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Growth and Adjustment in East Asia and Latin America

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  • Jose De Gregorio
  • Jong-Wha Lee

Abstract

This paper compares the experience of growth performance and macroeconomic adjustment between East Asia and Latin America from 1970 to 2000. We find that the difference in growth performance between two regions can largely be attributed to the differences in fundamental growth factors such as investment rate, human resources, fertility, institutional quality, macroeconomic stability and the degree of trade openness. We also discuss the role of quality of education and differences in inequality between the two regions. Balance-of-payments crisis shocks have also contributed significantly to differences in growth performance. Analysis reveals that growth rates tend to fall only temporarily following a balance-of-payments crisis and then rebound to the pre-crisis levels, producing the typical v-type pattern for output in both East Asia and Latin America. However, a balance-of-payments crisis is often associated with a large decline of growth rates and develops into another crisis in the future. Analyzing what determines the output cost of crises we find that international liquidity, financial soundness, real exchange rate depreciation and monetary policy play a critical role in reducing output losses.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 245.

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Date of creation: Dec 2003
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Handle: RePEc:chb:bcchwp:245

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References

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  1. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  2. De Gregorio, Jose, 1992. "Economic growth in Latin America," Journal of Development Economics, Elsevier, vol. 39(1), pages 59-84, July.
  3. Jong­Wha Lee & Changyong Rhee, 2000. "Macroeconomic Impacts of the Korean Financial Crisis: Comparison with the Cross­country Patterns," RCER Working Papers 471, University of Rochester - Center for Economic Research (RCER).
  4. De Gregorio, Jose & Lee, Jong-Wha, 2002. "Education and Income Inequality: New Evidence from Cross-Country Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 395-416, September.
  5. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
  6. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
  7. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  8. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4303, Inter-American Development Bank, Research Department.
  9. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective deficits and the Asian currency crisis," Working Paper Series WP-98-5, Federal Reserve Bank of Chicago.
  10. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
  11. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  12. Robert J. Barro, 2001. "Economic Growth in East Asia Before and After the Financial Crisis," NBER Working Papers 8330, National Bureau of Economic Research, Inc.
  13. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  14. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  15. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  16. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  17. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
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Citations

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Cited by:
  1. Kevin Cowan & José De Gregorio, 2007. "International Borrowing, Capital Controls, and the Exchange Rate: Lessons from Chile," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 241-296 National Bureau of Economic Research, Inc.
  2. Jamel Boukhatem, 2012. "Marchés obligataires et crises bancaires dans les pays émergents: le rôle des institutions," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(5), pages 625-646, December.
  3. J. Cunado & L.A. Gil-Alana & F. Pérez de Gracia,, 2007. "Real convergence in some emerging countries: a fractionally integrated approach," Recherches économiques de Louvain, De Boeck Université, vol. 73(3), pages 293-310.
  4. Arbache, Jorge Saba, 2004. "Do Structural Reforms always Succeed? Lessons from Brazil," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Javier Reyes & Giorgio Fagiolo & Stefano Schiavo, 2008. "Using a complex weighted-network approach to assess the evolution of international economic integration: The cases of East Asia and Latin America," LEM Papers Series 2008/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  6. Alessandra Bonfiglioli & Caterina Mendicino, 2004. "Financial liberalization, bank crises and growth: Assessing the links," Economics Working Papers 946, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Blanco, Luisa, 2010. "Life is Unfair in Latin America, But Does it Matter for Growth?," World Development, Elsevier, vol. 38(3), pages 393-404, March.
  8. Rodrigo Vergara, 2005. "Productividad en Chile: Determinantes y Desempeño," Documentos de Trabajo 296, Instituto de Economia. Pontificia Universidad Católica de Chile..
  9. Jose De Gregorio, 2006. "Economic Growth in Latin America: From the Disappointment of the Twentieth Century to the Challenges of the Twenty-First," Working Papers Central Bank of Chile 377, Central Bank of Chile.
  10. Bonfiglioli, Alessandra & Mendicino, Caterina, 2004. "Financial Liberalization, Banking Crises and Growth: Assessing the Links," Working Paper Series in Economics and Finance 567, Stockholm School of Economics.
  11. Xingwang Qian & Andreas Steiner, 2012. "International Reserves and the Composition of Equity Capital Inflows," Working Papers 90, Institute of Empirical Economic Research.
  12. Steiner, Andreas, 2013. "How central banks prepare for financial crises – An empirical analysis of the effects of crises and globalisation on international reserves," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 208-234.
  13. Katarina Keller, 2006. "Education Expansion, Expenditures per Student and the Effects on Growth in Asia," Global Economic Review, Taylor & Francis Journals, vol. 35(1), pages 21-42.
  14. José De Gregorio, 2007. "Algunas Reflexiones sobre el Crecimiento Económico en Chile," Economic Policy Papers Central Bank of Chile 20, Central Bank of Chile.

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