Economic Growth in Low- and Middle-Income Countries

This is a high-level summary of our approach to launching a program focused on economic growth in low- and middle-income countries (LMICs) and not a medium investigation. We wanted to publish this summary in tandem with launching a Program Officer search, to give potential applicants more detail on how we are approaching this program, and to share some examples of grants and strategies we are considering.

1. Executive Summary

Open Philanthropy is planning to launch a program to support economic growth in LMICs. We are looking to make at least $30 million in grants over their first three years.

Economic growth is central to improving the well-being of the global poor. Historically, from the rise of early modern Europe to the recent Chinese economic miracle, economic growth has been responsible for lifting hundreds of millions of people out of poverty. Today, for the 700 million people around the world who live on less than $2.15 a day, and the almost two billion who live on less than $3.65 (World Bank 2024), economic growth is perhaps the most potent way to rapidly improve their well-being. 

Initially, we were skeptical that a philanthropic donor like Open Philanthropy could help to accelerate economic growth in LMICs. But, because of the importance of economic growth, over the last two years we have researched grant opportunities and consulted with external experts to further explore the space. The ideas we found — and the promising initial results of exploratory grantmaking — convinced us that we may be able to have a positive impact. Although we have no illusion that we have identified the ultimate determinants of growth, we have found enough promising ideas that we are launching a growth program backed by significant funding. 

While the broad field of economic growth promotion is arguably fairly crowded, we believe there are some potentially valuable niches that we might be able to help fill. First, our model of hits-based giving opens us up to funding uncertain but high-reward opportunities that others may neglect. Second, we are smaller than some other players; our size allows us to make smaller grants that may be uneconomical for larger bilaterals and multilaterals to fund, and our grant approval process is often faster. Finally, as a private philanthropy, we can complement traditional development actors by acting as a laboratory for new ideas that can be tested and scaled up.

To illustrate examples of the concrete, tractable, and potentially high-return grants we hope to make, we outline three potential grant areas: supporting economic policy advice, advocating for policy changes to promote developing country exports, and targeting illicit financial flows. We also describe two exploratory grants we have already made to support economic policymaking in Sri Lanka and the Indian state of Tamil Nadu. Finally, we describe a set of potential strategies that we could pursue with our growth program portfolio: a country-focused approach, a thematic approach, and an opportunistic approach.

We are new to this area and keen to learn from others’ experience. In what follows, we provide a high-level summary of our research to date and early thoughts on options for our program’s strategy, though both of these will continue to evolve as we work in this area. We welcome comments and feedback from the broader development community.

2. Why is Open Philanthropy planning to launch a program on growth?

Economic growth is central to improving the well-being of the global poor.

Over two hundred years ago, the onset of modern economic growth in Europe helped create the first broad-based, sustained rise in living standards in human history (Allen 2020). More recently, the rapid growth of China has lifted 800 million people out of extreme poverty, accounting for 75% of all global extreme poverty reduction over the past 40 years (World Bank 2022). Yet the global progress of economic growth has been uneven. In 2022, according to data from the World Bank, 700 million people lived on less than $2.15 a day, and almost two billion on less than $3.65 a day — most of them in sub-Saharan Africa and South Asia (Hasell 2022).

Though there has been continuous debate over the precise policies that cause growth, there is a strong consensus among experts that economic growth is central to poverty alleviation (Ravallion and Chen 1997; Dollar and Kraay 2002; Dollar, Kleineberg, and Kraay 2016; Lakner et al. 2022). When incomes rise, people can afford more food, better housing, and spend more time on leisure. When countries get richer, governments are able to invest more in public goods like education, health care, and infrastructure. Although economic growth is certainly not everything, and some growth episodes have reduced poverty more than others (Carter et al. 2024), few tools have the same potential to radically transform the lives of the poor.^[1]Even in richer theoretical frameworks that incorporate considerations like life expectancy, inequality, and leisure, national income and welfare have a correlation close to 1 (Jones and Klenow 2016).

Growth is clearly important. But economic growth is far from a neglected cause overall — for decades, international organizations like the World Bank and the IMF, aid agencies, private foundations, and (most importantly) state and country governments have invested (cumulatively) many hundreds of billions of dollars to accelerate economic growth. Moreover, finding ways to bolster a country’s economic growth as an outsider is challenging: what can a U.S.-based grantmaker like Open Philanthropy do to support economic growth in LMICs? 

