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) 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

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

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

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

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

Chinas 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

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

Reading List Milanovic, M (2005). Why Did the Poorest Countries Fail to Catch Up? Washington, DC: Carnegie Endowment, Carnegie Paper No =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.

Reading List (continued) Weisbrot, M and Sandoval, L (2006) Bolivia's Challenges, Washington, DC: Center for Economic and Policy Research 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. Cibils, A, Weisbrot, M and Kar, D. Argentina Since Default: the IMF and the Depression, Washingon, DC: Center for Economic and Policy Research.

Growth II: The Long-Term Economic Failure in Developing Countries Mark Weisbrot Center for Economic and Policy Research