Transcript Chapter 2
Growth in the 1990s: Pleasant and Unpleasant Surprises Presentation to ICRIER September 28, 2004 3/29/2016 1 Five disappointments Length, depth, and variance in the “transition recession” in the FSU/EE countries Severity and intensity of the financial crises Argentina’s implosion Weakness of the response to reform, particularly in Latin America Continued stagnation in Sub-Saharan Africa 3/29/2016 2 How long? How Deep? Output Depth Duration Beginning Of transition 3/29/2016 Time 3 Deep, long, and variable 3/29/2016 4 Markets miss the mark on East Asia 100.0% 90.0% 80.0% 70.0% Interest rate differential, June 1997 60.0% 50.0% Nominal devaluation, June-December 1997 40.0% 30.0% 20.0% 10.0% 0.0% Thailand 3/29/2016 Indonesia Korea 5 Collapse of convertibility in Argentina The Mexican debt crisis marked the end of one era, the Argentina crisis perhaps the end of another The severity given the collapse was not a surprise—it was design. What was surprising was that it collapsed in spite of every attempt to “pre-commit” 3/29/2016 6 Growth came, but did not stay in Latin America, despite steady reform progress 3/29/2016 7 The predicted “renaissance” in Africa recedes into the future… While there are brief episodes of growth in some SSA countries, there is no “locomotive” to pull the rest along. This is a disappointment, but a surprise? 3/29/2016 8 Lessons from the 1990s Growth in the 1990s: A Mixed Record (divergence “big time”) 200 EAP Per capita GDP (1990=100) 180 160 140 SAR 120 OECD LAC MNA 100 AFR ECA 80 60 1990 1991 EAP 3/29/2016 1992 ECA 1993 1994 LAC 1995 MNA 1996 1997 SAR 1998 AFR 1999 2000 OECD 9 Four pleasant surprises Strong growth in the India, China, and Vietnam. Robust progress in social indicators, in spite of low growth in many countries Resilience of the world economy to stresses Bright spots of continued growth 3/29/2016 10 Coal to Newcastle: Growth rates in India (per capita, PPP) 3/29/2016 11 The star performers in growth are middle of the pack in many indicators Rank in: China Control of Regulatory Growth corruption quality 63 94 3 Vietnam 105 135 4 India 86 101 14 Out of N: 151 180 136 3/29/2016 12 Brazil has slow growth but substantial progress on enrollments—especially of the poor Percentage 99 98 97 95 94 97 93 87 83 75 1992 5th quintile richest 20% 3/29/2016 4th quintile 2001 3rd quintile 2nd quintile 1st quintile poorest 20% 13 A pleasant surprise: the sky did not fall I would say the biggest misjudgment that I can remember making…was the sense of profound pessimism about Russian economic reform that I had in the fall of 1998, and that if you had said that by 2003, they would be issuing Eurobonds at300 basis points spreads, I would have thought that its was absolute madness. Lawrence Summers, in Practitioners in Development 3/29/2016 14 Continued growth, in spurts The 1990s did see rapid growth in a number of countries… • Dominican Republic • Uganda • Poland • Chile 3/29/2016 15 What did we learn about growth? Growth is enormously volatile over the medium run—with many booms and busts—little growth persistence The “symptoms and syndromes” emerge from growth regressions Centrality of “institutions” 3/29/2016 16 Growth is not steady, but is a series of episodes… 3/29/2016 17 And from millions of growth regressions? Syndromes Syndrome Symptoms Excessive Generalization Bad Governance Corruption, instability “democracy is good/bad for growth” Macroeconomic Instability High and variable inflation “Reducing deficits will increase growth” External policy Inability to finance needed imports “Tariff reductions will raise growth” Financial sector Low savings rates “Privatization of banks will raise growth” Bad Luck Terms of trade shocks “Resource exporters will have slow growth” 3/29/2016 18 “Institutions” are central The first, overwhelming lessons we learned in the 1990s, is the transcendent importance of the quality of institutions and the closely related question of the efficacy of the administration. Well- executed policies that are 30 percent off are much more effective than poorly executed policies that are spot on. • Lawrence Summers, Practitioners in Development 3/29/2016 19