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Rapid Growth in Emerging Markets and Developing Economies: Now and Forever?

Author

Listed:
  • Giang Ho

    (International Monetary Fund)

  • Paolo Mauro

    () (Peterson Institute for International Economics)

Abstract

Most forecasts for emerging and developing economies reflect excessive optimism that is both statistically significant and economically relevant, according to a study of forecasts for horizons of up to 20 years in more than 100 countries. This Policy Brief argues that for rapidly growing economies, forecasters overestimate the persistence of growth. Forecasters for poorly performing economies, on the other hand, expect that growth will not simply revert to the mean but rather will exceed it. The size of such optimistic forecast errors could cause a large shock that poses risks for macroeconomic policy management and debt sustainability, with the potential to plunge a stable country into debt crisis within one or two decades. To correct excessive optimism, forecasters should give greater consideration to adverse shock or low growth scenarios. Less optimistic scenarios should be at the forefront of policymakers' and investors' deliberations, because they are probably more realistic than the existing baseline scenarios.

Suggested Citation

  • Giang Ho & Paolo Mauro, 2014. "Rapid Growth in Emerging Markets and Developing Economies: Now and Forever?," Policy Briefs PB14-26, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb14-26
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    File URL: https://piie.com/publications/policy-briefs/rapid-growth-emerging-markets-and-developing-economies-now-and-forever
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    References listed on IDEAS

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    1. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    2. Giang Ho & Paolo Mauro, 2016. "Growth—Now and Forever?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 526-547, August.
    3. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
    4. Lant Pritchett & Lawrence H. Summers, 2013. "Asia-phoria meet regression to the mean," Proceedings, Federal Reserve Bank of San Francisco, pages 1-35.
    5. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    6. Åsa Johansson & Yvan Guillemette & Fabrice Murtin & David Turner & Giuseppe Nicoletti & Christine de la Maisonneuve & Philip Bagnoli & Guillaume Bousquet & Francesca Spinelli, 2013. "Long-Term Growth Scenarios," OECD Economics Department Working Papers 1000, OECD Publishing.
    7. Grace Juhn & Prakash Loungani, 2002. "Further Cross-Country Evidence on the Accuracy of the Private Sector's Output Forecasts," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-4.
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    Cited by:

    1. Jose De Gregorio, 2015. "From Rapid Recovery to Slowdown: Why Recent Economic Growth in Latin America Has Been Slow," Policy Briefs PB15-6, Peterson Institute for International Economics.

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