World Development Report 1984

several countries. The rise in nominal and real achieved between 1960 and 1973. India also maininterest
rates in the past few years and the slow- tained its growth. Other regions did less well,
down--even halting-of new lending have made it especially sub-Saharan Africa. (The low growth of
difficult for some countries to service their com- oil exporters shown in Table 2.1 is somewhat mismercial
debt and raise the threat of a global finan- leading since there were large increases in income
cial crisis. because of improvements in the terms of trade.)
Population growth rates in developing countries
Developing countries after 1973 during the 1970s continued to be high and in some
regions (notably sub-Saharan Africa) increased. In
Thus the international environment had become per capita terms, growth in many countries was
less favorable to developing countries in the period therefore even less impressive; in sub-Saharan
after 1973 and became even less favorable after Africa, per capita incomes actually fell during
1979-80. The slowdown in industrial-country 1973-83 (see Chapter 5).
growth hurt all developing countries, although the For the purpose of assessing economic welfare,
effect was not the same for all. Those which were the growth of gross domestic income (GDY) is
exporters neither of oil nor of manufactures suf- more relevant than the growth in GDP. By allowfered
most. The effect on oil exporters was at first ing for changes in the terms of trade, GDY takes
more than offset by the rise in petroleum prices. account of changes in the rate at which national
Inflation in the 1970s helped to some extent all output can be converted into national consumpdebtors.
The sharp rise of real interest rates after tion. All oil-importing countries experienced some
1979 hurt most large middle-income borrowers, worsening in the terms of trade in the 1970s.
most of them in Latin America. Most important, Recent improvements have not restored the terms
the rise in instability in the 1970s-of prices, of of trade to their levels of the 1960s (see Table 2.7).
exchange rates, and of interest rates-complicated The effects of the terms of trade for oil-importing
the tasks of decisionmakers (both public and pri- countries should not be exaggerated, however. For
vate) everywhere. example, between 1973 and 1979 the rate of GDP
However, interest rates and capital flows are growth of middle-income oil importers of 5.6 peronly
one determinant of growth in the developing cent a year was only a little above the GDY growth
countries. A second is their own policies; last rate of 5.3 percent. Only for oil exporters have
year's World Development Report focused on their changes in the terms of trade been important; their
management of economic policies and institutions. rate of GDY growth was 9.0 percent a year com-
A third influence is that of foreign trade. The main- pared with 4.9 percent GDP growth.
tenance of high growth and near full employment Where oil-importing countries performed well,
in industrial countries provides a boost to world they did so for two basic reasons. First, they maintrade.
It also reduces the political pressures in tained or increased savings and investment rates
industrial countries for tariffs, quotas, and other (see Table 2.8); second, they maintained or
forms of protection for declining industries. More increased the growth of export volumes, especially
trade and less protection in turn enable developing manufactured exports (see Box 2.3). These perforcountries
to develop efficiently in line with their mances in turn were made possible by the kind of
own comparative advantage. domestic and trade policies that permitted an effec-
The changing balance between these three fac- tive adjustment to external conditions. Middletors
explains the performance of developing coun- income developing countries were not uniformly
tries, first in coping with the 1974-75 recession, successful in these areas; some may have relied too
then in achieving a sustained expansion until 1979, much on borrowing without adjustment. In genand
most recently in struggling through the 1980- eral, though, the 1970s was a successful decade for
82 recession from which they have yet to recover. It them.
also explains why some countries have done better That was not true of low-income countries in
than others. Africa. Production was held back by adverse external
conditions in combination with a series of
Differences among developing countries domestic policies: poor incentives to farmers,
costly and inefficient agricultural marketing sys-
The middle-income countries of East Asia and the tems for both inputs and outputs, and the mainte-
Pacific achieved GDP growth rates of 8.6 percent a nance of overvalued exchange rates. Between 1973
year between 1973 and 1979, comparable to that and 1982, countries such as Ethiopia, Sudan, Tan-
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