Growth and Adjustment in East Asia and Latin America

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.