There are many moving parts at the same time, the play is unpredictable, and it involves an enormous amount of tacit unseen coordination among players. Ability, hard work, and team spirit have to come together in a harmonious manner. Moreover, the outcome is highly contingent on certain events at pivotal moments. A foul here, a red card there can make all the difference. Sports commentators call these “momentum swings”. Countries must seek to make the most of these windows of opportunities to build reform momentum. Successful policies will be those that are mindful of a country’s history and leverage on prevailing political economy contexts. The long-run performance of countries hinges critically on this because the outcomes of institutional change tend to be highly persistent. How rules and norms evolve depends heavily on what they are today. Thus institutional development often follows a virtuous circle, such as in South Korea, or a vicious spiral, as in the case of Zimbabwe. From this perspective, there is an enormous amount of heterogeneity among emerging market economies. Where a country stands in terms of its history and readiness for  BIS central bankers’ speeches  3  institutional change will distinguish those which are just experiencing a temporary deceleration from those that might be facing more of a structural slowdown. The destinies of emerging markets are not strictly bound to each other. Some will succeed, and a few may not. It is not useful to lump countries together into one group or under one catchy acronym or another.

In fact, this was precisely one of the key drivers of Thailand’s growth in the 20 years prior to the 1997 crisis. During this time, the share of employment in agriculture fell by a third, releasing workers to the more productive manufacturing and service sectors. Thailand’s experience is quite typical of many others in Asia. Emerging market countries have not only grown rapidly over the last few decades, they have also changed dramatically. Sustaining growth going forward hinges on the continuation of this process of change and upgrading. For Asia, industrializing the agriculture sector through the adoption of modern methods and the development of agribusinesses will be a key source of productivity growth. Similarly, the composition of the service sector, which is also quite large, has to shift from low-productivity activities to modern, high value-added services. Countries that have achieved sustained growth are those that are better at removing the bottlenecks that impede such transformation. This typically requires a number of key fundamental capabilities, such as macroeconomic stability, rule of law, good education, strict enforcement of contracts, a competent bureaucracy, good governance, and low tolerance of corruption. These are often encapsulated under the rubric of strong institutions. One can think of institutions as the set of rules and norms that both governs the incentives of economic agents as well as constrains their behavior. Good institutions encourage growth, bad institutions stifle it. Entrepreneurship, a critical driver of structural change, relies heavily on the institutional environment.