NS3041 Comparative Economics Francesco S. Leonini “Developmental State Model”

NS3041 Comparative EconomicsFrancesco S. Leonini

“Developmental State Model”

East AsiaEast Asia versus Latin versus Latin AmericaAmerica

““Deep Determinants” of Deep Determinants” of Economic DevelopmentEconomic Development

● Geography: Natural Resources, Distance from Equator

● Integration: Overall Participation with Global Economy

● Institutions: Success of Public Institutions

Indicators of Macroeconomic Indicators of Macroeconomic PerformancePerformance

● Domestic Savings

● Investment

● Trade Openness

Gross National Savings (% of GDP)Gross National Savings (% of GDP)Source: IMF World Economic Outlook Database (Elson pg. 100)

Gross Domestic Investment (% of GDP)Gross Domestic Investment (% of GDP)Source: IMF World Economic Outlook Database (Elson pg. 100)

Exports & Imports (% of GDP)Exports & Imports (% of GDP)

Source: IMF World Economic Outlook Database (Elson pg. 100)

Factors Accounting for Latin Factors Accounting for Latin American StagnationAmerican Stagnation

● Persistent Macroeconomic Instability

● Weak Integration Into Global Economy

● Poor Public Institutions

Causes of Macroeconomic Causes of Macroeconomic InstabilityInstability

● Lack of Stable Policy Environment

● High Levels of Inflation

● Non-Competitive Exchange Rates

● Zero to Negative Interest Rates

Regional Integration Into the Regional Integration Into the Global EconomyGlobal Economy

● No change in the rate of Total Global Exports of Latin Americabetween 1980 and 2000

● East Asia experienced higher rates of global exports and higher rates of intra-industry trade

● Between 1985-2000 East Asia received twice the amount of FDI

Share of World Exports (%)Share of World Exports (%)

Share of World Imports (%)Share of World Imports (%)

Source: UN Comtrade Data and IMF, World Economic Outlook (pg. 105)

Quality of Public InstitutionsQuality of Public Institutions

Surveys are used to measure institutional effectiveness:● Government effectiveness (EA 71.3 vs. LA 50.4)● Regulatory quality (EA 68.5 vs. LA 59.4)● Political stability (EA 59.4 vs. LA 51.2)● Democratic accountability (EA 6.0 vs. LA 7.8)● Bureaucratic quality (EA 7.4 vs. LA 5.1)

Income InequalityLowest Quintile Highest Quintile Gini

Latin America 0.49Argentina (1989) 4.8 52.1 0.36Brazil (1989) 2.1 67.5 0.57Chile (1994) 3.5 61.0 0.51Mexico (1992) 4.1 55.3 0.48Venezuela (1990) 3.6 58.4 0.54

Asia 0.40China (1995) 5.5 47.5 0.41Indonesia (1993) 8.7 40.7 0.32S. Korea 0.36Malaysia (1989) 4.6 53.7 0.48Philippines (1988) 6.5 47.8 0.41Thailand (1992) 5.6 52.7 0.47

Source: World Bank Development Report 1997; Baer and Maloney (1997)

Real GDP Growth per CapitaReal GDP Growth per Capita

Real GDP Growth per CapitaReal GDP Growth per Capita

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