We were initially skeptical about our ability to contribute, but the problem is so large that we continued to explore what we could do in this space. Over the last two years, our team has researched economic growth and investigated potential grants to promote growth in LMICs. We reviewed the growth and development research literature, interviewed 50+ experts from academia, NGOs, and governments, and commissioned reports from leading development thinkers, including by former Chief Economist of the UK’s Department for International Development (DfID) Stefan Dercon and Dirk Willem te Velde at the Overseas Development Initiative (ODI). Finally, we made two exploratory grants to help us learn about grantmaking in this space.

We’ve seen encouraging preliminary outcomes for our exploratory grants, and have discovered additional promising grant opportunities we haven’t yet funded. This has reinforced our belief that philanthropic organizations like ours may be able to make contributions toward accelerating growth in LMICs. 

We also believe that we may be able to fill some potentially valuable niches in the effort to promote economic growth. First, our model of hits-based giving opens us up to highly uncertain but potentially high-reward opportunities. To a greater degree than most funders, we are comfortable making many small grants with a low ex ante probability of success, aiming to find a few highly impactful “hits” with a sizable impact on growth.

Second, we are smaller than the field’s biggest grantmakers. This allows us to move faster, and to make small but promising grants that bigger players would find impractical or uneconomical (e.g., because they have a higher fixed cost to making any single grant). As of 2022, the average World Bank project was $89.6M in 2015 USD (Ashton et al. 2023) and took 19 months to be approved (World Bank Development Committee 2024, pg. 19). Meanwhile, most of Open Philanthropy’s grants are between $50K and $5M, and typically take around a month to be approved (3-6 months for more complicated grants).

Finally, as a private philanthropy, we can complement traditional players in the growth space. We are less constrained in the types of grants we make: for instance, compared to bilaterals or multilaterals, it is easier for us to support civil society organizations or local policy advocates, and to advocate for growth interventions that require policy changes in high-income countries (e.g., the illicit financial flows ideas discussed below). We hope to experiment with innovative growth interventions, make the case for larger actors to scale up what works, and attract further attention to the space.

Though we are new to grantmaking in the field of economic growth, Open Philanthropy has a longer track record of grantmaking in global development. Since 2007, we have given over $2.2 billion in grants to causes in our Global Health and Wellbeing portfolio. Our Global Health R&D program supports the development of vaccines and drugs, including early clinical trials of the R21 malaria vaccine; we have made a number of grants toward improving air quality in South Asia; and we launched our Global Aid Policy program in 2022. Most recently, we launched the Lead Exposure Action Fund, a $100 million pooled fund aiming to reduce lead exposure, which causes cognitive impairment for millions of children around the world.

3. A Few Potential Grants and Themes

Through our research process, we have developed a preliminary list of potential grant ideas that illustrate the kinds of projects we might fund. We believe these proposals demonstrate that there are opportunities for a private grantmaker like Open Philanthropy to move the needle on economic growth. However, this list of grant ideas is not final, not exhaustive, and not even necessarily reflective of the most promising ideas we’ve explored. Our Program Officer, once hired, will have a high degree of autonomy in finding more and better grant opportunities in partnership with the appropriate stakeholders (grantees, governments and other organizations in LMICs, and other donors).

3.1 Economic Policy Advice

One promising avenue for a growth program is to support economic policy advice to national and subnational governments. One theory of change is that LMIC governments frequently lack high-quality advice from neutral third parties about which policies to implement. Another is that while governments often know what general policy directions promote growth, they may lack the technical capacity to analyze the details. The success of a reform will often depend on these details, but the market for technical economic policy advice is not efficient. On the supply side, traditional international providers of technical advice sometimes lack independence — they might at the same time be lenders or trading partners. On the demand side, LMICs frequently lack the resources to procure and pay for high-quality independent advisors. Therefore, funding in this area could be effective in filling these gaps. 

Subsidizing economic policy advice will not be effective in general: political or institutional factors are more likely to constrain pro-growth policies than a lack of knowledge. However, in specific circumstances — for example, when there is a window of opportunity for reform, or a strong match between a potential advisor and a government — supporting sound economic policy advice may have a significant impact. Below, we highlight two exploratory grants we have made that fall into this category.

3.1.1 Tamil Nadu, India

In 2023, we gave $500k to support economic policy advice for Tamil Nadu, a state in India with a population of 76 million. Specifically, we provided funding that allowed Arvind Subramanian, former Chief Economic Advisor to the Government of India, to take a leave of absence from his academic job to work full-time as a policy advisor. Our grant also provided support for a research team to contribute to this work.

