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Growth and Adjustment in East Asia and Latin America

  • Jose De Gregorio
  • Jong-Wha Lee

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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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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  1. 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).
  2. 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.
  3. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  4. 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.
  5. Burnside, C. & Eichenbaum, M. & Rebelo, S., 1998. "Prospective Deficits and the Asian Currency Crisis," RCER Working Papers 458, University of Rochester - Center for Economic Research (RCER).
  6. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  7. Jose De Gregorio, 1991. "Economic Growth in Latin America," IMF Working Papers 91/71, International Monetary Fund.
  8. 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.).
  9. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  10. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  11. 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.
  12. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  13. 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.
  14. 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.
  15. 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.
  16. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications 4301, Inter-American Development Bank, Research Department.
  17. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises; Evidence From Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
  18. 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.
  19. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
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