The analysis is also undertaken at an aggregate level, offering little insight about constraints affecting different sectors, types of firms or the obstacles to economic transformation in the long run. Economic transformation is important for sustained, broad-based growth as it allows economies to catch up by sustaining high growth rates over extended periods of time (Romer 1990, Aghion and Howitt 1992, Aghion et al. 2005). Empirical evidence shows that not a single country has been able to achieve significant income growth and poverty reduction without structural transformation and economic diversification (Imbs and Wacziarg, 2003). For low income countries and countries with small domestic markets, structural transformation implies export diversification as access to foreign markets enables countries to realize economies of scale (Hausmann, Hwang and Rodrik 2007). The HRV framework also abstracts from conditions affecting the ability of individuals to engage productively and contribute to economic transformation.17
The Inclusive Growth Approach
The HRV framework is just one among many approaches to inclusive growth analytics. It is particularly relevant in cases where the income level is low, growth is slow and investments are low. Against this background, the HRV framework is an appropriate framework to study issues of inclusive growth since growth is the main driver
market failures, such as coordination externalities and learning externalities affecting negatively the country’s ability to adopt new technologies.
17 The HRV framework includes human capital as a likely constraint from the perspective of firms, but does not look at whether skills limit the ability of certain groups to engage in economic development, and the constraints limiting investment in human capital.
The analysis is also undertaken at an aggregate level, offering little insight about constraints affecting different sectors, types of firms or the obstacles to economic transformation in the long run. Economic transformation is important for sustained, broad-based growth as it allows economies to catch up by sustaining high growth rates over extended periods of time (Romer 1990, Aghion and Howitt 1992, Aghion et al. 2005). Empirical evidence shows that not a single country has been able to achieve significant income growth and poverty reduction without structural transformation and economic diversification (Imbs and Wacziarg, 2003). For low income countries and countries with small domestic markets, structural transformation implies export diversification as access to foreign markets enables countries to realize economies of scale (Hausmann, Hwang and Rodrik 2007). The HRV framework also abstracts from conditions affecting the ability of individuals to engage productively and contribute to economic transformation.17The Inclusive Growth ApproachThe HRV framework is just one among many approaches to inclusive growth analytics. It is particularly relevant in cases where the income level is low, growth is slow and investments are low. Against this background, the HRV framework is an appropriate framework to study issues of inclusive growth since growth is the main drivermarket failures, such as coordination externalities and learning externalities affecting negatively the country’s ability to adopt new technologies.17 The HRV framework includes human capital as a likely constraint from the perspective of firms, but does not look at whether skills limit the ability of certain groups to engage in economic development, and the constraints limiting investment in human capital.
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