Growth and Adjustment in East Asia and Latin America*

This paper compares the experience of growth performance and macroeconomic adjustment between East Asia and Latin America over the period from 1970 to 2000. We find that the difference in growth performance between two regions are largely attributed to the differences in fundamental growth factors such as investment rate, human resources, fertility, institutional quality, macroeconomic stability and the degree of trade openness. We also discuss the role of quality of education and differences in inequality between the two regions. Balance-of-payments crisis shocks have also contributed significantly to the differences of growth performance across regions. The adjustment from balance-of-payments crises shows that the growth rates tend to be lowered only temporarily following a crisis and then rebound to the pre-crisis levels, thereby existing the typical v-type pattern of adjustment from crises has been in both East Asia and Latin American crisis episodes. However, often a balance-of-payments crisis is associated with a large decline of growth rates and developed into another crisis in the future. We estimate the determinants of the output costs of crises and find that international liquidity, financial soundness, real exchange rate depreciation and monetary policy play a critical role in reducing output losses from crises. _______________________________________________________________________ * Part of this work was prepared while Jong-Wha Lee was visiting the Central Bank of Chile. The views expressed are the authors’ and do not necessarily represent those of the Central Bank of Chile. E-mails: [email protected], [email protected].