The recipe for economic growth

Long-term development isn’t a linear progression: many countries get stuck in the middle-income trap. What do they have in common and how might they escape? Jonathan Compton explains.

Those big tree things in Singapore
Singapore’s GDP per head has eclipsed Britain’s for the past two decades
(Image credit: © iStockphoto)

I am offering my services for a ridiculously modest fee to any poor country keen to double the size of its economy in real (inflation-adjusted) terms over the next 11 years. That means GDP growth of 6.5% a year. For the first five years, I require no payment; then perhaps a tiny 0.1% of GDP for each of the last six years.

There is no great mystery in how to make a low-income economy boom. Ideally, start with a young population, because the old tend to become a state expense and hoard money, hampering GDP growth. Then move most of those people working on the land to the cities (tourist brochures showing charming paddy fields with workers bent double are exemplars of low value-added – the products add little to the economic pile).

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Jonathan Compton was MD at Bedlam Asset Management and has spent 30 years in fund management, stockbroking and corporate finance.