Boom, Crisis, and Adjustment: The Macroeconomic Experience of Developing Countries

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Boom, Crisis, and Adjustment: The Macroeconomic Experience of Developing Countries

By Ian M. D. Little, Richard N. Cooper, W. Max Corden and Sarat
Oxford University Press/Washington: The World Bank, 1993
455 pp. $42.95
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This book discusses the economic behavior and performance of 18 developing countries during the economically turbulent 1970s and 1980s, which included three sharp changes in oil prices, two major recessions, a debt crisis and sundry lesser disturbances.

My conflict of interest as a contributor inhibits an evaluation of the book, but I can report some of its principal findings. Most significant is the absence of any correlation between the size of the shocks that these countries experienced to their terms of trade and their subsequent economic performance during the 1980s, as measured mainly by economic growth and secondarily by inflation. Even more surprising, countries with windfall gains, such as Indonesia, Mexico and Nigeria, did no better than countries with large negative external shocks. Potentially beneficial events were squandered. The explanation seems to lie in the changes in two attributes: maintenance of budgetary discipline, even in the presence of windfall gains, and speed of response to adverse economic developments, including timely adjustment of exchange rates, early response leading ultimately to lower cost. There are possible lessons here for the future.

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