Getting the Diagnosis Right by Ricardo Hausmann, Dani Rodrik, and Andrés Velasco published by IMF (3/2006).
“A new approach to economic reformDuring the past 15 years, there has been a tremendous focus on achieving growth in developing countries in an effort to reduce poverty and boost living standards. To help them achieve this goal, many countries have adopted the policies known collectively as the Washington Consensus—the enforcement of property rights, maintenance of macroeconomic stability, integration with the world economy, and creation of a sound business environment. Results have been extraordinarily varied. In fact, what the experience of the past 15 years has shown is that policies that work wonders in one place may have weak, unintended, or negative effects in other places.
In this article, we propose a new approach to reform—one that is much more contingent on the economic environment. Countries, we argue, need to figure out the one or two most binding constraints on their economies and then focus on lifting those. Presented with a laundry list of needed reforms, policymakers have either tried to fix all of the problems at once or started with reforms that were not crucial to their country’s growth potential. And, more often than not, reforms have gotten in each other’s way, with reform in one area creating unanticipated distortions in another area. By focusing on the one area that represents the biggest hurdle to growth, countries will be more likely to achieve success from their reform efforts…”