Constraints to growth

In identifying binding constraints to growth of developing member countries, ADB and other multilateral development banks have adopted the Hausmann-Rodrick-Velasco methodology. In principle the methodology is relatively straightforward: by looking at all the possible constraints to private investment—the main driver of economic growth in a given country–in comparison to its peers, one should come up with one or two critical constraints to growth.

In practice, however, the methodology seldom yields ‘priorities’ because almost every issue can be shown, in some context or another, to be a major constraint to growth: poor physical infrastructure, lack of skills, difficulty in setting up a business, macroeconomic instability, high cost of finance, market failures, and governance problems. Let’s find, though, one developing economy that does not have these problems... —