Recent debates on a sustainable recovery of the global economy have tended to overemphasise the 'savings glut' hypothesis and the unavoidable imperative of higher consumption in China and other emerging Asian countries. That oversaving and not underinvestment is coming in the way of a quicker and more durable recovery is not just simplistic but misleading from a medium-term growth perspective for emerging Asian countries and other developing countries in this region. Drawing upon country panel data for developing countries and a subsample of Asian countries during the period 1991-2007, this study makes a case for a bold and coordinated fiscal stimulus, directed to stimulating agricultural and overall growth, and mitigation of poverty and hunger. Our simulations further suggest that poverty reduction is likely to be larger if the fiscal stimulus is directed to social spending in health and education sectors. Indeed, if our simulations of fiscal impacts have any validity, the dire predictions of millions getting trapped in poverty and hunger may turn out to be exaggerated. The prospects of a strong recovery led by fiscal stimulus are thus real and achievable.
|Journal||The World Economy|
|Publication status||Published - 2012|