Growth diagnostics attempts to determine what particular factors are inhibiting a country from achieving a higher growth rate. This report by Felipe and Usui first delves deeper into that definition, and then analyzes the limitations and the advantages of growth diagnostics, particularly for the sake of donor agencies that might be tempted to view this as another silver bullet for economic growth.
We all know how those silver bullets like.. import substitution, and outward-orientation for all, and institution-obsession, worked out, so this report provides a word of caution for the well-intentioned but over-zealous.
CDE Relevance: This report has previously been assigned as required reading for a CDE course in growth and development.
The growth diagnostics methodology pioneered by Hausmann et al. (2005) is becoming a key piece of the toolkit for donor agencies in formulate their operational strategies. This paper aims at clarifying the primary objectives of the approach, highlighting some limitations for operational use. The key to benefiting from the full potential of this approach lies in a proper understanding of what it does; and being forewarned about the indiscriminate application of the approach to developing countries, for this can lead to misguided conclusions.