Growth and Adjustment in East Asia and Latin America

Abstract

G rowth rates around the world have varied greatly over the last four decades. The four East Asian tigers-Hong Kong, Singapore, South Korea (henceforth Korea), and Taiwan-grew at an average of over 6.0 percent a year in per capita terms between 1960 and 2000. In contrast, many countries in Latin America and the Caribbean recorded less than 1.0 percent growth during the same period. Comparing the high growth of East Asian countries with the poor performance of Latin American and Caribbean economies leads to the question of which factors are funda­ mental for explaining such differences and what countries should do to spur growth. This paper assesses the evolution of growth in these two regions in order to explain the poor performance of Latin America and the Caribbean relative to East Asia. Based on crosscountry growth regressions, we find that the traditionally important growth factors-investment, population growth, and the quality of human resources-explain almost half of the difference in per capita GDP growth between East Asia and Latin America. Economic policy and institutional factors-such as the rule of law, government con­ sumption, macroeconomic stability, and the degree of openness-explain the other half of the growth differences between the two regions. Balance­ of­payments crises have also contributed to lower growth in Latin America and East Asia, although both regions have suffered from their effects.