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Private Sector Development

Does the financial crisis signal the end of free markets and a return to state intervention?

Shanta Devarajan's picture

At a recent videoconference with journalists, I was asked the question in the title of this post several times.   Does the fact that private banks in the United States are going bankrupt mean that the free market system is a failure?  Does the fact that the United States government is bailing out these banks and in some cases “nationalizing” them mean that state intervention is back?

Real-financial sector links

Shanta Devarajan's picture

When asked about the East Asian financial crisis of the late 1990s, Ethiopian Prime Minister Meles Zenawi reportedly said, “I wish we had their problems.”  I was reminded of this quip when thinking about the current financial crisis in the U.S. and its possible impact on Africa.  In the U.S., there is a constant fear that turmoil in financial markets will spill over to the real sector—in terms of slow growth and unemployment. 

Is Africa growing too fast?

Shanta Devarajan's picture

Your first reaction to the title of this post may be: “Just when, for the first time in thirty years, Africa’s per capita GDP is growing (see Graph below) at the same rate as all developing countries, why are you asking whether Africa is growing too fast?”  The reason is that we would like to know whether this growth is sustainable. Two colleagues at a recent conference on this topic offered some sobering thoughts.

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