World Development Report 1984

3 Prospects for sustained growth
With economic growth reviving, attention shifts to basic scenarios. Designated the Low case and High
the prospects for sustaining the recovery. Looking case, these scenarios should not be viewed as prefurther
ahead, governments are assessing the dictions; the outcomes depend on the policies
chances of raising long-term growth rates above adopted in developed and developing countries.
their average in the 1970s. That task, as Chapter 2 They also do not consider or allow for any exogemade
clear, depends on overcoming certain deep- nous shocks to the world economy that could
seated problems that were revealed and exacer- result from, for example, a severe disruption of
bated by two sharp rises in oil prices. The indus- energy supplies.
trial countries have been slowed by the growing The Low case indicates what might happen if the
inflexibility of their economies, especially in labor industrial countries were to do nothing to improve
markets, and by the upward pressures on public their performance of the past ten years (see Table
spending and the associated tendency toward 3.1). Their GDP growth would then average 2.5
higher taxation and periodic bouts of inflationary percent a year in 1985-95, nearly the same as
financing. The results have included falling returns between 1973 and 1979. Governments of industrial
on investment; a declining investable surplus; countries would find it hard to control inflation,
defensive policies of protection and subsidization; and their budgetary deficits and unemployment
and, in consequence, slow growth and stubborn would remain high. Protectionist sentiment would
inflation. Many developing countries face difficul- be strong, threatening the exports of developing
ties which are not dissimilar to those of the indus- countries and their ability to service their debt. But
trial countries, especially policy-induced distor- protectionist actions would increase no more raptions
in the economy and problems in controlling idly than in the past several years, and developing
public spending and deficits. countries would still have the potential to increase
This chapter begins by examining some sce- penetration of markets in industrial countries.
narios for growth in the years up to 1995, exploring The Low case is based on an average inflation
the policies and conditions that would bring them rate in the industrial countries of 6 percent a year,
about. In particular it looks at what has to be done in dollars at unchanged exchange rates. This is
to restore the growth rates of the 1950s and 1960s, close to 7 percent in current dollars because of a
considering both the choices facing industrial presumed depreciation of the dollar after 1985 of
countries and the benefits that developing coun- 13 percent. This inflation rate is likely to be the
tries could reap, even in unfavorable world condi- average of widely divergent rates over successive
tions, by changing their own policies. The chapter cycles. With real interest rates at 3.5 percent
then discusses the implications of the different sce- because of the large budget deficits, the nominal
narios for international debt, along with the interest rate would average 9.5 percent. This rate
related policy issues for both the industrial and the too would probably fluctuate considerably over
developing countries. Finally, it stresses the poten- time.
tial for international collaboration, especially over Competition for funds from the governments of
trade liberalization and capital flows. industrial countries would keep real interest rates
up, and so would discourage lending to many
A ten-year perspective developing countries. The ratio of official development
assistance to GNP in the industrial countries
To illustrate the range of possibilities for the world is presumed to remain at its historical average, so
economy in 1985-95, this chapter describes two development assistance would grow at 2.5 percent
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