Dani Rodrik on the potential consequences of the economic and financial crisis

Harvard economist Dani Rodrik writes in the business paper Világgazdaság about the possible changes the economic and financial crisis could bring about in the global economy: "The world economy, however, is unlikely to look the same [after the crisis]. ...Growth in the developing world tends to come in three distinct variants. First comes growth driven by foreign borrowing. Second is growth as a by-product of commodity booms. Third is growth led by economic restructuring and diversification into new products. ... What should be of greater concern is the potential plight of countries in the last group. These countries will need to undertake major changes in their policies to adjust to today's new realities. The first two growth models invariably come to a bad end. Foreign borrowing can enable consumers and governments to live beyond their means for a while, but reliance on foreign capital is an unwise strategy. ... Growth driven by high commodity prices is also susceptible to busts, for similar reasons. ... So it is no surprise that the countries that have produced steady, long-term growth during the last six decades are those that relied on a different strategy: promoting diversification into manufactured and other 'modern' goods."

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