The Mystery of Economic Growth By Elhanan Helpman. Cambridge, MA, Belknap Press of Harvard University Press, 2004, 240 pp. $25.95/hardcover.


1.                Encouraging economic growth is an article of faith for economists worldwide, but understanding the underpinnings of growth why it occurs and how to foster it is more than a subject for academics. In particular, the author points to institutions property rights protection, legal systems and political systems as key to economic growth that affects the well-being of billions of citizens across the globe. Yet, despite the importance of the topic and decades of academic interest, there is still no blueprint that a nation can follow to assure lasting economic improvement. Throughout the last century, the per-capita income gap between rich and poor nations continued to widen, and grappling with this reality is the primary intent of Dr. Helpman's new book.

2.                 Helpman begins with a review of the facts that incomes across countries differ by large margins. For example, per capita income in the United States is roughly three times higher than per capita income in Argentina, sixteen times higher than the per capita income in Pakistan, and thirty times higher than the per capita income in Mozambique. Growth rates of per capita income also vary widely, and, unfortunately, it is not always the lower income countries that grow rapidly. Some countries with relatively low incomes in 1960, such as the Asian Tigers, have grown rapidly, converging towards the income levels of rich countries. Other low income countries have grown slower than rich countries, widening the divide between rich and poor. What are the forces that drive convergence and what are the factors that stifle material progress? These are the questions that Helpman sets for himself.

3.                 Helpman adopts a historical approach to discuss the evolution of the explanations of the key growth facts. He begins with a very brief discussion of Solow's model. He uses Solow's model to examine the role of capital accumulation, both physical and human, in the growth process. The diminishing marginal product of capital implies that countries will converge to the given rate of technological growth and that countries with relatively low initial capital-to-labor ratios should grow relatively fast. The second implication predicts that the level of per capita income in poor countries will converge to the level of per capita incomes in rich countries.

3.                In many ways, this is a very personal book, almost a dialogue between the author and his reader. Dr. Helpman is widely recognised for his work in the field of growth economics, having previously produced pioneering books on the role of interest groups in trade policies and the impact of general purpose technologies (GPTs) on economies. He takes the opportunity in this book to review and critique the work that has been done in growth economics by many of his contemporaries. The tone of the concise book captures the honesty of scholarship in a difficult subject area, recognising the ambiguity of many of the answers and the possibility that future research may not support present theory. It is very much a validation of the scientific approach to this field of social science. Research stands or falls based on its ability to answer real questions, not influenced by the reputation of the author or political opinion. Where the results appear inconclusive, he suggests future approaches always with the goal of searching for more elegant solutions to the problems of economic growth.

4.                The result is a series of chapters ranging from how capital accumulation seems to defy conventional economic theory to how economic growth is affected by the four "I's" innovation, interdependence, inequality, and institutions. Underlining much of the work are the relative contributions that human capital and technological innovation and diffusion play in contributing to accelerating productivity rates. Dr. Helpman does not offer an ultimate answer to the problems of economic growth nor does he advocate a particular set of policies. Only in the final chapter does he suggest that the most productive area of new research may lie in a greater understanding of the role of institutions and their impact on a society's economic development.

5.                 In the preface, the author states explicitly that this book is meant to be a nontechnical discussion of research findings to make them available to a broad audience. To that end, he even includes a glossary of economic terms. Nonetheless, while he has eliminated many of the calculations that would normally accompany a scholarly work in this field, the book will be most accessible to readers with foundation in the principles of micro- and macro-economics and a working knowledge of current public policy research. A 13-page list of references is included in the volume listing sources for much of the major work done in the field in the past 50 years. Helpman provides a very a high ratio of substance per page. In just 142 pages of text he tells an exciting story and develops his characters in remarkably rich detail. Those interested in the topic of growth economics will find this discussion both fascinating and provocative.

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