ABSTRACT
In Chapter 3, we presented several models that made the case investment as a key variable in the growth process in MICs. This conclusion seems to be in stark contrast to the general opinion of the Economics profession that, in the long run, nothing really matters for growth except increasing productivity. What is generally lost in this discussion is the fact that in developing countries labor productivity is one of the beneficial results of investment, as it incorporates the technical change of the countries that produce the capital goods that developing countries import. Investment, in addition to an increase in the capital stock, is also a conduit for economically useful innovation. At the same time, the long-term high investment rates that Asian countries have been able to maintain promote a continuous learning process by the labor force. Without investment, there is little chance that a country well below the world’s production possibilities frontier will grow in a sustained manner to gradually reduce the gap that separates it from the frontier.