In Tamil Nadu, Subramanian’s team is primarily advising on reforms to the energy sector and to fiscal policy, which the state has identified as key constraints to growth. Since the start of this project, Tamil Nadu has sought to improve the efficiency of its energy generation and adopted two of the team’s suggested reforms in the energy market — the unbundling of energy generation and distribution and the parallel unbundling of thermal and renewables generation. We expect these reforms to enhance the efficiency of energy markets and lead to lower energy prices, which are likely to reduce firms’ costs and attract investment, leading to higher GDP growth. His team has also provided analysis to help the state redesign the stamp duty, a tax levied by governments on legal documents such as the transfer of property or assets. The new system aims to capture property value appreciation more effectively, particularly for high-value properties, making the tax system more progressive and efficient. A more efficient tax system helps growth by reducing deadweight loss, decreasing resource misallocation, and improving the state’s fiscal position.

We renewed this grant in April 2024 with additional funding, to support the hiring of staff to expand Subramanian’s advisory work to the state of Punjab (population 27 million).

3.1.2 Sri Lanka

Sri Lanka recently suffered from its worst economic crisis since independence, with GDP falling 9.5% in total during 2022 and 2023 and poverty doubling to over 25%. Though the causes of the downturn are complex — including reduced tourism after a 2019 bombing and a general decline in government revenue — elements of the crisis have been exacerbated by a former government’s policy choices, including a ban on the import of synthetic fertilizers and pesticides (Torrella 2022). Encouragingly, the Sri Lankan economy has stabilized in 2024 due to a mix of domestic policies, an IMF program, and Indian aid. 

In 2023, we gave a grant to the ODI to conduct research, share policy advice, and support advocacy in Sri Lanka to promote growth-oriented reforms. Together with a team of Sri Lankan policy experts, they prepared a collection of essays offering 27 concrete policy proposals that might help stimulate growth and improve the country’s fiscal position. ODI has also organized several public events and disseminated their proposals through the media in an attempt to improve public understanding of key policy options.

3.2 Export Promotion

After the Second World War, the Four Asian Tigers and later China grew rapidly on models of export-oriented growth, progressing from exporting low value-added goods like textiles to high value-added products like microchips (Studwell 2013). A plausible theory of change, informed by this historical experience, is that supporting exports from developing countries (particularly in manufacturing) is a viable way to accelerate growth.

However, developing countries face numerous obstacles to following an export-led growth path. Some of these are structural — Dani Rodrik and Joseph Stiglitz have argued that because of developments in automation, export-led manufacturing may no longer be a promising strategy for broad-based growth (Rodrik and Stiglitz 2024). Nonetheless, we see some instances where advocating for concrete policy changes could help to reduce the barriers faced by LMICs, and we think there may still be opportunities in services exports. We explore a few of these potential avenues below.

3.2.1 Advocacy for AGOA Renewal

One key example is the African Growth and Opportunity Act (AGOA), which was passed by the U.S. Congress in 2000 but is set to expire in 2025. AGOA gives Sub-Saharan African countries duty-free access to the American market for a range of product categories — in particular, apparel, which has historically been a key stepping stone for countries pursuing export-led manufacturing growth. Sandefur and Subramanian (2024) estimate that AGOA raised apparel exports for eligible countries by 1.3% of GDP annually from 2001-2005, and by 0.45% each year after. (Growth was initially rapid, but slowed after China’s accession to the World Trade Organization and the advent of Chinese competition.)

With Chinese labor costs increasing and general protectionist pressures growing, there may be a window of opportunity for African manufacturing industries to grow before automation in high-income countries potentially leads to significant re-shoring — provided that AGOA does not expire beforehand. Advocating for a strong AGOA renewal bill could improve the odds for an African industrial transformation.

3.2.2 Advocating for Lowering Non-Tariff Barriers

The rise of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) has systematically lowered tariffs around the world. However, non-tariff barriers — for example, administrative hurdles, quotas, and licenses — remain sizable, and effectively restrict developing countries’ access to potential markets. Anti-dumping duties, in particular, are often wielded as an anticompetitive tool by wealthy countries against poor ones (Nunn 2019).

Supporting organizations that monitor growth-suppressing non-tariff barriers and advocate for their reduction may be an important way to support the growth of exports from LMICs. Examples of actors active in this space are Cuts International, an India-based organization working to monitor and advocate against non-tariff barriers and promote South-South cooperation, and Global Trade Alert, based in Switzerland, which maintains a database of non-tariff barriers.

