The paper examines the challenges thatdeveloping countries face in accelerating and sustaininggrowth. The cases of China and India are examined toillustrate a more general phenomenon which might be calledmodel uncertainty. As a developing economy grows, its marketand regulatory institutions change and their capabilitiesincrease. As a result, growth strategies and policies andthe role of government shift. Further, as the models ofeconomies in these transitional states are incomplete andbecause models used to predict policy impacts in advancedeconomies may not provided accurate predictions in thedeveloping economy case, growth strategies and policies needto be responsive and to evolve as the economy matures. Thishas lead governments in countries that have sustained highgrowth to be somewhat pragmatic, to treat the policydirections that emerge from the advanced economy model withcircumspection, to be somewhat experimental in seeking toaccelerate export diversification, to be sensitive to risks,and as a result to proceed gradually in areas such as thetiming and sequencing of opening up on the current andcapital accounts. The last is an area in which existingtheory provides relatively little specific guidance, but inwhich there are relatively high risks that decline over timeas the market matures.
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