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0321316762_IM_22 - Chapter 22 Developing Countries Growth...

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Chapter 22 Developing Countries: Growth, Crisis, and Reform T Chapter Organization Income and Wealth in the World Economy The Gap Between Rich and Poor Has the World Income Gap Narrowed? Structural Features of Developing Countries Developing Country Borrowing and Debt The Economics of Financial Inflows to Developing Countries The Problem of Default Alternative Forms of Financial Inflow The Problem of Original Sin The Debt Crisis of the 1980s Reforms, Capital Inflows, and the Return of Crisis Box: The Simple Algebra of Moral Hazard East Asia: Success and Crisis The East Asian Economic Miracle Box: What Did Asia Do Right? Asian Weaknesses The Asian Financial Crisis Spillover to Russia Case Study: Can Currency Boards Make Fixed Exchange Rates Credible? Lessons of Developing Country Crises Reforming the World’s Financial Architecture Capital Mobility and the Trilemma of the Exchange Rate Regime Prophylactic Measures Coping With Crisis A Confused Future Understanding Global Capital Flows and the Global Distribution of Income: Is Geography Destiny Summary
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132 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition T Chapter Overview This chapter provides the theoretical and historical background students need to understand the macroeconomic characteristics of developing countries, the problems these countries face, and some proposed solutions to these problems. Students should be aware of the general events of the East Asian financial crisis. The chapter covers the East Asian growth miracle and subsequent financial crisis in depth. First, though, it introduces general characteristics of developing countries and the economics of their extensive borrowing on world markets, as well as the inflation experiences, debt crisis, and subsequent reform in Latin America. The chapter begins by discussing how the economies of developing countries differ from industrial economies. The wide differences in per capita income and life expectancy across different classes of countries is striking. Some economic theories predict growth convergence, and there is evidence of such a pattern among industrialized nations, but no clear pattern emerges among developing countries. Some have grown rapidly while others have struggled. There are important structural differences between developing economies and industrial economies. Governments in developing countries have a pervasive role in the economy, setting many prices and limiting transactions in a wide variety of markets; this can contribute to higher levels of corruption. These governments often finance their budget deficits through seigniorage, leading to high and persistent inflation. The economies of developing countries are typically not well diversified, with a small number of commodities providing the bulk of exports. These commodities, which may be natural resources or agricultural products, have extremely variable prices. Finally, economies of developing countries typically lack developed financial markets and often rely on fixed exchange rates and capital controls. There is a discussion of the use of seigniorage in developing countries in the text. You may want to use
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0321316762_IM_22 - Chapter 22 Developing Countries Growth...

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