Growth in the 1990s: Pleasant and Unpleasant Surprises Presentation to ICRIER September 28, 2004 9/11/2018

Five disappointments Length, depth, and variance in the “transition recession” in the FSU/EE countries Severity and intensity of the financial crises Argentina’s implosion Weakness of the response to reform, particularly in Latin America Continued stagnation in Sub-Saharan Africa 9/11/2018

How long? How Deep? 9/11/2018 Output Depth Duration Beginning Time Of transition Duration Depth Output 9/11/2018

Deep, long, and variable 9/11/2018

Markets miss the mark on East Asia 9/11/2018

Collapse of convertibility in Argentina The Mexican debt crisis marked the end of one era, the Argentina crisis perhaps the end of another The severity given the collapse was not a surprise—it was design. What was surprising was that it collapsed in spite of every attempt to “pre-commit” 9/11/2018

Growth came, but did not stay in Latin America, despite steady reform progress 9/11/2018

The predicted “renaissance” in Africa recedes into the future… While there are brief episodes of growth in some SSA countries, there is no “locomotive” to pull the rest along. This is a disappointment, but a surprise? 9/11/2018

Growth in the 1990s: A Mixed Record (divergence “big time”) Lessons from the 1990s Growth in the 1990s: A Mixed Record (divergence “big time”) EAP SAR OECD LAC MNA AFR ECA 9/11/2018

Four pleasant surprises Strong growth in the India, China, and Vietnam. Robust progress in social indicators, in spite of low growth in many countries Resilience of the world economy to stresses Bright spots of continued growth 9/11/2018

Coal to Newcastle: Growth rates in India (per capita, PPP) 9/11/2018

The star performers in growth are middle of the pack in many indicators Rank in: Control of corruption Regulatory quality Growth China 63 94 3 Vietnam 105 135 4 India 86 101 14 Out of N: 151 180 136 9/11/2018

Brazil has slow growth but substantial progress on enrollments—especially of the poor 9/11/2018

A pleasant surprise: the sky did not fall I would say the biggest misjudgment that I can remember making…was the sense of profound pessimism about Russian economic reform that I had in the fall of 1998, and that if you had said that by 2003, they would be issuing Eurobonds at300 basis points spreads, I would have thought that its was absolute madness. Lawrence Summers, in Practitioners in Development 9/11/2018

Continued growth, in spurts The 1990s did see rapid growth in a number of countries… Dominican Republic Uganda Poland Chile 9/11/2018

What did we learn about growth? Growth is enormously volatile over the medium run—with many booms and busts—little growth persistence The “symptoms and syndromes” emerge from growth regressions Centrality of “institutions” 9/11/2018

Growth is not steady, but is a series of episodes… 9/11/2018

And from millions of growth regressions? Syndromes Symptoms Excessive Generalization Bad Governance Corruption, instability “democracy is good/bad for growth” Macroeconomic Instability High and variable inflation “Reducing deficits will increase growth” External policy Inability to finance needed imports “Tariff reductions will raise growth” Financial sector Low savings rates “Privatization of banks will raise growth” Bad Luck Terms of trade shocks “Resource exporters will have slow growth” 9/11/2018

“Institutions” are central The first, overwhelming lessons we learned in the 1990s, is the transcendent importance of the quality of institutions and the closely related question of the efficacy of the administration. Well- executed policies that are 30 percent off are much more effective than poorly executed policies that are spot on. Lawrence Summers, Practitioners in Development 9/11/2018