A New Theoretical Framework: New Developmentalism

Abstract

New Developmentalism is a theoretical framework being defined since the early 2000s searching to understand why most middle-income countries are falling behind the East Asian ones. It is a political economy and a development macroeconomics that originates from development economics and Post-Keynesian Macroeconomics. It argues that fast growth and catching up have been associated to developmentalism, not to economic liberalism. It defines the developmental state as the one that not only is engaged in industrial policy but also manages actively the five macroeconomic prices–mainly the interest and the exchange rate to keep competitive economically the companies that are technically efficient. New developmentalism is critical of fiscal indiscipline, while defends countercyclical fiscal policy, and is strongly critical of current account, arguing that growth is made at home. It has a new model of the Dutch disease from which is possible to deduce the means to neutralize it and achieve economic competitiveness.

Notes

Notes

1 For a general view of New Developmentalism (Bresser-Pereira 2010, 2016) and (Bresser-Pereira, Oreiro and Marconi 2016). This is the Portuguese version of the book; I am quoting it instead of its English version (2014) because, as New Developmentalism is a work in progress, the Portuguese edition is superior.

2 Positive relation between the exchange rate and growth (Razin and Collins 1997; Gala 2007; Rodrik 2008; Rapetti, Skott and Razmi 2012; Missio, Jayme, Britto and Oreiro 2015). Dani Rodrik built an index of real exchange rate undervaluation for several countries based on Penn World Tables which he adjusted for the Balassa-Samuelson effect. (Gala 2006) in his PhD dissertation at the São Paulo School of Economics of Getúlio Vargas Foundation, was only able to show the relative depreciation of the currencies of the East Asian countries when his adviser proposed he adjusted his data for the same Balassa-Samuelson effect.

3 See (Bresser-Pereira and Rossi 2015).

4 The only macroeconomic contribution of Classical Developmentalism was the “structural inflation hypothesis” – the claim that inflation in developing countries would be consequence of structural bottlenecks in the supply of agricultural goods. But this condition only applies in the very beginning of the growth process.

Additional information

Notes on contributors

Luiz Carlos Bresser-Pereira

Luiz Carlos Bresser-Pereira, born in 1934, is emeritus professor of Getúlio Vargas Foundation. He was finance minister (1987) and minister of federal administration (1995–1998) of Brazil. His is author of many academic papers and books, among which Development and Crisis in Brazil (Westview, 1984), Democracy and Public Management Reform (Oxford, 2004), Globalization and Competition (Cambridge, 2010), and The Political Construction of Brazil (Lynne Rienner, 2016). In the last 15 years, he has been developing a new theoretical framework, New Developmentalism, whose political economy argues that capitalism was born not liberal but developmental, while its macroeconomics focus on the determination of the exchange rate and on the current-account, which should present a surplus to avoid the national currency turns overvalued and discourage investment.