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Industry-level analysis: the way to identify the binding constraints to economic growth
01.12.2005
In spite of the macroeconomic reforms undertaken by many developing countries in the 1990s, growth in many of these countries has been disappointing. This article reports on ten years of research by the McKinsey Global Institute, which found that industry-specific policy and enforcement issues, such as restricting foreign direct investment in certain sectors, or enforcing taxes unequally between formal and informal sectors, collectively do most to constrain economic growth. The article describes the methodology for the studies, and the main policy issues which led to firms being protected from competition, resulting in lower productivity and economic growth.This finding implies that governments and international financial institutions should rely much more on in-depth industry-level analysis to uncover product market competition issues and set reform priorities. -
Crossfire
01.12.2006