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This orthodoxy is not yet committed to denying the tendency to exchange rate overvaluation that I have recently identified, merely insisting on stating the unfeasibility of managing this rate. Therefore, it denies the existence or the relevance of the Dutch disease for developing countries, insists on proposing the growth with foreign savings policy, and claims that any intervention in the exchange rate is unfair - it is a way of growing at the neighbor's expense of 'begging thy neighbor'.
Besides, it insistently argues that the use of 'competitive devaluations' weakens technological progress and so productivity as it artificially protects business enterprises from foreign competition - despite the fact that what I am proposing is just the neutralization of the tendency to the overvaluation of the exchange rate. Its best efforts are directed to protect the growth with foreign savings policy, ignoring that current account deficit implies a high rate of substitution of foreign for domestic savings.
Actually, the growth with foreign savings policy is positive to the country only in a very particular situation, when the national economy is already growing fast and the prospects of profits are very high, because at that moment the wage increases caused by the exchange rate appreciation are not mainly oriented to consumption but rather to investment. Outside this particular situation, the consequence of the exchange rate appreciation will be, besides a decrease in exports and an increase in imports, successively: the increase in real wages, the increase in domestic consumption, the substitution of foreign for domestic savings, the growing financial fragility accentuating dependence, and, eventually, if the country does not wake up before, the balance-of-payment crisis.
In order to successfully compete in globalization, the necessary national development strategy of the successful Asian countries was always based on a severe fiscal adjustment and a competitive exchange rate. Differently from Latin America, the land reform that strongly reduced the differences of income between households made it possible for governments not to try to counterbalance the concentration of income with social expenditure. This prevented fiscal populism. Yet, as concerns the exchange rate the dynamic Asian countries established strict limits to foreign indebtedness and limited capital inflow whenever necessary.
They did not need to limit capital outflows because, except for the s, when four of their countries were attracted by the growth with foreign savings policy and went through the crisis, they have always kept their foreign accounts balanced, and when they went into debt they did it moderately, to profit from a growth whose dynamics was internal.
The key variable that distinguishes new developmentalism from conventional orthodoxy is the exchange rate. While conventional orthodoxy rejects the administration of the exchange rate, new developmentalism requires it because knows how strategic is the exchange rate. Whereas fast growing Asian countries have new developmentalism as national strategy, low growing Latin American countries accept passively conventional orthodoxy. Whereas the former grow with domestic savings and either do not have the Dutch disease problem or neutralize it, the later still believe that they need foreign savings to finance growth, and ignore the Dutch disease.
Rigorous fiscal policy and a competitive exchange rate are two central conditions for such stability.
A competitive exchange rate is still more important in globalization, since it is a condition for the export-led growth strategy - the one that profits from the advantage that cheap labor represents for emerging countries. From those remarks, I finish this paper with a simple comparison of the Asian countries that adopt national development strategies with the Latin American countries that as of the late s Bolivia and Mexico or the early s Argentina and Brazil adopted the conventional orthodoxy.
A more comprehensive ranking of the developing countries would consider, in addition to the dynamic Asian countries and the Latin American ones, the other middle-income countries that grow unsatisfactorily, and the poor or low-income countries. However, I will limit my comparison to those two groups, because there is a clear contrast between the independence of the former and the dependence of the latter.
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In order to test if the superior performance of the dynamic Asian countries is due to the fact that those countries have a national development strategy based on a more competitive exchange rate, on greater fiscal balance, and, consequently, on a higher rate of investment than the same variables in Latin American countries, I present a simple econometric test. I will limit my comparison to eight dynamic Asian nation-states and to the major Latin American countries 14 that are listed in Table 1 with their corresponding growth rates.
The State and the Market: An Institutionalist and Relational Take
I will make the comparison as of - because in that year the foreign debt crisis was solved by the Brady Plan and it was also around that year that Latin American countries, weakened by the great foreign debt crisis of the s, began to adopt conventional orthodoxy, whereas the dynamic Asian countries continued with their own national development strategies. Comparing the simple average per capita growth of both groups 7. During that period only Chile attained good growth rates.
If we consider the last five years, Argentina would also show high rates. New developmentalism - the name of the strategy that is used today by the most successful middle-income countries - may be identified in a country if we can observe in it three economic measures reasonably easy to detect: low or no public deficit, which indicates a fiscal balance; surplus current account or a small deficit, which indicates a competitive exchange rate; and a high rate of investment as compared to the GDP - the main consequence of the other two variables and the fundamental condition for catching up.
Although the three variables are important, the surplus or small current account deficit is, in my view, the most important one, because it reveals that the exchange rate is being correctly managed and that the tendency to exchange rate overvaluation is being neutralized. This is a fundamental aspect, because the exchange rate is the most strategic macroeconomic price, to the extent that it influences practically all macroeconomic aggregates.
If we ask what is the 'secret' of the extraordinary growth of the dynamic Asian countries, the answer will probably lie in a growth with domestic savings policy based on a competitive exchange rate. This doesn't mean that they have rejected foreign investment, but simply that they do not incur current account deficits unless for brief periods. Foreign investments received by China, for instance, are not meant to finance the current account deficit, as it happened in Latin America, but to give access to technology and foreign markets.
Based on the remarks above, I understand that there should be a positive correlation between, on one hand, economic growth and, on the other, low public deficit, current account surplus, and high rate of investment - and, therefore, that, when we compare countries and their economic performance, those three variables are a good indicator of the existence of a national development strategy.
