How Deep Are the Deeper Determinants?

The economic literature on the role of geography and institutions, deep determinants of development, is critically analyzed. The writings of the economists, who believe in the primacy of institutions for economic growth, emphasize that the influence of the institutions planted by the colonizers centuries ago is still influencing the growth process and development outcomes. Similarly geography, as argued by Sachs, Jared Diamond, Oded Galor, etc., impacts long-term economic growth through the channels like quality of terrain, level of temperature, abundance of natural capital, being landlocked, etc. Geography and institutions are not the only deeper determinants of economic growth. Further, said determinants are not perfectly immutable as many countries have successfully overcome the binding constraints imposed by the geography and institutions. Removing these constraints is, however, not that easy. Some other determinants like productivity, patience, and role of leadership are comparatively easier to fix. Accordingly, this chapter takes the discussion a bit further and includes said determinants in the list. The significance of productivity is emphasized. It is argued that Pakistan is stuck in a low productivity trap due to allocative inefficiencies of all sorts. The relationship between patience and prosperity is critically discussed. Time-series data is analyzed for South Asia and other comparator countries which indicates that Pakistan is persistently on decline in terms of investment ratios, i.e. capital formation. Further, Pakistan not only saves less rather its consumption is not geared toward expenditure heads like health, education, and welfare having positive impact on long-term economic growth. The role of leaders in economic growth is highlighted as an important determinant deriving insights from the findings of the commission on Growth and Development and other empirical evidence.