This paper attempts to identify key factors that can account for the divergent economic performance of East Asia and Latin America during the second half of the 20th century. Within the triad of so-called “deep determinants” of economic growth (geography, policy and institutions), the paper argues that differences in policy and institutions are most important in accounting for this regional divergence. In contrast with East Asia, Latin America has exhibited continuing problems of macroeconomic instability and a much weaker degree of integration into the global economy. In addition, there are marked institutional differences between the two regions, with East Asia identified with stronger public institutions and indicators of government effectiveness
Economic change is a process of continual adjustment to new circumstances. Economies are always in the process of becoming. Good economic policy entails pragmatic adjustment so that economic dystrophy is avoided. The experience of economic (institutional) reform in China since 1978 is drawn on—and explained—to illustrate the extent to which Deng’s reforms represent the pragmatist’s focus on the practical effects of purposeful actions. Economies rest on an evolving institutional foundation. Deng understood this and used it to bring China to the forefront of the world’s economic stage. Here is an account of how he managed that transition.
Anthony Elson is a former Senior Advisor in the Asia and Pacific and Western Hemisphere Departments of the IMF, and now is an economic consultant in Washington, DC. He also serves as Professorial Lecturer at the Johns Hopkins School of Advanced International Studies and a Visiting Lecturer at the Duke University Center for International Development.