Earlier this month I shared a joint platform on Asian economic growth with Danny Quah, Professor of Economics at the London School of Economics. Professor Quah I knew principally from his writings on international comparisons of growth such as Empirics for Growth and Distribution, Twin Peaks: Growth and Convergence in Models of Distribution Dynamics, and The New Empirics of Economic Growth. Recently I had also read with considerable interest his analysis of Post-1990s East Asian Economic Growth which deals extensively with Asia’s recovery from the 1997 debt crisis - and can be strongly recommended to readers of this blog.
I had, however, not personally met Professor Quah before and preparing for the discussion gave an opportunity to catch up with a number of his other writings. These include criticism of the myth that the cause of the international financial crisis is over-saving by Asian countries. He has therefore urged the need to, ‘rebalance the global economy by all means, but with an eye to fostering aggregate supply as much as aggregate demand.’
This point is crucial given that, all other things being equal, reduction in Asian savings/investment rates will necessarily lower the rate of international economic growth – which will not aid global economic recovery.
Such analysis led Professor Quah into a discussion with Martin Wolf of the Financial Times - who precisely proposes radical reduction in savings by Asian countries to eliminate their balance of payments surpluses. Danny Quah noted, against Martin Wolf: ‘the appropriate policy is not what you propose for the surplus countries to do. Instead, it is that the deficit countries need to improve their supply-side productivity - they should get workers and business back to work, through restoring confidence and making credit again available for normal business operations - thereby raising national output, and lowering the current account deficit. The surplus countries will then have their trade surplus automatically decline. World output will increase, and global balance again restored.’
Such arguments, evidently expressed from a somewhat different viewpoint, parallel a number of issues discussed on this blog. The panel was a highly interesting exchange. Since then Danny Quah has posted a piece on his blog analysing China’s 1st half 2009 GDP growth.
All highly recommended reading.