In your view, has globalization changed the set of best growth-promoting policies? (Tim Holland, Atlanta, GA, USA)

Yes. In the 1950s and 1960s, one could still imagine a set of growth-promoting policies that treated export competitiveness as a desirable, but not overwhelmingly important objective. That conception formed the basis of import-substitution strategies, which did produce high growth in a number of developing countries in Latin America, Africa, and Middle East. By now, it has become clear that any country that is not positioning itself for export success is throwing away an amazingly important lever for growth.

I couldn’t find any reference to the role of globalization and outsourcing in your paper on India reviewed by SmartEconomist.com. Do you really believe that the services export boom has little impact on India’s economic growth? (Chapal Bhawan, Bangalore, India)

India’s economy began its take-off in the early 1980s. Companies such as Infosys and Wipro were either non-existent or just getting off the ground at the time. They certainly did not play any quantitatively significant role up until the late 1990s at the earliest, because their role in the economy (in terms of contribution to GDP, total employment, total exports, and so on) remained quite limited until that time. It is of course impossible to say the same in 2007 (even though IT’s direct role still remains somewhat small in relation to the rest of the Indian economy). And any analysis that focuses on India’s future from the vantage point of today would have to focus heavily on globalization and outsourcing.

Successful economic development can be effectively supported by active industrial and fiscal policies - as countries such as Israel, the Asian Tigers, India and China show. Why, then, are there so many economists against such policies?

Good question. I wish I knew the answer. Economists by training are suspicious of government intervention in the market. Maybe they spend so much time trying to knock down bad arguments in favor of government intervention that their instinct is to keep saying “nay” when they encounter good arguments.

Shifting production and exports from low-value goods and commodities towards more sophisticated, less price-sensitive products: should this be the main policy goal in the poorest African countries? (Agostinho Ribas, Luanda, Angola)

Structural transformation in the goods that these countries export should indeed be a key objective of policy, but I would put the nature of the goods one should promote differently. Policy needs to focus on non-traditional exports - that is, goods and services that are new to the economy and are tradable in world markets. Non-traditional agricultural commodities (such as pineapples or avocados) are as likely to be growth-promoting as industrial commodities.

In your view, what are China’s long-term prospects? Will central planning deter entrepreneurial activities, or will free initiative favor the emergence of a more democratic political process?

China no longer has central planning in any real sense of the term, but you are right about the need for more democracy. Ultimately, the most important challenge that awaits China is the need to transform its political regime and render it more transparent, democratic, and accountable. How China manages this transition will determine its long-term prospects as a prosperous, unified country more than anything else.

According to Prof. Joseph Stiglitz, the WTO “Doha Round” talks have stalled because of the US insistence on protecting its large farmers - a negotiating stance poor agricultural countries obviously oppose. Do you share his view? (Burt Lynch, San Francisco, CA, USA)

Certainly the unwillingness of rich countries - and of the US in particular - to liberalize their agricultural markets is a key obstacle to the completion of the Doha round. At the same time, I am not convinced that agricultural liberalization is such a big deal for most developing countries. The world economy is quite open as it is, and I cannot think of any developing country whose growth prospects are seriously restricted by existing trade policies in rich countries. The main challenge in WTO at present is to move from an “exchange of market access” mindset to an “exchange of policy space” mindset.

The “new growth economics” stresses the importance of production and information spillovers, such as those arising from physical proximity between suppliers and customers. Does this provide a strong basis for active industrial policy?

Anytime you have spillovers of the type you mention, there is the possibility that markets will underperform. So yes, these issues do make industrial policy more relevant. But there are no easy answers or policy solutions here. Often, these spillovers can be internalized by firms themselves getting together and coordinating or collaborating in some way. The appropriate role of the government in such cases is more of a facilitator than of a subsidizer.

Are democratic governments better at pursuing economic development than authoritarian ones?

In general, yes. Empirical evidence indicates that while on average democracies do not produce higher growth rates than authoritarian regimes, they do produce less economic instability, greater resilience to external shocks, more predictability, and superior distributional outcomes. On balance, democracies are therefore more development-friendly than authoritarian regimes, even when we look at it purely from an instrumental perspective. Once we factor in the intrinsic value of democracy, the superiority of democracy becomes even stronger.

Advanced economies are moving away from manufacturing towards services. Could developing countries place their bets on services and neglect the manufacturing sector? (Susannah Prize)

Perhaps, but many services are destined to remain non-tradable. So a strategy that neglects manufacturing is a risky strategy for all but the smallest economies (which can develop based on tourism or call centers). Even in India, where everyone focuses on IT services, recent growth owes a lot to successes in manufacturing areas such as pharmaceuticals and auto components.