BreaKING THrOUGH THe FrONTIer: CaN TODaY'S DYNaMIC LOW-INCOMe COUNTrIeS MaKe IT?

Th e frequency of growth takeoff s in low-income countries (LICs) has risen markedly during the past two decades, and these takeoff s have lasted longer than those that took place before the 1990s. Economic structure has not mattered much in sparking takeoff s—takeoff s have been achieved by LICs rich in resources and by those oriented toward manufacturing. A striking similarity between recent takeoff s and those before the 1990s is that they have been associated with higher investment and national saving rates and with stronger export growth, which sets them apart from LICs that were unable to take off and confi rms the key role of capital accumulation and trade integration in development. However, recent takeoff s stand out from earlier takeoff s in two important aspects. First, today’s dynamic LICs have achieved strong growth without building macroeconomic imbalances—as refl ected in declining infl ation, more competitive exchange rates, and appreciably lower public and external debt accumulation. For resource-rich LICs, this has been due to a much greater reliance on foreign direct investment (FDI). For other LICs, strong growth was achieved despite lower investment levels than in the previous generation. Second, recent takeoff s are associated with a faster pace of implementing productivity-enhancing structural reforms and strengthening institutions. For example, these LICs have a lower regulatory burden, better infrastructure, higher education levels, and greater political stability. Looking forward, there remain many challenges to maintaining strong growth performance in today’s dynamic LICs, including the concentration of their growth in only a few sectors and the need to diversify their economies, and ensuring that growth leads to broad-based improvements in living standards. Still, if these countries succeed in preserving their improved policy foundation and maintaining their momentum in structural reform, they seem more likely to stay on course and avoid the reversals in economic fortunes that affl icted many dynamic LICs in the past.

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