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Growth II: The Long-Term
Economic Failure in Developing Countries
CEPR Basic Economics Seminar SeriesMark WeisbrotOctober 6, 2005
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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
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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
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Over the last 25 years, there has been a sharp slowdown in economic growth for the vast majority of low- and middle-
income countries
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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
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Policy mistakes have contributed to the growth
failure – here are some examples:
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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
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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
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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
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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
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Growth II: The Long-Term Economic
Failure in Developing Countries
Mark [email protected]
Center for Economic and Policy Research
www.cepr.net