Scandinavian Working Papers in Economics
Lund Papers in Economic History,
Lund University, Department of Economic History
No 231: Resilience to economic shrinking as the key to economic catch-up: A social capability approach
Martin Andersson (), Juan P. Julia and Andrés F. Palcio Ch. ()
Additional contact information
Martin Andersson: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Juan P. Julia: Unit for Economic History, University of Gothenburg
Andrés F. Palcio Ch.: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Abstract: Economic growth is usually considered the main driver of convergence – the attainment by developing countries of income levels similar to those of industrialised nations. Although it has been recognised that achieving economic growth is not the same as sustaining it, analyses of the role of economic shrinking in the catching-up process, and how to build resilience to shrinking, are in short supply. The objective of this paper is to understand how emerging economies can limit the frequency and magnitude of economic shrinking and thus increase the probability of catching up. To this end, we analyse the role of social capabilities as determinants of resilience to shrinking in 26 developing countries during the period 1964– 2018. As a representation of a broad spectrum of capabilities, we construct an Index based on five interrelated social and economic capabilities: (i) transformation of the economic structure, (ii) market inclusion, (iii) social stability, (iv) accountability and (v) autonomy of the state. We demonstrate that countries with better social capabilities are more resilient to shrinking than countries with poor capabilities. Poorly endowed countries do not necessarily lack the ability to generate growth, but their limited resilience prevents them from catching up. In addition, the paper shows that social capabilities are highly relevant in smoothing the negative effects of international trade shocks in developing countries. The main implication of the paper is that improvement of social capabilities should be regarded as a key instrument to promote long-term, sustainable economic development, and it should be emphasised over short-term maximization of economic growth. This could be done by conciliating socioeconomic transformation with other concerns, such as the sustainable use of natural resources.
Keywords: economic shrinking; social capabilities; resilience; economic growth; catching up; developing countries
Language: English
50 pages, December 20, 2021
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