The TA will have two main components: (i) the conduct of diagnostic studies and (ii) dissemination workshops.
The TA will conduct two or three country studies to diagnose critical constraints to rapid and inclusive economic growth and to structural transformation in selected DMCs, utilizing various diagnostic tools that include (i) a growth diagnostic framework, (ii) a diagnostic framework for reducing poverty and inequality, and (iii) product space analysis. The TA will also undertake one or two studies to diagnose critical constraints in a specific sector at the regional level or constraints to regional integration. In addition, the TA will support in-country diagnoses of constraints to priority sectors in selected DMCs.
The dissemination of the diagnostic approaches will be undertaken at the regional and country level. Early in implementation, the TA will organize a regional workshop to showcase for DMC officials and development partners ADB's experiences with diagnostic approaches and to learn from the experiences of other development partners.
In addition to the regional workshop, each of the diagnostic studies will be disseminated in that country and/or at the regional level through workshops and print and broadcast media. The workshops will aim to attract all key stakeholders including representatives of government agencies, civil society, the private sector, academic and research institutions, and development partners.
|Project Rationale and Linkage to Country/Regional Strategy
The last 25 years have seen considerable evolution in thinking on development policies. The Washington Consensus was guided by the belief that there was a short list of policy reforms that would promote growth. The list formed a natural reform agenda for developing countries seeking assistance from multilateral and bilateral funding agencies in the late 1980s. Subsequent experience showed, however, that the expectations raised by this agenda were often misplaced. Economic growth fell far short of expectations in Africa, Eastern Europe, and Latin America but exceeded expectations in some Asian countries that departed from the accepted rules of good practices.
Disappointment with the Washington Consensus led to broadening the development agenda in the late 1990s, with emphasis shifting to the so-called second-generation reforms largely revolving around governance and institutions. There are, however, concerns among many that this approach may create an impossibly broad and ambitious agenda that insufficiently differentiates the needs of particular countries. Moreover, frequent growth episodes observed in countries with limited or piecemeal changes in institutional endowments and sharp disparities in regional development within economies suggest problems with overemphasizing broad institutional reform as the precursor to growth. Economists continued to search for new approaches to development strategy.
This search led to the Barcelona Consensus of 2004, which recommended that, since no single set of policies could guarantee growth, the priority for developing countries searching for an effective development strategy should be to identify the most binding constraints to growth and remove them through appropriate micro- and macroeconomic policies. Prioritizing the constraints and targeting the most binding ones promised the highest growth, as their removal would have the largest impact. As part of the search for new development strategies, several Harvard economists pioneered the growth diagnostic framework, which is a systematic methodology for undertaking country diagnosis and identifying binding constraints to growth. The framework has been widely adopted by multilateral and bilateral development partners, including the Department for International Development of the United Kingdom, Inter-American Development Bank, and World Bank.
In light of the Paris Declaration's call for supporting the development of partner countries' capacity to plan, implement, and account for the results of development policies and programs, and recognizing the usefulness of the approach, ADB approved TA in May 2007 to introduce the growth diagnostic framework in selected DMCs (footnote 2). The TA also developed and introduced the framework for diagnosing constraints to poverty reduction and inequality.
Due for completion in December 2010, the TA has been largely successful in achieving its objectives. Studies have been completed for Indonesia, Nepal, and the Philippines while the study on Papua New Guinea is due for completion in 2010. Findings of the completed studies have been published. In addition, the TA produced the book Diagnosing the Philippine Economy: Toward Inclusive Growth. Study reports have been widely appreciated by both external clients (governments and other stakeholders in DMCs and development partners) and ADB's regional departments. The report for the Philippines was a key input into the midterm review of the Medium-Term Philippine Development Plan, 2004 2010 and the formulation of the upcoming Medium-Term Philippine Development Plan, 2010 2016. Similarly, the report for Nepal is a key input into the ongoing formulation of the next 5-year plan for Nepal, and interim drafts of the report for Indonesia informed the preparation of National Medium-Term Development Plan, 2010 2014. In addition, DMC governments have found the reports beneficial in engaging other development partners and expanding development dialogues with them. In particular, the governments of Indonesia and the Philippines have used the reports on their respective countries as the bases for dialogue with the Millennium Challenge Corporation of the United States government toward seeking grant assistance. ADB regional departments found the reports useful in formulating and/or updating country partnership strategies (CPSs) for the selected countries. The Nepal CPS, 2010 2012 drew on the study's findings and recommendations to focus the strategy on the critical constraints identified by the study. Similarly, the draft Philippines CPS, due for endorsement in 2011, has benefited from the study on the Philippines and targets the critical development constraints. The TA has also been successful in terms of creating awareness and appreciation of the diagnostic approaches to planning in the selected DMCs and ADB's regional departments.
Awareness of the approach and the success of the studies under the 2007 TA have generated further demand for country diagnostic studies. In some cases, regional departments have initiated diagnostic studies to support the preparation of the upcoming CPS. Replication is, however, rather concentrated in terms of regional spread and relatively small in scale. While replication in larger DMCs with sufficient analytical and planning capacity would be a matter of exposing them to the diagnostic approaches, concerted efforts are required to support replication in smaller DMCs with weak planning capacity. Efforts are also needed to ensure improvements in the quality of replication in terms of both depth and breadth. The TA has revealed that structural transformation is a growing issue in many DMCs. Achieving rapid, sustained economic growth depends not just the rate but also on the pattern of growth, so a country needs to continuously transform its economic structure by diversifying production and upgrading to higher value addition. This requires careful diagnosis of constraints that are specific to structural transformation.
The present TA will build on and expand the work undertaken by the 2007 TA, benefiting from its lessons. In addition to supporting diagnostic studies for a new set of DMCs, the following considerations have guided the design of the TA: (i) Process is important in conducting a diagnostic study, which needs to include ample opportunities for stakeholders to participate. (ii) In addition to constraints to growth, diagnosis needs to identify constraints to DMCs' structural transformation and regional integration. (iii) In small and landlocked economies, the constraints need to be identified and overcome by region rather than nationally. (iv) In addition to economy-wide diagnosis, constraints need to be understood and overcome in the priority sectors in an economy. (v) The dissemination of diagnostic approaches needs to be strengthened, particularly in countries not selected for diagnostic studies.