Proposal preview

The Role of Economic shrinking for long term economic performance and catching up dynamics

Over the last sixty years, experiences of economic catching up, in which poor countries grow fast enough to narrow the gap between themselves and rich countries, have largely been erratic and unsustained. Episodes of growth follow interchangeably episodes of shrinking.
Economic growth over time, in simple arithmetic terms, is the sum of both growing and shrinking. As more information becomes available on the performance of economies around the world, it is clear that at least part of the stylized story about “growth” trajectories is too simple. We are all aware that periodically even the most advanced economies can suffer growth reversals where per capita income occasionally declines from one year to the next (e.g. the recession that began in 2008). What is perhaps less established is that faster growth over the long run is clearly associated with a reduction in the rate and frequency of shrinking. In fact among the economically most successful countries in the developed world since WWII, the explanation behind the economic performance is not more growth but rather less shrinking. In short, countries are rich partly because they manage to shrink less than poor countries. They shrink less when they shrink and years of shrinking are fewer. This leads to the conclusion that economic shrinking is an essential determinant for long run economic performance.
If, in the developed world, economic shrinking occurs relatively rarely, in the developing world a more diverse picture emerges. Had Sub-Saharan Africa kept its actual average growth record but mimicked the shrinking experiences of Asia since 1950, current GDP/capita in Sub-Saharan Africa would have been roughly three times higher. Instead we see how Asia since 1950 has forged ahead from other developing regions in general and Africa in particular. Again, this is not just an effect of a higher growth rates but also that it also shrank less. It seems that the success of economic development very much depends on a country’s resilience to economic shrinking and a major cause of “falling behind” is actually absolute economic shrinking of GDP per capita.
The aim of this session is to explore, both in the rear-view mirror of the developed world and a more contemporary perspective in the developing world, the dynamics behind this resilience, as well as lack of, resilience to shrinking. The reasons for this resilience are largely unknown. Still this may potentially be the key to understanding why poor countries can or cannot catch up. The most likely source of systematic patterns of economic shrinking lay in a country’s social capabilities or in the institutional arrangements that govern economic, political, and social relationships in different societies. The question becomes if there are identifiable patterns of capabilities or institutional arrangements that can be associated with societies that exhibit high rates and frequencies of shrinking, and how those arrangements differ from societies with low rates and frequencies of shrinking.
To explore these questions we invite papers discussing causes of, as well as resilience to, shrinking using both historical cases from the developed world and more contemporary ones in the global south.

Panel Organizers
Martin Andersson Associate professor Dept of Economic history, Lund University
Tobias Axelsson Assistant professor Dept of Economic history, Lund University
John Wallis Professor of Economics, University of Maryland

Organizer(s)

  • Martin MPA Andersson, Lund University, martin.andersson@ekh.lu.se, Sweden
  • Tobias TA Axelsson, Lund University, tobias.axelsson@ekh.lu.se, Sweden
  • John JJW Wallis, University of Maryland, Wallis@econ.umd.edu, USA

Session members

  • Christer CG Gunnarsson, Lund University, christer.gunnarsson@ekh.lu.se

Proposed discussant(s)

  • Dani DR Rodrik, Harvard Kennedy School, dani_Rodrik@hks.harvard.edu

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