3.3 Targeting Illicit Financial Flows

A common view in political economy is that developing countries are often led by extractive elites, who are more interested in extracting rents than making potentially politically risky bets on broad-based growth. A plausible theory of change, then, is that increasing the costs of extractive activity will incentivize elites to support pro-growth reforms.^[2]The report we commissioned by Stefan Dercon explicates this theory, and potential ways to address the problem. Even more directly, curbing this extractive rent-seeking can return funds to the public sector, allowing the state to provide more public goods.

A potentially promising approach we may want to explore is to support the targeting of illicit financial flows — the cross-border flow of assets amassed through corruption and crime, which estimates suggest are worth more than US $1 trillion a year globally (Global Financial Integrity 2021, pg. 1). An example of an organization working in this space is The Sentry, which investigates illicit flows and performs policy advocacy to curb their use. For instance, The Sentry’s three-year investigation in South Sudan revealed how, from 2012 to 2015, government officials redirected almost US $1 billion in loans intended to import food, fuel, and medicine. Supporting organizations like The Sentry could potentially help expose further examples of financial malfeasance, which could lead to policy changes clamping down on illicit flows.

4. Potential Strategies

In the previous section, we described several promising grants and themes in a wide range of different areas. But how do we integrate these into a single, coherent strategy for our growth portfolio? This section outlines three potential strategies for our LMIC Growth program. While we have not settled on a final strategy, we summarize them here to highlight our thinking. We look forward to working with our new Program Officer to identify which of these strategies works best.

4.1 Country-Focused Approach

One potential approach for our growth program is to focus on a specific country or region. A plausible theory of change is that deep engagement in a single location will maximize our chances of moving the needle on growth. By gathering experience in a single context, we might be able to discover more promising grantees, better understand the political economy, and better identify and address the local binding constraints to growth. Our grants may be able to build on each other, creating complementarities within our portfolio. Moreover, focusing on one place may help us to create tighter feedback loops; deeper local knowledge could help us understand whether our work is having an impact, allowing us to adjust our grantmaking.

4.2 Thematic Approach

On the other hand, a country focus means (by definition) being constrained; the highest-impact growth opportunities are unlikely to be contained in just one country. A second approach could be to focus on thematic areas that cut across different countries, like the “Export Promotion” and “Illicit Financial Flows” areas covered above. This would help us to develop technical expertise in a broad-based area, and potentially have a larger-scale impact than we could by focusing on a single country. 

4.3 Opportunistic Approach

A third approach is to make grants opportunistically, casting a wide net and prioritizing the most promising grants without committing to any one problem or set of countries. As noted above, we have already compiled a set of opportunities by consulting experts and conducting desk research. We could continue to solicit new opportunities of this kind by engaging with networks of policymakers (like Africa’s Chief Economists of Government Initiative), attending World Bank and IMF annual meetings, and potentially conducting open calls.

In both the opportunistic and thematic approaches, we will also need to decide how much our strategy will emphasize grants to LMIC-based organizations, targeting and solving local problems, relative to grants focused on changing high-income countries’ policies that affect LMIC growth. For example, if our theme was “Export Promotion”, we could prioritize supporting export-promoting agencies in a set of LMICs, or we could prioritize working with high-income countries to implement trade policy more favorable to LMIC exports.

Finally, our strategy will need to grapple with the hard open questions of how to rigorously assess the progress of LMIC growth grants, learn from success and failure, and adjust the portfolio over time.

5. Potential Risks and Downsides

We are aware of, and keen to minimize, the potential risks of grantmaking that seeks to promote economic growth in countries outside the U.S. We give several examples of potential downsides of grantmaking in this area below, though we do not think that this list is exhaustive.

First, we recognize the potential risks of a U.S.-based philanthropy providing financial support to organizations working in LMICs to promote certain policies. We are committed to respecting the autonomy and freedom of citizens in LMICs. In addition, we believe that strong and sustained economic growth can only be achieved with local leadership: attempts to impose policy from the outside are unlikely to succeed or achieve their stated goals — we see much more opportunity in engaging in active policy conversations led by local stakeholders. 

We are also aware that any grants that we make in this space will involve a high degree of uncertainty, and we may never know whether our grantees positively contribute to economic growth relative to the counterfactual. We plan to develop frameworks to estimate our impact linked to observable intermediate outcomes, such as policy milestones or engagement with key decision-makers. However, we’re keenly aware that these intermediate outcomes could be misleading in terms of eventual impact (e.g., additional meetings between a grantee and policymakers could be irrelevant to the final policy decision; a legislated policy may never be implemented), and we will need to account for this when considering whether a grant was successful.

