World Development Report 1984
World Development Report 1984
World Development Report 1984
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Burundi, Guinea, Mali, Malawi, and Sierra Leone, countries did not worsen in the 1970s (see Table<br />
public expenditure has increased despite budget- 2.8). In some countries-India being a prominent<br />
ary constraints. In many countries domestic sav- example-they even improved. Nonetheless, disings<br />
collapsed in the 1970s. In Ethiopia the savings tortions in the domestic financial system made the<br />
rate declined from about 12 percent to 3 percent problems of domestic adjustment to external pres-<br />
(1973-82); Tanzania from 16 percent (1967) to 9 per- sures more difficult. Thus Turkey in 1977-79 maincent<br />
(1981); Sudan from 10 percent (1970) to about tained fixed nominal deposit rates in the face of<br />
3 percent (1978); Ghana from about 15 percent accelerating inflation. Brazil reduced monetary<br />
(1970) to 3 percent (1981); Kenya from about 15 correction on financial assets in 1980.<br />
percent (early 1970s) to 9 percent (1981); and Zimbabwe<br />
from about 20 percent in the early 1970s to Effects of the recent recession<br />
about 10 percent in 1981. Despite foreign capital<br />
inflows, the rate of capital accumulation also fell In 1974-75 many developing countries were able to<br />
considerably in sub-Saharan Africa. compensate for the deterioration of trading oppor-<br />
For oil exporters, the rise in oil prices consider- tunities by exploiting the better opportunities for<br />
ably increased their incomes. But the volume of the migration of labor and for importing capital.<br />
their exports grew very slowly and the booming Between 1979 and 1983, by contrast, most developenergy<br />
sector had a depressing effect on other ing countries initially-and virtually all ultiparts<br />
of the economy. After 1982, when it became mately-found their external circumstances detericlear<br />
that the predictions of their oil revenues had orating in all significant respects.<br />
been too optimistic, their relatively slow GDP Weak demand in the industrial countries during<br />
growth of the 1970s was compounded by general 1980-82 was the main cause of falling export prices<br />
deflation in an attempt to reduce imports (see for developing countries (see Table 2.7). Prices for<br />
Box 2.4). industrial raw materials fell for the additional rea-<br />
As with the industrial countries, harsher exter- son that high interest rates discouraged storage,<br />
nal conditions in the 1970s exacerbated the conse- while food prices dropped because of bumper<br />
quences of various policy-induced distortions in world harvests. Overall, the prices of primary<br />
many developing countries. A common response products in relation to those of manufactures<br />
in many middle-income countries (Brazil, Korea, reached a post-1945 low in 1982. In 1983, as eco-<br />
Philippines, Turkey, and Yugoslavia) to the 1973- nomic recovery began in industrial countries, and<br />
74 rise in oil prices was to stimulate demand as some supplies were limited by unfavorable<br />
through expansionary monetary and fiscal policies weather, raw material prices started to rise again.<br />
and then to finance the resulting current account Nevertheless, they remained lower than in 1979,<br />
deficits through commercial borrowing. While and almost all developing countries faced worse<br />
much of this borrowing went to finance invest- terms of trade by 1983 than they had in 1980.<br />
ment, the rates of return to both public and private In volume terms, the developing countries'<br />
investment were declining. Among the major bor- exports of raw materials and fuels fell absolutely<br />
rowers, incremental capital-output ratios-the during the recession. Exports of food, always relaamount<br />
of extra investment needed to produce an tively insensitive to income, continued to grow<br />
extra unit of output-rose, for example, from less (see Table 2.9). Exports of manufactures, having<br />
than 3 in Brazil in 1970-75 to nearly 4 in 1975-80, grown at 10.6 percent a year between 1973 and<br />
and from 3.6 to 4.5 in the Philippines. Inefficiency 1980, rose at only 6.9 percent a year between 1980<br />
increased for a variety of reasons: shifts toward and 1983. Given the sluggish GDP growth in<br />
capital-intensive industry, low capacity utilization industrial countries, however, developing counin<br />
various sectors, and inefficient use of resources tries did manage to increase their share of world<br />
in expanding the public sector. markets for manufactures.<br />
Countries which saw an improvement in their Among developing countries, one of the differterms<br />
of trade in the early 1970s also expanded ences that weighed even more heavily in the<br />
their public spending. But since the improvement recent recession than in the two preceding decades<br />
was transitory, the extra public expenditure was between inward- and outward-looking trade<br />
increased public sector deficits and exacerbated policies. Previous <strong>World</strong> <strong>Development</strong> <strong>Report</strong>s have<br />
balance of payments and debt servicing problems. suggested that outward-looking policies-those in<br />
Apart from low-income Africa, the trends in sav- which there is rough equality between the incenings<br />
and investment rates in most developing tives for exporting and import-competing activi-<br />
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