DP1753 | Growth and External Debt: A New Perspective on the African and Latin American Tragedies

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19/12/1997

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Abstract

This paper addresses two puzzles of the growth literature: the failure of standard growth equations to account for slow growth in Latin America and Africa; and the surprising failure of trade to explain growth when trade liberalization appears to play a significant role. The paper shows that: i) African growth is readily explained by macroeconomic mismanagement and low investment; ii) trade liberalization should be taken as a proxy for good ?macroeconomic? management rather than a genuine measure of the effect of trade upon growth; and iii) poor growth in Latin America (which does not seem to be explained by the preceding feature) is explained well by a variable (constructed in the text) representing the likelihood of debt crisis.