As another consequence of uncertainty, we may inadvertently support projects or policies that are misguided and end up having a negative effect on growth. To mitigate this risk, we aim to consult with relevant experts in all of our grant investigations, including those with local expertise. In many cases, we’ll also give our grantees substantial autonomy to pivot if the policy environment changes (e.g., work on improving fiscal discipline in a resource boom could become a weakness if there is a global recession and we might expect a grantee working on the former to alter their work accordingly).

A third concern is that the gains from economic growth could be concentrated in a narrow segment of the population. Our log-utility framework accounts for this: the less wealthy someone is, the more value we place on raising their consumption. Because of this, we will seek to estimate the distributional effects of our grants and use this framework to guide our decisions in the LMIC Growth program. 

This is an initial list. We intend to work closely with our new program officer to explore the risks and establish relevant guardrails.

6. Conclusion

We hope that our new program will make a contribution toward accelerating economic growth in LMICs — and, in doing so, help drive meaningful reductions in global poverty. We welcome comments and feedback on our approach — and referrals for our PO search — from the broader development community. You can email us here.

7. Acknowledgments

We thank Stefan Dercon, Dirk Willem te Velde, Arvind Subramanian, Shruti Rajagopalan, Lant Pritchett, Adil Ababou, Vishal Gujadhur, Leslie Tsai, James Foster, Michael Jarvis, John Firth, Jim Parks, Derrick Abudu, Bright Simons, Thomas Kelly, Ernest Aryeetey, Edward K. Brown, Tristan Reed, Douglas Gollin, Charles Kenny, Jenny Lah, Greg Regaignon, and Chris Maloney for their advice, suggestions and feedback.

8. References

Allen, R.C., 2020. “Poverty and the labor market: today and yesterday.” Annual Review of Economics, 12(1), pp.107-134.

Ashton, L., Friedman, J., Goldemberg, D. et al. 2023. “A Puzzle with Missing Pieces: Explaining the Effectiveness of World Bank Development Projects,” The World Bank Research Observer 38 (1): 115–146. 

Carter, P., Davies, M., Dziadula, E., et al. 2024. “When growth does – and does not – reduce poverty.” British International Investment — News and Insights.

Dercon, Stefan. 2023. “Development through Economic Growth.”

Dollar, David, Kraay, Aart. 2002. “Growth is Good for the Poor.” Journal of Economic Growth 7, 195–225.

Dollar, David, Tatjana Kleineberg, and Aart Kraay. 2016. “Growth still is good for the poor.” European Economic Review 81, 68-85.

Global Financial Integrity. 2021. “Trade-Related Illicit Financial Flows in 134 Developing Countries.”

Hasell, Joe. 2022. “From $1.90 to $2.15 a day: the updated International Poverty Line.” Our World in Data.

Jones, Charles I., and Peter J. Klenow. 2016. “Beyond GDP? Welfare across Countries and Time.” American Economic Review, 106 (9): 2426–57.

Lakner, C., Mahler, D.G., Negre, M. et al. 2022. “How much does reducing inequality matter for global poverty?” Journal of Economic Inequality 20: 559–585.

Nunn, Nathan. 2019. “Rethinking economic development.” Canadian Journal of Economics/Revue canadienne d’économique, 52: 1349-1373.

Ravallion, Martin, and Shaohua Che. 1997. “What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?” The World Bank Economic Review, 11 (2).

Rodrik, Dani, and Joseph E. Stiglitz. 2024. “A New Growth Strategy for Developing Nations.” Working Paper. 

Sandefur, Justin, and Arvind Subramanian. 2024. “Long-Distance Industrial Policy for Africa.” Center for Global Development Working Paper No. 689. 2024.

Studwell, Joe. 2013. How Asia Works: Success and Failure in the World’s Most Dynamic Region. Open Road+ Grove/Atlantic.

Torrella, Kenny. “Sri Lanka’s organic farming disaster, explained.” Vox, July 15, 2022. 

World Bank Development Committee, 2024. “From Vision to Impact: Implementing the World Bank Group Evolution.”

World Bank and Development Research Center of the State Council, the People’s Republic of China, 2022. “Four decades of poverty reduction in China: Drivers, insights for the world, and the way ahead.”

World Bank, 2024. Poverty and Inequality Platform (version 20240627_2017_01_02_PROD) [data set]. Accessed on 2024-10-14.