U.S. and Hong Kong (2002)

Greenspan Cites Risks of Borrowing by Developing Countries

Following is the text of Greenspan's remarks as prepared for delivery:

(Note: In the text "billion" equals 1,000 million.)

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Remarks by Chairman Alan Greenspan
At Banco de Mexico's Second International Conference "Macroeconomic
Stability, Financial Markets, and Economic Development," Mexico City,
Mexico
November 12, 2002

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While, from a global perspective, wealth and the overall quality of life have risen, that success has not been evenly distributed across regions or countries. The economies of East Asia are often-repeated success stories. Some, including China, Malaysia, South Korea, and Thailand, stand out not only as growing very strongly, but also as having seen the greatest declines in poverty rates. Overall, over the past three decades, Asia's $1 per day poverty rate fell by one measure from 22 percent in 1970 to just 2 percent in 1998.(5) Moreover, Asia was not alone. Per capita incomes in Latin America also expanded during the period, and poverty rates fell, although progress was somewhat slower.(6)

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One recent study of the effects of openness on growth demonstrated that when countries are divided into two groups -- those with generally open economies and those with generally closed economies -- open economies have experienced average growth that is 22 percentage points higher than the growth of closed economies.(11) Furthermore, when developing economies are ranked according to their historical record of openness, economies such as Hong Kong, Malaysia, Singapore, and Thailand are near the top of the list.(12) These Asian economies are some of the same ones that participated in the region's so-called growth miracle.

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Researchers in recent years have found that the rule of law -- defined as a system that emphasizes creditor rights and rigorously enforces contracts -- facilitates the development of an efficient banking system and financial markets more generally; this development, in turn, supports growth.(13) The quality of the institutions in a country -- such as a sound regulatory environment, political stability, and the control of corruption -- have important effects on growth.(14) Economies with a high quality of governance, relative to other economies in their regions, including Hong Kong and Singapore in Asia, Chile in South America, and Botswana in Africa, have had some of the fastest growth rates in their respective regions in recent decades.(15)

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Footnotes
1. Smith (1776), Vol. II, book IV, chapter V, p.43.
2. World Bank (2002) -- GDP per capita (constant 1995 dollars).
3. Sala-I-Martin (2002). The $1 per day threshold is measured in 1985
dollars on a Purchasing Power Parity basis.
4. World Bank (2002).
5. Sala-i-Martin (2002).
6. World Bank (2002) -- GDP per capita (constant 1995 dollars) for the
per capita income data and Sala-i-Martin (2002) for the poverty data.
7. World Bank (2002) -- GDP per capita (constant 1995 dollars).
8. Sala-i-Martin (2002).
9. Sala-I-Martin (2002) and World Bank (2002) -- GDP per capita
(constant 1995 dollars).
10. Smith (1776), Vol. I, book IV, chapter II, p. 422.
11. Sachs and Warner (1995).
12. Sachs and Warner (1995).
13. Levine (1998) and Levine and Zervos (1998).
14. Kaufmann, Kraay, and Zoido-Lobaton (1999).
15. Kaufmann, Kraay, and Zoido-Lobaton (1999).
16. Barro (1997).
17. Fischer (1993).
18. World Bank (2002) -- GDP per capita (constant 1995 dollars).
19. Easterly (2001).
20. Easterly and Levine (1997) cited in Easterly (2001).
21. Alesina and Summers (1993).
22. Gutierrez (2002) and Cukierman, Miller, and Neyapti (2002).

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