Working Paper: CEPR ID: DP7480
Authors: Dani Rodrik
Abstract: 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.
Keywords: economic growth; financial crisis
JEL Codes: F43; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| industrial policies (O25) | economic growth (O49) |
| trade balances (F10) | economic growth (O49) |
| domestic output of nontraditional tradables (F19) | economic growth (O49) |
| undervalued currency (F31) | tradable production (F16) |
| tradable production (F16) | economic growth (O49) |
| subsidies + appropriate macroeconomic policies (E69) | tradable production (F16) |
| domestic demand for tradables + production (E20) | economic growth (O49) |