Presentation on theme: "Growth: The Long-Term Economic Failure in Developing Countries"— Presentation transcript:
1 Growth: The Long-Term Economic Failure in Developing Countries Mark Weisbrot
2 Growth Economic growth is important In general, it is even more important for low and middle income countries than for high income countries such as the United StatesBasic measure: Gross Domestic Product (GDP) per capitaNeed benchmark: compare growth(and progress) to past decades
3 Over the last 25 years, there has been a sharp slowdown in economic growth for the vast majority of low- and middle-income countries
10 Economic Reforms Over the Past 25 Years Reduced restrictions on international trade and financial flowsTighter fiscal and monetary policiesPrivatization of state-owned enterprisesLabor market and public pension reformsAbandonment of state-directed industrial policies or development strategiesIncreased accumulation of foreignreserve holdings
31 For developing countries, the main selling point of new commercial agreements such as the Free Trade Area of the Americas (FTAA) or the Central American Free Trade Agreement (CAFTA) has been the lure of increased access to U.S. markets.
32 -- But will most developing countries will be able to increase their exports to the United States in the foreseeable future?Problem: US now running an unsustainable current account deficit -- about 6 percent of GDP.This means that the dollar will have to fall, and the markets for exports to the U.S. will shrink.Result: Over the next decade, countries will have to displace others (e.g. China, Mexico) to gain access to a shrinking U.S. market for their exports.
35 They may well make sacrifices for no gain. Result:Developing country governments should be cautious about making costly concessions in order to gain access to the U.S. market.They may well make sacrifices for no gain.
36 Policy mistakes have contributed to the growth failure – here are some examples:
41 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 transitionBanking system dominated by state-owned banksGovernment shapes and uses foreign investment in accordance with development goalsStrict controls over international currency flows
42 ConclusionSharp slowdown in economic growth in the vast majority of developing countriesSocial and human consequences are very importantMost of the reduced progress on social indicators probably due to growth slowdown, rather than any increases in inequalityEconomists and policy makers should be trying to figure out what has gone wrong
43 Center for Economic and Policy Research Mark WeisbrotCenter for Economic and Policy Research