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Growth II: The Long-Term Economic Failure in Developing Countries

Growth II: The Long-Term Economic Failure in Developing Countries. CEPR Basic Economics Seminar Series Mark Weisbrot October 6, 2005. Growth II. Economic growth is important (see Seminar 2)

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Growth II: The Long-Term Economic Failure in Developing Countries

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  1. Growth II: The Long-Term Economic Failure in Developing Countries CEPR Basic Economics Seminar Series Mark Weisbrot October 6, 2005

  2. Growth II • Economic growth is important (see Seminar 2) • In general, it is even more important for low and middle income countries than for high income countries such as the United States • Basic measure: Gross Domestic Product (GDP) per capita • Need benchmark: compare growth (and progress) to past decades

  3. Economic Reforms Over the Past 25 Years • Reduced restrictions on international trade and financial flows • Tighter fiscal and monetary policies (higher real interest rates) • Privatization of state-owned enterprises • Labor market and public pension reforms • Abandonment of state-directed industrial policies or development strategies • Increased accumulation of foreign reserve holdings

  4. Over the last 25 years, there has been a sharp slowdown in economic growth for the vast majority of low- and middle-income countries

  5. As would be expected in a period of reduced economic growth, there has also been a decline in progress on health and education outcomes for the vast majority of low- and middle-income countries

  6. Policy mistakes have contributed to the growth failure – here are some examples:

  7. China’s reforms are different from those implemented elsewhere • Liberalized trade after it could compete in world markets. (Average tariff still over 40 percent in 1992) • Gradual and careful transition • Banking system dominated by state-owned banks • Government shapes and uses foreign investment in accordance with development goals • Strict controls over international currency flows

  8. Conclusion • Sharp slowdown in economic growth in the vast majority of developing countries • Social and human consequences are very important • Most of the reduced progress on social indicators probably due to growth slowdown, rather than any increases in inequality • Economists and policy makers should be trying to figure out what has gone wrong

  9. Reading List • Milanovic, M (2005). “Why Did the Poorest Countries Fail to Catch Up?”Washington, DC: Carnegie Endowment, Carnegie Paper No. 62. http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=17557 • Milanovic, B (2005). “Worlds Apart : Measuring International and Global Inequality,” Princeton, NJ: Princeton University Press. • Weisbrot, M, Baker, D and Rosnick, D (2005). “Scorecard on Development: 25 Years of Diminished Progress,” Washington, DC: Center for Economic and Policy Research. http://cepr.net/publications/development_2005_09.pdf

  10. Reading List (continued) • Weisbrot, M and Sandoval, L (2006) “Bolivia's Challenges,” Washington, DC: Center for Economic and Policy Research. http://www.cepr.net/publications/bolivia_challenges_2006_03.pdf • Weisbrot, M and Cibils, A (2002) “Argentina's Crisis: The Costs and Consequences of Default to the International Financial Institutions,” Washington, DC: Center for Economic and Policy Research. http://www.cepr.net/publications/argentina_crisis.htm • Cibils, A, Weisbrot, M and Kar, D. “Argentina Since Default: the IMF and the Depression,” Washingon, DC: Center for Economic and Policy Research. http://cepr.net/publications/argentina_2002_09_03.htm

  11. Mark Weisbrot weisbrot@cepr.net Center for Economic and Policy Research www.cepr.net Growth II: The Long-Term Economic Failure in Developing Countries

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