What Raj Shah is reading

The USAID director is asked about his five recommended readings in development. Interesting picks.

One comment that caught my eye:

Solow is absolutely right. Institutions are very important. I keep referencing the Solow growth model, which defines the core driver of economic growth as technological innovation. We try to make science, technology and innovation a bigger part of what USAID does around the world.

No, no! This is the fib your economics professors tell you because (i) they only have 13 weeks to teach intro to macro, and (ii) none of us know the real answer anyways.

The Solow model basically says that everything that is not capital or labor matters. We lump that into a single parameter, and call it technology because it’s easy to digest. But when economists talk about “technology” they mean everything that leads to better combinations of labor and capital, from the organization of work, to public goods, to culture, to (yes) science and tech.

Even if science and tech innovation is the fundamental driver of growth in the developed world, is this true in the developing? I think about all the barriers to innovation and better organization and more efficient investment, and science and tech are low on my list.

Yes, money is definitely needed to adapt technologies to new contexts, but the big barrier to industrial growth is uncertainty about the political stability of the country, policy volatility from the government, the worry that your gains will be taken away through corruption, overvalued exchange rates reducing your competitiveness, and the high costs of doing business when the electricity seldom works, the port’s a joke, and roads are almost nonexistent.

OK, so mine is a completely unevidenced and underexplained answer. I can only point you to my favorite course reading list