Economic growth requires unleashing the productive capacities in society. Modern growth theory suggests that growth is a function of a country's present level of output as well as its long-term growth rate. The latter is what must be manipulated in order to increase a country's economic performance.

So what affects long-term growth?

We can usefully divide the sources of long-term growth into “policy” or “luck” (alternatively, policy or nature). This dichotomy is purely illustrative, of course, but makes clear that a country's growth potential is shaped both by its natural endowments and by decisions by governments and private actors of how best to utilize those endowments.

For instance, natural resource wealth provides countries with a tremendous advantage in terms of stimulating the economy, though the jury is clearly out on whether such resource wealth is a curse or not. The resource curse literature spearheaded by Sachs and Warner and Michael Ross argues that resource wealth can hurt countries, but the tide has begun to turn as others now argue that the key is how governments choose to utilize the wealth. Thus, Goldberg et al. (2008) use the case of the United States to show that resource wealth did not harm either political democracy or growth in oil-rich states, just as we know that oil-rich states in the North Sea were able to use their resources to jump-start their economies.