What Does Economics Say About Institutions For Growth

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Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, March 18, 2012

Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, March 18, 2012

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  • 1. What does economics say about institutions for growth A Panel Presentation at the iiG Workshop and CSAE Conference 2012 Economic Development in Africa Alemayehu Seyoum Taffesse March 18, 2012I. Approach I will briefly recount the story of the formation and evolution of an organization, highlight why it succeeded, subsequently identify three lessons relevant to the study/impact of institutions for growth, and conclude with a couple of implications/suggestions. 1. The story of the EEA; 2. What can we learn/ surmise from the story; 3. Implications to institutions for growthII. A case study – EEA’s formation and evolution; 1. The state of economics in Ethiopia circa 1991 i. No economics specific journal; ii. The top university department has no PC; iii. Papers published on the Ethiopian economy – very few 1
  • 2. 2. The state of economics in Ethiopia circa 2012; i. Economic analysis on/in Ethiopia has matured considerably in the last two decades or so. This is in part explained by the following:  The demand for economic research has grown considerably. Reforms and other aspects of policy choice generated greater appreciation of the role economic research can play. Increasingly, this appreciation has led to the use of economic analysis as one basis of policy formulation.  In part as a consequence, the incentives to doing research have improved substantially over the years. Indeed, we now have a large number people and organizations who have specialized in doing economic research;  More resources are available to do economic research. These include not only funding, but also an increasing number of well-trained economists. 2
  • 3. 3. EEA’s role and transformation - State at formation, Current state; Item Establishment Current (2010) (1991) Membership Less than 100 More than 3000 (Indian economics Association, 1917) Office a small office a fully functioning manned by a part- Secretariat time staffer Assets a few hundred a 5-story large multi-purpose Birr building Publications a newsletter multiple regular publications including Quarterly Macro- economic Report, Annual Economic Report, Bi-annual Ethiopian Journal Economics, and conference proceedings Dissemination, a simple regional and international communicatio roundtable conferences and many n discussion thematic discussion fora Research Ethiopian Economic Policy Research Institute (EEPRI) - 2000Many observers have publicly identified EEA as one of the most, if notthe most, successful professional associations in the area of economicsin Africa. 3
  • 4. III. Impact 1. Changed the rules of the game – coordination (information), values (incentives), memory (knowledge, attention, coordination) [Impact – Has achieved a change in how economics is perceived and done] i. Journal (19 volumes, 38 issues, more than 120 articles); Report on the Ethiopian economy (10 volumes since 2001 – reference materials); International Only Journal EJE Period Journal Ethiopian Articles Articles Articles Authors 1969-2010 431 114 317 106 1969-1990 6.3 0 8.5 9.4 1991-1995 7.7 72.7 2.8 13.2 1996-2000 16.2 42.9 12.6 18.9 2001-2005 31.1 22.4 32.8 18.9 2006-2010 38.7 18.0 43.2 39.6 ii. Conferences – 9 annual international conferences on the Ethiopian Economy (something like this conference and research on African economies) 2. High Stature i. Invited to all important public meetings on economic policy; 4
  • 5. ii. Work with international, national, and regional organizations in the public, private, and non- governmental sectors;IV. Why 1. Circumstances changed for the better 2. A group of individuals with vision, commitment – aspiration leading to action produced the outcome; [I want to quote from the inaugural address of Dr. Eshetu Chole, the first president of the EEA. He expressed his vision as follows: “My vision is that, by the time it celebrates its twentieth anniversary, it will have expanded its membership substantially; established a reputation as a respectable repository of professional knowledge; accumulated a distinguished record of research and publications; further advanced the cause of public education in economics; earned the respect of the public and contributed in several tangible ways to the economic advancement of Ethiopia.”]V. Implications; 1. Opportunities matter, but opportunities can be passed or opportunities can be ‘endogenously’ created; 2. Aspirations matter; 5
  • 6. 3. Individuals (or leadership) matters – symmetry breaking (the mother of all symmetry breakers is the Higgs boson) – they provide that marginal input that triggers a change in ‘direction’ a system takes;VI. Implications to institutions for growth 1. Building well-functioning organizations is vital to bringing about institutional change. Such organizations generate/provide the knowledge (information), induce the attention, and enable the coordination necessary for such change. Individuals, by themselves, will not do so to the level necessary. For example, the emergence of relevant independent, credible, and professional organizations, such as the EEA, can contribute to good policy making via i. The production, updating, and dissemination of economic knowledge; ii. The creation of fora for open discussion; and iii. The Provision of advice based on rigorous theoretical and empirical analysis and open discussion 6
  • 7. 2. Supporting ‘entrepreneurial’ individuals in the spirit of ‘venture capitalists’ may provide a small, but effective, alternative with very high returns - regular, domestic, and publicized tournaments for the best ideas may be one way. Such tournaments can provide powerful incentives in the form support and acknowledgement (or recognition);3. Theories of institutional change, and economic change more broadly, need to recognize the role of aspirations and individuals more systematically; 7