Political foundations of economic management
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Political Foundations of Economic Management. Economic development. Factors promote growth and development Political stability Political consensus Political freedom Economic freedom. Financial crisis. Cope with causes and consequences of financial crisis political liberalization

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Economic development
Economic development

  • Factors promote growth and development

  • Political stability

  • Political consensus

  • Political freedom

  • Economic freedom


Financial crisis
Financial crisis

  • Cope with causes and consequences of financial crisis

  • political liberalization

  • broad-based economic reform



Puzzle of uneven growth1
Puzzle of uneven growth

  • In 1960 the East Asian developing economies had lower per capita income than developing economies in either Latin America or sub-Sahara Africa

  • 1975-90 real GDP per capita grew 5% a year for East Asian developing economies

    • 0.04% for Latin America

    • 0.3% for sub-Sahara Africa


Crisis in south korea
Crisis in South Korea

  • corporate failures in 1997

    • Hanbo Steel, Sammi Steel, & Kia automobile

  • capital flight

  • credit downgrading

  • currency depreciation


Adjustments in south korea
Adjustments in South Korea

  • reform of banking system

  • improvement in financial sector

  • modification of labor laws

  • modification in social security program




Taiwan and singapore
Taiwan and Singapore

  • less damage from (or less vulnerable to) financial crisis

  • economic growth slowed down

  • solid macroeconomic fundamentals

    • current account surpluses

    • export of goods and services

    • low inflation rates


Lessons from philippines
Lessons from Philippines

  • In 1950s, best performer and most promising economy in East Asia

  • 1960 - 1997, lowest growth rate (1.4% on average) in East Asia

  • two periods of negative growth

    • 1983 - 1986 and 1991 - 1992

    • political turmoil and military coups


Economic growth
Economic growth

  • accumulation of reproducible capital

  • decisions by individual economic agents

    • investment

    • consumption

  • conditioned and constrained by politics

    • political instability

    • political polarization

    • government repression


Political uncertainty
Political uncertainty

  • political instability

    • likelihood of the current regime being replaced in the future

  • political polarization

    • degree of polarization between opposing political parties

  • uncertainty in the consistency of public policy reduces agents’ incentive to invest


Government repression
Government repression

  • Political structural factor

    • political freedom

      • human rights

      • civil rights

    • economic freedom

      • property rights

      • special interests

    • security of agents’ gain from investment

    • impose social cost on economic growth


Theoretical hypotheses
Theoretical hypotheses

  • Ceteris paribus,

    • the lower the probability of the survival of the current regime,

    • the more polarized the policy positions of opposing parties,

    • the more repressive the government,

  • the lower the growth rate


Political instability
Political instability

  • 0.33 revolutions per year on average

    • 0.14 without the Philippines


Political freedom
Political freedom

  • 1975 - 1990 average political freedom level

    • OECD economies 0.946

    • Latin America 0.5

    • East Asia 0.454

    • sub-Sahara Africa 0.215





Robert j barro 1996
Robert J. Barro 1996

  • “Democracy and Growth”, in Journal of Economic Growth, volume 1, pages 1 - 27, March 1996.

  • The middle level of democracy is most favorable to economic growth

  • The lowest level comes second

  • The highest level comes third



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