DP7480 Growth After the Crisis

Author(s): Dani Rodrik
Publication Date: September 2009
Keyword(s): Economic growth, Financial crisis
JEL(s): F43, O11
Programme Areas: International Macroeconomics, Public Economics, International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7480

How hospitable will the global environment be for economic growth in the developing world as we come out of the present financial crisis? The answer depends on how well we manage the following tension. On the one hand, global macro stability requires that we prevent external imbalances from getting too large. On the other hand, growth in poor nations requires that the world economy be able to absorb a rapid increase in the supply of tradables produced in the developing world. It is possible to render these two requirements compatible, but doing so requires greater use of explicit industrial policies in developing countries, which have the potential of encouraging modern tradable activities without spilling over into trade surpluses. The ?price? to be paid for greater discipline on real exchange rates and external imbalances is greater use (and permissiveness towards) industrial polices.