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Rethinking Development Strategies after the Financial Crisis

Volume II - Country Studies and International Comparisons

image of Rethinking Development Strategies after the Financial Crisis
The recent economic trends and the challenges posed by the global crisis reinforce the importance of implementing strategies for development as opposed to leaving the economy to market forces. Countries need a strategic compass for long-run economic development, either explicitly or implicitly. Among other ingredients, this comprises macroeconomic policies, sectoral policies (including the financial sector, trade and industrial policies), institution building in key areas and development-friendly global governance. Within a chosen medium- or even long-term strategy, governments need more policy space to adjust to the specific (and evolving) social, historical and institutional context. The experience of Asia shows that rather than implementing narrow and rigid general guidelines, experimental approaches – which require policy space – are a recipe for success. Furthermore, the slow-growth periods endured by several countries (the “lost decades”) allowed inferring which policies should be avoided. The authors of this publication share the notion that developing countries can and should learn more from each other, as well as from their own past experience. It is important to look at comparisons between developing countries, including both success and failure stories. In this second volume, seven country studies contribute to this approach. From this perspective, poor economic results in developing regions and transition economies in the 1980s and 1990s have to be compared with rapid output growth and social improvements in the two preceding decades, as well as the 2000s. Several factors have contributed to explaining these contrasts. In particular, the existence of a developmental State that uses its room for manoeuvre to act on both the supply and demand side is a common denominator of most successful experiences. On the contrary, neoliberal policies that restrained the role of the State in the economy and dismissed the need to preserve any policy space prevailed in the slow-growing regions during the lost decades.

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National development banks in a comparative perspective

A feature characteristic of countries that were late industrializers was their reliance on financial institutions geared to the task of financing capital-intensive investments with direct and indirect support from the State. While in Germany the universal banks served this purpose in the 19th century, developing late industrializers after the Second World War established specialized development banking institutions to play this role, as well as reach credit to sections that were otherwise excluded from the banking network. Despite differences in the evolution of the development banking infrastructure across these countries, there are striking similarities in terms of what they were mandated to do and how they were financed. However, with the turn to financial liberalization, the transformation of development banking across countries has been very different, with seemingly significant consequences.

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