Economy

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In the past 25 years, in the expanding global economy, the developing economies have played an increasingly important role. This trend has four characteristics:

Steady growth and structural transformation, led by low- and middle-income economies that have pursued successful adjustment policies. Rapid integration of developing economies in the global economy, marked by expanding trade and capital flows. Improved policy environments in developing economies, with better macroeconomic management and economic liberalization driving growth and integration. Increasing disparities within the developing world, with some regions pulling rapidly ahead (such as East Asia) and others in danger of being marginalized (Sub-Saharan Africa).

The indicators presented in this section attempt to measure changes in the global economy and the differential impact of these changes on developing economies. They are mainly indicators that traditionally appear in the World Development Indicators, measuring outcomes in the structure and rates of change of output, trade, and aggregate demand and in macroeconomic performance, including central government budgets, money supply, prices, balance of payments, and external debt. Like other data in this book, the data in this section are subject to conceptual and practical measurement problems that limit their comparability and usefulness (box 4a).

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Developing economies outpace the world

The world economy grew at about 3 percent a year in the 1980s, slowing to 2 percent in the first half of the 1990s. Low- and middle-income economies, excluding Eastern Europe and the economies of the former Soviet Union, grew more rapidly, averaging 3.4 percent in the 1980s and 5 percent in the first half of the 1990s.

Growth among developing countries was dominated by the populous economies of East and South Asia. East Asia’s economies grew at almost 8 percent a year in the 1980s and at 10 percent in the 1990s. In South Asia growth was almost 6 percent a year in the 1980s and roughly 5 percent in the 1990s. In the early 1980s Latin America’s growth was hurt by the debt crisis and the halt in private capital flows. The debt crisis came to an end in the early 1990s, when these countries began to see much faster growth. In the same period Sub-Saharan Africa and the Middle East and North Africa had disappointing growth performance, reflecting poor policies, falling commodity prices, and, in Sub-Saharan Africa, growing official debt. Eastern Europe and the economies of the former Soviet Union—the transition economies—suffered from the collapse of the Soviet system and the end of state trading regimes; in the early 1990s their growth was negative.

Developing economies that have done well have some important similarities:

High rates of domestic savings have helped to sustain high rates of investment. The fast-growing economies of East Asia are investing between 27 percent and 43 percent of GDP, while Chile is investing 27 percent and India 25 percent (tables 4.12 and 4.13). Rapid growth in trade has increased the share of trade in GDP. East Asia’s export growth in the 1980s exceeded its GDP growth at around 9 percent a year—almost twice the rate for world exports. By the 1990s East Asian exports were growing at a remarkable 18 percent a year (almost three times the rate of growth of world exports). South Asian export growth has also been impressive—7 percent a year in the 1980s and 9 percent in the 1990s. As a result, the share of merchandise trade (exports plus imports) in GDP for developing economies as a group rose from 38 percent in 1980 to 44 percent in 1995. Most of the increase, however, was in 10 economies, mostly in East Asia (tables 4.8 and 4.9). Agriculture’s importance is declining. In China agriculture’s share in GDP between 1980 and 1995 fell from 30 percent to 21 percent. In India it declined from 38 percent to 29 percent, in Indonesia from 24 percent to 17 percent, in Thailand from 23 percent to 11 percent, in Malaysia from 22 percent to 13 percent, and in the Republic of Korea, which moved from middle-income to high-income status during this period, from 15 percent to 7 percent (tables 4.1 and 4.2). The share of manufactured exports is rising. Further evidence of the structural transformation of these economies is seen in the increasing importance of manufactures in exports, a measure of access to learning, technology transfer, and the ability to produce at world standards. Between 1973–82 and 1983–92 the share of manufactures in merchandise exports rose in East Asia from 35 percent to 50 percent, and in South Asia from 45 percent to 65 percent (World Bank 1996c, p. 24).

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