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Economic growth with foreign saving?

  • Pereira, Luiz C. Bresser
  • Nakano, Yoshiaki

Highly indebted countries, particularly the Latin American ones, presented dismal economic outcomes in the 1990s, which are the consequence of the ‘growth cum foreign savings strategy’, or the Second Washington Consensus. Coupled with liberalization of international financial flows, such strategy, which did not make part of the first consensus, led the countries, in the wave of a new world wide capital flow cycle, to high current account deficits and increase in foreign debt, ignoring the solvency constraint and the debt threshold. In practical terms it involved overvalued currencies (low exchange rates) and high interest rates; in policy terms, the attempt to control de budget deficit while the current account deficit was ignored. The paradoxical consequence was the adoption by highly indebted countries of ‘exchange rate populism’, a less obvious but more dangerous form of economic populism.

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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 118.

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Date of creation: 01 Nov 2002
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Handle: RePEc:fgv:eesptd:118
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  1. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  2. Gourinchas, Pierre-Olivier & Landerretche, Oscar & Valdés, Rodrigo, 2001. "Lending Booms: Latin America and the World," CEPR Discussion Papers 2811, C.E.P.R. Discussion Papers.
  3. Barro, Robert J & Mankiw, N Gregory & Sala-i-Martin, Xavier, 1995. "Capital Mobility in Neoclassical Models of Growth," American Economic Review, American Economic Association, vol. 85(1), pages 103-15, March.
  4. Reinhart, Carmen & Leiderman, Leonardo, 1994. "Capital inflows to Latin America," MPRA Paper 13406, University Library of Munich, Germany.
  5. Alejandro Lopez Mejia, 1999. "Large Capital Flows; A Survey of the Causes, Consequences, and Policy Responses," IMF Working Papers 99/17, International Monetary Fund.
  6. Bhaduri, Amit & Skarstein, Rune, 1996. "Short-Period Macroeconomic Aspects of Foreign Aid," Cambridge Journal of Economics, Oxford University Press, vol. 20(2), pages 195-206, March.
  7. Cohen, Daniel, 1993. "Low Investment and Large LDC Debt in the 1980's," American Economic Review, American Economic Association, vol. 83(3), pages 437-49, June.
  8. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1996. "Current Account Solvency and the Feldstein-Horioka Puzzle," Economic Journal, Royal Economic Society, vol. 106(436), pages 620-27, May.
  9. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
  10. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  11. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
  12. Helene Poirson Ward & Luca A Ricci & Catherine A Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  13. Alan M. Taylor, 1999. "Latin America and Foreign Capital in the Twentieth Century: Economics, Politics, and Institutional Change," NBER Working Papers 7394, National Bureau of Economic Research, Inc.
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  15. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "Af1uencia de capital y apreciacion del tipo de cambio real en America Latina: E1 papel de los factores externos
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  16. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1995. "Capital inflows to Latin America with reference to the Asian experience," MPRA Paper 13840, University Library of Munich, Germany.
  17. Bhaduri, Amit, 1987. "Dependent and Self-reliant Growth with Foreign Borrowing," Cambridge Journal of Economics, Oxford University Press, vol. 11(3), pages 269-73, September.
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