Chapter5_Neoclassical Reform in Practice

Chapter5_Neoclassical Reform in Practice - Helen Bowman...

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Helen Bowman Understanding Development: Chapter 5 Summary Neoclassical Reform in Practice Advantages of structural adjustment: o Rollback of the state o Freedom of the market However, there have been unsuccessful/questionable attempts of state-led development e.g. Mexico, India, Ghana The results of structural adjustment have varied widely – as a general rule: o Best results in Latin America o Worst results in Africa Upon examination of the neoclassical method, problems with structural adjustments have arisen: o Moral concerns – SAPs have Worsened plight of the poor Deepened injustices in 3 rd world o Serious economic/political drawbacks The Dividends of Structural Adjustment Mexico: reluctant approach to structural adjustment o Economic crisis in late 80s drove country to currency devaluation, tight fiscal/monetary policies, trade liberalization o Economy turned around in 1988; by 1991 there is steady growth; 1994 NAFTA agreement spurs more growth o However, stock market collapsed in 1995 o Foreign investors pulled out, but gov’t imposed strict austerity program and foreign creditors esp. US let economy pull through Chile: Latin American success story o SAP depended less on foreign backing o Local investors dominated stock market o Growth rate become one of world’s highest: new jobs replaced lost ones, exports increased, agriculture becoming more advanced, social indicators improved India: late adjustor o Rajiv Gandhi appointed technocrats who all shared goal of reforming economy o Reforms were stop-and-go for a few years, then Congress Party was out for a few years o Once Congress Party came back into power in 91, gov’t faced balance-of-payments crisis Protective barriers tumbled – max. import duty cut from 250 to 50%, growth up to 5% a couple of years lager o Agricultural economy has been largely untouched by liberalization, which has targeted industrial sector Africans among harshest critics of structural adjustment – does more harm than good to Africa
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o During 1980s (when structural adjustment began to sweep Africa), growth fell, agricultural output couldn’t keep with rising population increased food imports; manufacturing didn’t increase share of total output, investment and consumption fell, per capita income declined, unemployment rose o Structural adjustment didn’t cause Africa’s current economic woes, nor did it cure them Proponents of structural adjustment: things might have been worse if African gov’ts didn’t impose structural adjustment o E.g. Nigeria SAPs were positive in some respects, but didn’t yield all anticipated gains, and produced some unexpected and undesired consequences Any increase in GDP resulted from expansion in private sector Growth in manufacturing has been held back Industries enjoying comparative advantage prospered, but gains were offset by retrenchment and accelerated fall in capacity utilization Many large firms closed down, while small firms, despite improved access to
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Chapter5_Neoclassical Reform in Practice - Helen Bowman...

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