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Article Artículo

Debt and GDP Growth: Reinhart and Rogoff, One More Time

Our friends at the Economic Policy Institute have already done a pretty good job burying the claim from Reinhart-Rogoff that high ratios of debt to GDP will lead to lower growth, but in DC, no bad theory stays dead for long. With that in mind, let's throw a little more dirt on the grave.

The Reinhart-Rogoff analysis is conducted entirely in terms of GDP growth. Back in the old days, economists used to focus on per capita GDP. The idea being that what mattered is output relative to the population. The people of Denmark are much richer on average than people in China even though China's GDP is more than 20 times higher. The reason is that China's population is more than 200 times as large as Denmark's. 

As many critics of R&R have noted, their sample of developed countries with high debt to GDP ratios is very small. Many of the obvious cases (e.g. Japan in the 90s and the 00s) can be readily explained as countries where slow growth led to high debt to GDP ratios. However, in many of the cases, such as Japan and Italy in recent years, the high debt countries are also countries with little or no population growth.

This means that we would expect a slower rate of GDP growth, other things equal. While there is undoubtedly some endogeneity to population growth (e.g. higher GDP growth leads to more immigration), we should still expect the benefits of growth to show up in higher per capita income.

CEPR / July 30, 2010

Article Artículo

CEP Bans Fanmi Lavalas from Upcoming Elections, International Community Gives Green Light
Today two articles report on the recent decision by Haiti’s Provisional Electoral Council (CEP) to exclude Fanmi Lavalas (FL) – the country’s most popular political party - from the upcoming legislative elections, in which all 99 seats in the House of Deputies and one third of the 30 member Senate are up for election.

EFE reports that while registration for the presidential elections will take place next week, the legislative elections will include 55 political parties and some 900 candidates, but not Fanmi Lavalas. Meanwhile Wadner Pierre, writing for Inter-Press Service, reports that in reaction to the CEP's decision, "one hundred Fanmi Lavalas supporters held a sit-in outside the U.S. Embassy in Port-au-Prince." Pierre continues:
"The ambassador here is the representative of the U.S. government in Haiti," said Lionel Etienne, a former Fanmi Lavalas congressman. "We come here today to question the behaviour of the U.S. government. We're asking if they will continue to finance the exclusion of Lavalas by the CEP with Préval."
Yesterday, however, the OAS announced they will be sending an Electoral Observation Mission to Haiti, and that:
The United States and Spain made specific offers of financial assistance while other Member States and Permanent Observers pledged to support the effort through contributions in kind or financial resources towards covering its costs, which are an estimated $5.3 million.

Jake Johnston / July 30, 2010