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Growth: The Long-Term Economic Failure in Developing Countries Mark Weisbrot
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Growth: The Long-Term
Economic Failure in Developing Countries
Mark Weisbrot
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 States
• Basic measure: Gross Domestic Product (GDP) per capita
• Need benchmark: compare growth(and progress) to past decades
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
The Economic Failure in Latin America1980-2005
Economic Reforms Over the Past 25 Years
• Reduced restrictions on international trade and financial flows
• Tighter fiscal and monetary policies• 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
Start of 25-year period
Growth in GDP per capita, Latin America
Argentina
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1988 1990 1992 1994 1996 1998 2000 2002 2004
Rea
l Per
-Cap
ita
GD
P
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 2.5% 1988-1998
Argentina
48
3 3
-5
5
15
25
35
45
55
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Bolivia
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1968 1973 1978 1983 1988 1993 1998 2003
Real
Per-
Cap
ita G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 2.7% 1968-1978
Bolivia
60
-4
2
-10
0
10
20
30
40
50
60
70
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Bolivia: Reformas Estructurales (1985-1999)
0.2
0.3
0.4
0.5
0.6
0.7
0.8Ín
dice
de
Ref
orm
a Es
truct
ural
Bolivia
Latin American Average
Fuente: Lora, Eduardo (2001). “Structural Reforms in Latin America: What Has Been Reformed and How to Measure it,” Banco Interamericano de Desarrollo.
Brazil
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1970 1975 1980 1985 1990 1995 2000 2005
Rea
l P
er-C
apit
a G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 5.5% 1970-1980
Brazil
123
84
0
20
40
60
80
100
120
140
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Costa Rica
0
5,000
10,000
15,000
20,000
25,000
1969 1974 1979 1984 1989 1994 1999 2004
Real
Per-
Cap
ita G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 3.2% 1969-1979
Costa Rica
81
24
9
0
10
20
30
40
50
60
70
80
90
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Ecuador
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Real
Per-
Cap
ita G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 1.3% 1987-1997
Ecuador
80
-21
32
-40
-20
0
20
40
60
80
100
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Rea
l P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Haiti
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1970 1975 1980 1985 1990 1995 2000 2005
Real
Per-
Cap
ita G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 3.7% 1970-1980
Haiti
24
-37
-12
-40
-30
-20
-10
0
10
20
30
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Mexico
0
5,000
10,000
15,000
20,000
25,000
30,000
1971 1976 1981 1986 1991 1996 2001
Real
Per-
Cap
ita G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 4.4% 1971-1981
Mexico
99
16
20
20
40
60
80
100
120
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
Uruguay
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1988 1990 1992 1994 1996 1998 2000 2002 2004
Rea
l P
er-C
apit
a G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 2.7% 1988-1998
Venezuela
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1967 1972 1977 1982 1987 1992 1997 2002
Rea
l P
er-C
apit
a G
DP
Sources: Angus Maddison, WEO 9/05, and author's calculations. Trend: 1.3% 1967-1977
Venezuela
5
-16
0
-20
-15
-10
-5
0
5
10
1960-1980 1980-2000 2000-2005
Years
Tota
l G
row
th in
Real P
er-
Cap
ita G
DP
(P
erc
en
t)
Sources: Angus Maddison, WEO 9/05, and author's calculations
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.
-- 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.
Mark Weisbrot – www.cepr.net
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.
Policy mistakes have contributed to the growth
failure – here are some examples:
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
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
