|
|
|
|
|
|
|
|
|
|
  |
 |
  |
This is an archived USAID document retained on this web site as a matter of public record.
A microeconomic agenda for development
>> Foreign Aid in the National Interest >> >> Chapter 2 Jump to Chapter 2 Sections:
>> New thinking on drivers of growth >> Income inequality is declining >> More trade and investment mean faster growth >> Increasing U.S. imports through the African Growth and Opportunity Act >> A microeconomic agenda for development >> How can the U.S. support growth in developing countries >> Background papers >> References
The traditional approach to economic development focused on generic macroeconomic, legal, and political conditions has delivered significant improvements in many parts of the world. But deeper efforts are needed to fully reap the benefits of past reforms. Indeed, without additional steps the sustainability of past achievements is in doubt.
A new microeconomic approach to economic development provides a framework for taking those additional steps. It is more country-specific, more long-term, covers more individual policies and activities, and involves far more participants. It is not a quick fix. But it is the primary way to increase developing countries’ ability to compete in world markets while improving their living standards.
New thinking on the microeconomic foundations of competitiveness
Many discussions of competitiveness focus on the macroeconomic, political, and legal features of successful economies. These features are becoming increasingly well understood. Stable political institutions, trusted legal mechanisms, and sound fiscal and monetary policies contribute enormously to a healthy economy. But they are not enough. Though they provide opportunities to create wealth, they do not create it. Instead, wealth is created through an economy’s microeconomic foundations, rooted in company operations and strategies as well as in the inputs, infrastructure, institutions, regulations, and policies that constitute the business environment in which a nation’s firms compete. To fully succeed, political, legal, fiscal, and monetary reforms must be accompanied by microeconomic improvements.
Many developing countries are continuously tripped up by microeconomic failures. Growth spurts can be generated through macroeconomic and financial reforms that exploit comparative advantages, attracting floods of capital and creating the illusion of progress. But unless firms can create valuable goods and services using increasingly productive methods moving competition to higher levels-growth will be snuffed out as jobs fail to materialize, wages stagnate, and investment returns disappoint. Capital flows and investor attention will then shift elsewhere. The austerity that results from such cycles is at the core of the backlash against globalization that is becoming perhaps the world’s most pressing economic problem.
page 2
 |
|||
Last Updated on: October 07, 2009 |
