As emphasized by Hausmann, Rodrik and Velasco, the policy challenge of boosting growth requires prioritization and identifying what are the most binding constraints. This paper draws on firm-level data from the World Bank Enterprise Survey, which suggests that the obstacles for the functioning of firms is related to firm size. Recognizing the potential endogeneity and simultaneity between firms' constraints and firm size, we implement an Ordered-Probit model with a potential categorical endogenous regressor to estimate, for the case of Bolivia, the conditional probability of facing obstacles given the firm size category, while controlling for other factors. The results confirm the importance of allowing for the roles of firm size in identifying constraints and suggest priorities for policies to remove constraints to economic performance.

As emphasized by Hausmann, Rodrik and Velasco, the policy challenge of boosting growth requires prioritization and identifying what are the most binding constraints. This paper draws on firm-level data from the World Bank Enterprise Survey, which suggests that the obstacles for the functioning of firms is related to firm size. Recognizing the potential endogeneity and simultaneity between firms' constraints and firm size, we implement an Ordered-Probit model with a potential categorical endogenous regressor to estimate, for the case of Bolivia, the conditional probability of facing obstacles given the firm size category, while controlling for other factors. The results confirm the importance of allowing for the roles of firm size in identifying constraints and suggest priorities for policies to remove constraints to economic performance.

The empirical literature on the contributions of human capital investments to economic growth shows mixed results. While evidence from OECD countries demonstrates that human capital accumulation is associated with growth accelerations, the substantial efforts of developing countries to improve access to and quality of education, as a means for skill accumulation, did not translate into higher income per capita. In this Element, we propose a framework, building on the principles of 'growth diagnostics', to enable practitioners to determine whether human capital investments are a priority for a country's growth strategy. We then discuss and exemplify different tests to diagnose human capital in a place, drawing on the Harvard Growth Lab's experience in different development context, and discuss various policy options to address skill shortages.

Abstract: "There are many economic diagnostic tools available which are trying to identify the constraints to economic growth in a given country. Unfortunately these tools tend to provide inconclusive and often conflicting answers as to what the most important constraints are. Even more worrisome, they tend to overlook the many industry-specific policy and enforcement issues which, collectively, have been found to be the most important constraints to economic growth. This is the key finding from more than 10 years of economic research by the McKinsey Global Institute (MGI). The MGI Country studies have been uniquely based on the in-depth analysis of a representative sample of industries where clear causality links could be established between factors in the firms' external environment and their behavior, in particular through the analysis of competitive dynamics. They showed in detail how industry-specific policy and enforcement issues were the main constraints to private investment and fair competition-the two drivers of productivity and thus economic growth. This finding implies that governments and international financial institutions should rely on in-depth industry level analysis to uncover product market competition issues and set reform priorities. These analyses should include the often overlooked but critically important domestic service sectors such as retail and housing construction."--World Bank web site.

There are many economic diagnostic tools available which are trying to identify the constraints to economic growth in a given country. Unfortunately these tools tend to provide inconclusive and often conflicting answers as to what the most important constraints are. Even more worrisome, they tend to overlook the many industry-specific policy and enforcement issues which, collectively, have been found to be the most important constraints to economic growth. This is the key finding from more than 10 years of economic research by the McKinsey Global Institute (MGI). The MGI Country studies have been uniquely based on the in-depth analysis of a representative sample of industries where clear causality links could be established between factors in the firms' external environment and their behavior, in particular through the analysis of competitive dynamics. They showed in detail how industry-specific policy and enforcement issues were the main constraints to private investment and fair competition-the two drivers of productivity and thus economic growth. This finding implies that governments and international financial institutions should rely on in-depth industry level analysis to uncover product market competition issues and set reform priorities. These analyses should include the often overlooked but critically important domestic service sectors such as retail and housing construction.

Since 2004 Egypt's growth has been accelerating in step with the launching of a series of ambitious reforms, reversing a trend during the preceding half-decade when Egypt's growth rate fell below that of most regional peers and well below that of the average developing country. This paper seeks to identify factors that held back Egypt's growth in the recent past, and explores whether recent reforms have removed the most binding constraints to allow at least a temporary growth spurt. Overall, the Egyptian reforms launched in 2004 appear to have focused well on the most critical constraints-reducing red tape and tax rates, and improving access to foreign exchange-thereby getting a strong growth response out of a limited set of reforms. However, inefficient bureaucracy remains an important obstacle to higher growth and reforms in this area should continue to have high payoffs. Ongoing reforms are also addressing constraints that are likely to become binding soon (or have become so already), such as inefficient financial intermediation and high public debt. Improvements in education may rapidly become a critical factor for sustaining higher growth.