The data on Table 2 confirm this assumption in the comparison between the dynamic Asian countries and Latin American ones, by presenting for both groups their public deficit, their current account deficit, and their average rate of investment in the period The predictions that the dynamic Asian countries would present a lower public deficit, surplus instead of current account deficit, and a higher rate of investment than Latin American countries, are fully confirmed: in Asian countries there is less public deficit, no current account deficit but rather a surplus, and the rate of investment is much higher.
The coefficient of correlation between those three factors and the growth rates is significant and positive, and the correlation of growth with the rate of investment 0. The data were organized in a panel of 16 countries those included in Table 1 which covers the period between and A regression was initially conducted in a panel with fixed effects, whose tests pointed to the occurrence of autocorrelation and heteroskedasticity between the series.
Therefore, I decided to carry out a regression from a first-difference equation of those variables and from the use of heteroskedasticity-robust standard errors. The coefficients and the robust standard errors indicate that the three variables are significant to explain the behavior of the GDP per capita. The three coefficients are positive, confirming the role of those variables in an economy's higher or lower GDP per capita growth rate. Those three variables are associated with a strong, not indebted State, that works as an instrument of collective action for the nation, and, therefore, as an instrument of the national development strategy.
They are also connected to a growth with foreign savings policy that, combined with the policy aimed at neutralizing the tendency to exchange rate overvaluation, ensures lucrative investment opportunities on the demand side. Without denying the significance of this issue, the assumption in my analysis is that developing countries have abundant human and capital resources that are idle or poorly used due to the chronically overvalued exchange rate.
The success of the dynamic Asian countries is partly due to the fact that they always keep control of their exchange rate, preventing it from appreciating, and, therefore, ensuring the existence of good investment opportunities for entrepreneurs and the full employment of the factors. Beck, ulrich  What is Globalization?
Has globalization diminished the power of the state?
Cambridge: Polity Press, Original German edition, Bresser-Pereira, Luiz Carlos b "New developmentalism and conventional orthodoxy". Brazilian Journal of Political Economy 28 1 : Journal of Post Keynesian Economics 30 3 : English version available at www. Available in the original at www. London: Anthem Press. Chang, Ha-Joon "Policy space in historical perspective, with a special reference to trade and industrial policies". Economic and Political Weekly, 41 7 : Paris: Syros. Evans, Peter Embedded Autonomy. Princeton, NJ: Princeton university Press. Fine, Ben "New growth theory". In Ha-Joon Chang, ed.
London: Anthem Press: Gellner, Ernest Nations and Nationalism. Ithaca: Cornell university Press. Glatzer, Miguel and Dietrich Rueschmeyer, eds. Pittsburgh: university of Pittsburgh Press. Paris: Hachette and Science Po. Paris: Fayard. In Held and McGrew, eds. Held, David and Anthony McGrew, eds. Cambridge: Polity Press. Stanford: Stanford university Press. Keohane, Robert O. Nye Power and Interdependence. New York: Longman.
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Kuttner, Robert "The Copenhagen consensus". Foreign Affairs , March-April: Ohmae, Kenich The Borderless World. New York: HarperCollins Publishers. Sassen, Saskia "When national territory is home to the global: old borders to novel borderings". New Political Economy 10 4 Stephens, John D.
In Glatzer and Rueschmeyer, eds. Wade, Robert "Globalization and its limits: reports of the death of the national economy are greatly exaggerated". Berger and R. Dore, eds. Ithaca: Cornell university Press: Wade, Robert H.
The World Trade Organization and the shrinking of 'developent space'". Review of International Political Economy 10 4 Wolf, Martin Why Globalization Works. New Haven: Yale university Press. Woo-Cumings, Meredith, ed. Woodall, Pan "The new titans". The Economist , September 14, Collective Action in the Formation of Pre-modern States. New York: Springer, DOI: Role of human action rational-choice theory at center of study of the formation of premodern states. Theory test of collective action using cross-cultural sample of premodern societies.
Claessen, Henri J. The Early State. New York: De Gruyter Mouton, Comprehensive edited volume discussing theoretically and empirically the emergence of early, premodern states in different world regions and synthesizing theoretical and empirical findings in a concluding part of the book. Good introduction to classic scholarship about the early state. Feinman, Gary M. Archaic States. Collection of essays providing archeological insights into the operation and diversity of ancient states as well as their rise and fall. Hobson, John M. The Eastern Origins of Western Civilisation.
Important contribution questioning the Eurocentrism of western accounts of world history and exposing the autonomous, internally generated process of modern transformation in and dominance of the West as a politically invented myth. Rather, the author shows how western Enlightenment borrowed from ideas of the non-western world, especially East Asia. Hui, Victoria Tin-bor. New York: Cambridge University Press, Argues against idea of uniqueness of the modern western state system by juxtaposing it with periods in ancient China that knew systems of sovereign states.
Discusses why China and Europe shared similar processes like war making, centralized bureaucratization, expansion of trade, and emergence of citizen rights, but with diverging outcomes. Lieberman, Victor. Public users are able to search the site and view the abstracts and keywords for each book and chapter without a subscription. If you are a student or academic complete our librarian recommendation form to recommend the Oxford Research Encyclopedias to your librarians for an institutional free trial.
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