ABSTRACT
What explains the divergence in growth of national income across countries noted in Chapter 1 has long preoccupied economists and development practitioners. Theoretically simple economic models are available to explain that growth is determined by increases in either factor inputs (at the most aggregate level labour and capital) or in the efficiency with which they are used. These are the immediate or proximate causes of growth. However, whilst we may be able to explain an increase in growth by reference to an increase in capital inputs due to higher investment, for example, this simply pushes the explanation back to what causes the higher investment. Hence, there is a need to seek out the underlying or fundamental causes of growth. Here, there is more choice of explanation and there has been a vast literature identifying various fundamentals, such as openness to trade, geography and climatic factors, institutional quality and the general climate for private investment. In addition, there is also a tradition that argues that economic structure matters and that for many economies the ability to expand their manufacturing sectors will be critical to the growth process at an early stage of development; this is sometimes termed the engine of growth case for manufacturing. This chapter explores this argument in the context of development and links it with the experience of the NIEs highlighted in Chapter 1. It also introduces current global concerns relating to poverty reduction.
