Dani Rodrik on camels and economic growth

This page in:

CamelDani Rodrik returns to the blogging fray after a summer hiatus and treats us to a post on...camels! To be fair, he is actually quoting from an essay by Ricardo Hausmann on growth diagnostics. Here is part of the quote from the Hausmann essay:

Suppose you were asking: what is the binding constraint to animals thriving in the Sahara desert? This is not unlike the question of what limits economic growth in a country. However, in the Sahara, it is instructive to note that of those few animals that do thrive in that environment, a very large proportion are camels and a very small proportion are hippopotamus. The fact that the animals most intensive in the use of water, hippopotamus, are scarce while the animals least intensive in the use of water, camels, are thriving suggests that the supply of water may be a binding constraint to the spread of animals in the Sahara.

Rodrik takes this as a jumping off point to question the usefulness of "asking successful firms what are the main problems they face." Asking these firms what problems they encounter may actually lead us in entirely the wrong direction, according to Rodrik. One has to wonder, then, what the utility is of an exercise like the Enterprise Surveys, a collection of data on some 76,000 firms in 105 countries. I have to question, however, whether the analogy Rodrik draws on is entirely correct.

To build on the analogy - not to be too absurd - we could wonder what the camel would say if we asked him what his biggest worry is. Granted, he's really good at conserving water. However, I'd bet that he'd still be very concerned about his access to water. It would be hard to ignore this issue if he lives in a desert.

Similarly, there may be firms that, for instance, are great at dealing with complex labor laws. However, these firms might still tell us that complex labor laws are one of the primary constraints on further growth. It may be useful to think of two sets of binding constraints - those that restrict the growth of existing firms and those that prevent the emergence of new firms. Whether those two overlap or diverge is not knowable without some empirical evidence to back it up. Unfortunately, longitudinal data on firm survival is relatively sparse, so it's difficult to resolve this question in practice. In fact, at a debate today on a paper on Labor Market Policy in Developing Countries, some called for exactly this kind of data collection effort. 


Ryan Hahn

Operations Officer

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000