How Useful is Growth Literature for Policies in the Developing Countries?

Growth literature has focused mainly on the long-term growth outcomes, but policy makers of the developing economies need rapid improvements in the short- to medium-term growth rates. In this article, we argue that this widening gap can be reduced by distinguishing between the short- to medium-term growth effects of policies from their long-run growth effects. With data from Singapore, Malaysia and Thailand, we show that an extended Solow (1956) model can narrow this gap. We find that the short to medium term growth effects of an increase in the investment ratio are quite significant and persist for up to 10 years.