International Finance Discussion Papers

Towards the Next Generation of Newly Industrializing Economies: The Roles for Macroeconomic Policy and the Manufacturing Sector Catherine L. Mann 1990-376  (March 1990)

Abstract:  In the 1970s, the Newly Industrializing Economies (NIEs) emerged from the pack of developing countries by exporting manufactured goods. Some succeeded and some did not. In this decade, another set of developing countries are poised to become the next generation of NIEs. Which have the prerequisites of stable macroeconomic policies and the foundation for further manufacturing development? A review of the Latin and Asian NIEs' experiences suggests criteria against which we can measure countries of the next generation.

Macroeconomic criteria include: the savings-investment imbalance, but also their levels; fiscal deficit and the sectoral allocation of government spending; the magnitude and change in domestic and external exposure to interest payments on debt; the variability, degree, and duration of misalignment of the real exchange rate. But macroeconomic stability, while necessary, is not sufficient for sustained growth and development.

A robust, competitive manufactured goods sector is also key. A growing manufactured goods sector increase the flexibility of the economy to respond to external and internal shocks and is associated with higher per capita income growth. World trade in manufactures is growing faster and at relatively better and less votatile terms of trade than trade in commodities. Criteria such as labor productivity in agriculture and manufacturing, population growth rates, and changes in the share of production and exports of manufactured goods provide evidence of which countries of the new generation can take advantage of the manufacturing dynamic.

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