HOW COUNTRIES GET RICH

What Makes a Country Rich?

Higher economic output per person - more food, goods, services

produced

Key is greaterproductivity- value of production per worker

Supply meets demand - income from production provides means to

buy production

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Where Do Higher Incomes Come From?

Tools and Machines

Increase worker productivity e.g. earth mover vs spade

Organization of Production

Specialization and division of labor

Larger scale enables more specialization

Technology

Quality of capital that augments labor

More advanced earth mover allows more value to be produced

Institutions

Incentives, ownership, markets, regulations etc.

Enable smooth functioning of production and trade

Limits to Agricultural Productivity

Diminishing returns to land - consolidation helps but limited

Historically, transition tomanufacturingenabled major

productivity growth

Industrial Revolution Effects

Factory system with machinery increased efficiency

Workers left farms for factories

Remaining farmers consolidated land, adopted better techniques

Virtuous cycle of productivity growth, demand growth, reinvestment

Why Was Historical Growth Slow?

Limited funds for large factories, gradual demand growth

Needed to invent new technologies at frontier

Average growth of 1-1.3% a year over decades

Fast Growth in Recent Years

Asian Export-Led Model

Active government role

Targeted export sectors using cheap labor

Achieved scale through foreign demand

Productivity growth through learning and technology adoption

Spread to rest of economy

Typical Structural Transformation

Agriculture to manufacturing to services

India lagging in manufacturing share and growth

Key Points

Productivity growth through better tools, organization, technology

Manufacturing central to historical development

Gradual growth limited by innovation and demand

Export-led Asian growth much faster through scale and catching up

India trailing peers in structural transformation

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