this negative relationship between an increase in household debt and lower future GDP growth. Three mutually reinforcing mechanisms help explain this relationship. First, increases in household debt amplify the probability of future banking crises which significantly disrupt financial intermediation. Second, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. Third, debt overhang impairs household consumption when negative shocks hit.

This introduction provides an overview of the key facts and the conceptual links between education, skill formation, technical change and economic growth. It begins by summarizing the leading theoretical channels through which human capital accumulation contributes to economic growth, including its role in creating and diffusing new technologies. An assessment of the current state of education and skill accumulation in the US follows, with comparisons of US performance to that of other industrialized countries. The introduction then offers ten conclusions by the coeditors, based on the new findings of the twelve papers as well as the coeditors’ own reading of the literature. The final part of the introduction provides a brief summary of the twelve papers and how their findings inform the larger questions.

Our final chapter reaffirms how 'responsible stagnation' (RS) can incorporate a different set of values and measures into an a-growth understanding of innovation. It argues for greater circulation of novel ideas to help mitigate the environmental and social damage inevitable if we continue to prioritize GDP-measured growth and suggests that many of these are already in the system. Rather than creating an impediment to the quest for progress, the chapter demonstrates how RS, as an integral component of responsible innovation and not its antithesis, provides a framing mechanism through which assumptions about growth can be made visible and questioned. This opens possibilities for innovation directed at achieving social, ecological and economic equilibrium and for reducing input rather than always seeking to produce more. It concludes by examining the part that both innovation and stagnation will have to play in the transition to a more sustainable, more socially equitable society.

This chapter explores why market-based policies, promoted under the prevailing global paradigm of “economic liberalism”, are not sufficient in and of themselves to facilitate human wellbeing in a stagnant world economy. It describes how, in theory, markets deliver efficient allocations of private (commodified) goods and services, yet in practice the conditions for this efficiency are seldom met.

This chapter considers some of the preliminary findings on the separate measures of U.S. GDP growth, inflation, savings rates, and the stock market. It performs a very simple analysis using time series of macroeconomic and population data to explore the possibility of correlations between population age structure and economic performance. Young people in the household- and family-formation stage are expected to have an inordinately strong effect on GDP growth. There is a strong relationship between age structure and longer-term change in measures of macroeconomic performance. The sharp dislocation between 1918–1920 is due to age structure effects of the flu epidemic at that time, in combination with war-time losses and drastic reductions in immigration. It is shown that changes in the age structure of the population might have been responsible for the marked cyclicality in the underlying patterns of longer-term change in these measures during the twentieth century.

This chapter predicts that China is heading towards an investment bust from which its financial system is unlikely to escape unscathed. Consumption is expected to hold up rather well through this process, but it will not accelerate by the 1.5 percentage points needed to maintain steady headline GDP growth for every percentage point that investment is expected to slow. The labour market will be hit by a slowdown in construction activity, and high-net worth households are likely to face negative wealth effects from falling property values. While government policies and increased subsidies may be able to offset some of these effects, Chinese GDP growth is expected to slip to 4–6 per cent at some point, not too long after 2013.