Reform and Growth in Latin America
Source : Reform index from 1997, 96; growth rates from World Bank, World Development Indicators
150 CHAPTER 7 Trade and Development II: Economic Reform
most should see large improvements in growth, whereas countries that have reformed less should see small growth gains. That expectation finds some sup- port in this graph. The overall relationship is positive, indicating that countries that have progressed furthest along the trajectory of reforms have experi- enced larger gains in growth. Countries that have reformed less have realized smaller, and in some cases, negative, changes in growth.
Even this more nuanced evaluation is misleading, however, because it compares the wrong growth rates. To fully understand reform’s impact on long-run growth, we should compare growth rates after reform with growth rates that would have occurred had governments never implemented reform. That is, suppose Latin American governments continued along the path they were on in the early 1970s. What rate of economic growth would they then have realized during the 1980s and 1990s? We can compare these growth rates with growth rates following reform to see reform’s impact on long-run growth. This comparison is obviously difficult to make, because we can’t re- play history to see what would have happened if governments had not adopted reforms. The best we can do is to estimate what growth rates would have been for Latin American countries had they not adopted reforms. A number of such analyses have been conducted, and they suggest that Latin American growth in the postreform period has been between 1.9 and 2.2 percentage points higher than it would have been had governments not implemented reforms (see Easterly, Montiel, and Loayza 1997; Montiel and Fernández-Arias 2001; Lora and Barrera 1997; and the useful summary in IADB 1997, 54).
POLICY ANALYSIS AND DEBATE
Shifting from the Washington to the Beijing Consenus? Question
Should the “Washington Consensus” be replaced by the “Beijing Consensus” as a development model?
The 1980s were turbulent for the developing world. The decade began with sovereign debt crises in several Latin American countries, and ended with the collapse of the Berlin Wall and political and market reforms in Eastern Europe. Responding to these events, economist John Williamson identified the “Washington Consensus” on the policies that developing countries must implement to ensure a return to growth. Williamson called this package the Washington Consensus because the World Bank, IMF, and U.S. Treasury Department—all based in Washington D.C.—concurred with these policy recommendations. Key to the Consensus was eliminating government involvement in the economy: “stabilize, privatize, and liberalize.”
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