Against aggregative theories of growth


Abhijit Banerjee and Esther Duflo make the case against aggregative theories of economic growth:

The premise of the aggregative approach to growth was that markets function well enough within countries that we can largely ignore the fact that there is inefficiency and unequal access to resources within an economy when we are interested in dynamics at the country level. The evidence suggests that this is not true: The cross-country differences in marginal products or technology that we want to explain are of the same order of magnitude as the differences we observe within each economy. A theory of cross-country differences has to based on an understanding and an acknowledgment of the reasons why rates of returns vary so much within each country.