Growth and Crises


Seminar Paper, 2011

7 Pages, Grade: 1,3


Excerpt

The following assignment deals with the question of whether the Latin American Dept Crisis and the Asian Financial Crisis are comparable to each other in terms of their influence on GDP growth. Thereby, particular attention will be paid to the dates the crises occurred in those regions. The Latin American region is represented by Argentina, Brazil and Mexico. The Asian region is represented by The Republic of Korea, Malaysia and Thailand. In a first step, the difference between a Dept Crisis and a Financial Crisis will be worked out, before the GDP growth rate will be defined in a second step. The main part of the assignment is an empirical analysis of the GDP growth rates during the years 1970 - 2000.

A Dept Crises can occur in two different forms. Either it occurs in terms of an external Dept Crises or a Domestic Dept Crises. Although it has to be mentioned that Domestic Dept is a large portion of countries total dept (REINHART AND ROGOFF, 2009, p. 103). During the time between 1982 and 1989 the Dept Crises in Latin America was a Domestic Dept Crises. As well as for an external Dept Crises, a sovereign default is defined as the failure of a government to meet principal or interest payment on the due date, also for a domestic Dept Crises. In addition, domestic debt crises have involved the freezing of bank deposits as well as forcible conversations of such deposits from dollars to local currency (REINHART AND ROGOFF, 2009, p. 11). “The existence of powerful external creditors is unusual for Domestic Dept Crises.” (REINHART AND ROGOFF, 2009, p. 13) The Financial Crisis in Asia which took place between 1997 and 1999 began as a currency crisis and developed into a banking and dept crisis afterwards.

The data is gathered via Penn World Table (PWT). For calculating the growth rates, the PPP converted GDP Per Capita (Chain Series) at 2005 constant pries is used within the compound interest formula:

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Where yt represents the per capita income at time t, y0 represents per capita income at time 0, g represents the average annual compound rate of growth and t represents the length of time between the two measures of per capita income.

Solving the formula for g results as follows:

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Exhibit 1: GDP Growth between 1970 and 1999

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Taking a look at the empirical data, the growth rates of the six countries will be examined over the years from 1970 to 1999 in total. Exhibit 1 illustrates these growth rates. It is obvious that all countries have positive GDP growth rates throughout the 30 years despite there were crises influencing the growth rates during that time. Comparing the rates of the Asian countries and the Latin American countries, one can see that Asian GDP growth rates are higher than the one’s of Latin America. One reason for this is due to the fact that the examined Latin American countries started on a much higher level. The average GDP of the Latin American countries by 1970 was 6212.02, while the one of the Asian countries was 2230.01. So there is a higher potential for economic growth in the Asian nations.

Exhibit 2: GDP Growth for each decade between 1970 and 1999

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Exhibit 2 gives an overview over the GDP growth rates for each of the six countries over the three decades (70’s, 80’s and 90’s). All countries had positive GDP growth rates in the 70’s. The Republic of Korea as well as Malaysia reached growth rates for this decade over 6 %. As one can see, the Latin American countries suffered from their dept crisis in the 80’s, having all negative growth rates during that time while the Asian countries continued their growth with growth rates between 2.9 % (Malaysia) and 6.7 % (Republic of Korea). In the 90’s, GDP growth rates in Latin America began to rise after the crisis which lasted until 1989. Due to the fact that the Asian financial crisis was in the late 90’s we do not see a strong decrease in the GDP growth rates for the Asian countries until 1999 although growth rates of the Republic of Korea and Thailand started to drop slightly by approximately 2 % each.

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Excerpt out of 7 pages

Details

Title
Growth and Crises
College
San Diego State University
Grade
1,3
Author
Year
2011
Pages
7
Catalog Number
V189341
ISBN (eBook)
9783656136286
File size
1587 KB
Language
English
Keywords
growth, crises
Quote paper
Tobias Kleinmann (Author), 2011, Growth and Crises, Munich, GRIN Verlag, https://www.grin.com/document/189341

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