I forgot to take my book with me while traveling on the DC metro to work (technically, internship). Rather than staring at one fixed point(usually ground) or at people or listening to music, I thought of scribbling something on a blank paper. I started wondering about what would happen after identifying the most binding constraints to economic growth? The developing countries are resource-constrained and they might simply not have enough resources to implement policy reforms to tackle the most binding constraints. In fact, this is so true in the case of most of the developing countries. And, it might take years to accumulate the resources (money, technical assistance, technological know-how) required to take on the constraints. This will quite not produce the biggest bang for the reform buck but definitely lead in that direction.(Lately, I have been obsessed with Dani Rodrik's book, papers, blog, and growth diagnostic approach.)
So what can policymakers do to best utilize available resources to tackle the most binding constraints. Well, I thought they need to engage in "intervention diagnostic"- an approach to identify interventions that would best help tackle the binding constraints without tempering individual and market incentives. This would add some more steps to the growth diagnostic approach. For instance, the growth diagnostic approach would inform a policymaker or an economic advisor about the most binding constraints. However, its politicians who ultimately ratify any reform packages. So, they need not just an identification of the most binding constraints but a clear cut way/intervention technique to tackle the constraints. They would only act responsibly, effectively, and timely if they are presented with a clear cut argument for a certain policy reform.
This intervention diagnostic approach would exactly fulfill this purpose. Moreover, since this approach distills every bit of constraints to the constraints, and identify the most effective intervention, it would also encourage good governance, transparency, and accountability. Just identifying binding constraints and dictating policy reforms without laying out a clear cut path for taking on the constraints would breed room for corruption, special interest, and all those evils politicians can come up with. Given a clear cut path with little room for inconsistencies, the politicians will be compelled to act responsibly because there is no other alternative- the policy intervention has to be the only game consistent with available resources in the short-term.
Anyway, This is what I came up with during my 24 minute metro ride from Grosvenor to Dupont in D.C.
This particular intervention diagnostic was done keeping in mind the situation in Sulu and Basilan, two of the most impoverished regions in Mindanao, the Philippines. As a part of my internship, I am doing a research/assessment on a field project that my institution (Asia America Initiative, AAI) have been doing in the Philippines. And, I am trying to come up with a structured method to represent the experimental intervention approach (mainly to build institutions of education and conflict management, precisely for terrorism deterrence) of AAI in Mindanao.
The chart above identifies different intervention approaches one can take to tackle the most binding constraint, in this case lack of human resources, which is identified using the growth diagnostic approach. If a lack of human resources is one of the most binding constraints, then analysts have to further stretch their analysis and prescribe a clear cut intervention approach that is consistent with the available resources at a certain point of time. The intervention diagnostic approach would identify the hinges to the most binding constraints and give a clear cut direction to the final intervention required, that too has to be consistent with available resources. In this case, generating livelihood activities, and commodity-based selective intervention are the best approaches that would help tackle the binding constraint without tempering individual and market incentives. This way the intervention is done by using the least resources and without damaging the market forces.
For a full explanation, you have to read the whole paper...Email me if you want it... or it will be available for download from my website (www.dickinson.edu/~sapkotac) later this month... :)