Writer is Head of Emerging Market Economics at Citi
How do decision-makers in emerging economies decide how to run their country? The answer has a lot to do with how policymakers in advanced economies do things.
There is a tendency to copy or, put more politely, a “demonstration effect”: the policy choices of governments in developed countries create a menu of options from which governments in emerging economies make choices.
This fact makes for an uncomfortable prognosis these days. Developed countries are relaxing their policies to an extent that, if taken up by emerging economies, could end badly for some.
For most of the past decades, the tendency of EM policy makers to draw on ideas from advanced economies has been remarkably useful. The history of trade liberalization is one example. In the 1960s and 1970s, the United States and Western European countries were busy reducing tariffs and non-tariff barriers to trade. Seeing the fruits of this, developing countries followed suit in the 1980s and 1990s to boost growth rates. Another example is inflation targeting, which has now been adopted by a succession of emerging economies.
International economic integration and lower inflation have been generally good news for emerging economies. But it is not so obvious that emerging economies can follow all the latest fads with equal success.
What characterizes policymaking in advanced economies these days is, on the one hand, a tendency to seemingly …
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