Working Paper, Institute for International Political Economy Berlin 103/2018
After World War II only a few developing countries were able to catch up to real GDP per capita levels prevailing in developed countries. These successful countries in almost all cases came from Asia and did not follow the free market doctrine in the tradition of the Washington Consensus. There must be theoretical explanations as to why underdevelopment is reproduced and most countries in the world do not catch up. This essay reviews different economic approaches which attempt to explain the lack of convergence. A first group of approaches focuses on the lack of sufficient productivity development (free trade, global value chains, negative terms of trade effects, abundance of scarce resources, premature deindustrialization); the second group focuses on problems to trigger sufficient growth (distorted financial systems, high restrictions on macroeconomic demand management). Countries can suffer from several of these factors, which can explain why development is only possible with the support of comprehensive government policies.
underdevelopment financial system free trade inequality Keynesian paradigm Washington Consensus