Asian and Pacific Developing Economies: Performance and Issues

Abstract

The expansionary and inflationary world economy of the 1970s was brought about by the expansionary and inflationary financing, especially by the United States, of the first oil shock in 1973. The decision of the United States to offset rather than to accommodate the second oil shock in 1979 led to a new environment and set of economic problems for the developing economies, particularly in the Asian and Pacific region. Outward-looking development policies seemed a less attractive response to the oil shock mainly because the world recession brought about record levels of real interest rates, a stronger U.S. dollar, decelerating inflation and, for the developing countries, worsening terms of trade. Further, there was rising protectionism fueled by demographic changes and high levels of structural unemployment. Also, the U.S. budget deficit widened…