Abstract

The October 2009 Per Jacobsson Lecture, delivered in Istanbul in conjunction with the 2009 Annual Meetings of the IMF and World Bank, examined the issue of longer-run growth prospects for the global economy following the recent global economic crisis. Will the world be able, in the five to ten years after the crisis abates, to return to the very rapid kind of economic growth sustained in the five years leading up to it? Noting that recent debate on the topic has focused on demand-side factors, neglecting the key area of supply-side sources of growth, Kemal Dervis, the 2009 Per Jacobsson lecturer, argues that contrary to the majority view that limited, below-trend growth is likely to prevail for some time, there is probably potential for very rapid growth in the world economy over the coming decade, thanks to strong supply-side factors. Whether such growth can be realized depends, however, on demand-side management both at the national level and through improved global macroeconomic policy coordination.

Kemal Derviş

Dr. Kemal Derviş is Vice President and Director of the Global Economy and Development Program at the Brookings Institution and a member of the Board of Overseers of Sabanci University in Istanbul. He is also Chairman of the International Advisory Board of Akbank and an Advisor to the Director-General of the International Labour Organization.

Until recently, Dr. Derviş was the Executive Head of the United Nations Development Programme and Chair of the United Nations Development Group. From 2002 to 2005, he served as a member of the Turkish Parliament, representing his native city of Istanbul. Prior to his tenure in Parliament, he served as the country’s Minister of Economic Affairs and the Treasury.

Before his service in the Turkish government, Dr. Derviş had a lengthy career at the World Bank, where he became Vice President for the Middle East and North Africa in 1996 and Vice President for Poverty Reduction and Economic Management in 2000.

Dr. Derviş earned his bachelor’s and master’s degrees in economics from the London School of Economics and his doctorate from Princeton University. His most recent book, A Better Globalization, was published in 2005.

The Per Jacobsson Lectures

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The Per Jacobsson Lectures are available on the Internet at www.perjacobsson.org, which also contains further information on the Foundation. Copies of the Per Jacobsson Lectures may be acquired without charge from the Secretary. Unless otherwise indicated, the lectures were delivered in Washington, D.C.

The Per Jacobsson Foundation

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Founding Sponsors

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Board of Directors

Sir Andrew D. Crockett — Chairman of the Board

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Officers

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1

There is currently an attempt in the United States, which appears largely politically driven, to argue that the fiscal stimulus was ineffective. I will not get into that debate here, except to stress that a key fact to consider when evaluating the effectiveness of fiscal expansion should be the interest rate. If fiscal expansion leads to a substantial rise in interest rates, it is not effective and instead crowds out private spending. If interest rates remain low, as they have so far, there is a good case for saying that it is indeed effective. It is not only fiscal policy that helped, of course. Direct intervention in the financial sector, as well as aggressive monetary easing, were at least as important.

2

See, for example, Charles R. Nelson and Charles R. Plosser, “Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications,” Journal of Monetary Economics, Vol. 10, No. 2 (1982), pp. 139-62; Robert E. Lucas, “Macroeconomic Priorities” (2003 AEA Presidential Address), American Economic Review, Vol. 93, No. 1 (2003), pp. 1-14; Valerie Cerra and Sweta C. Saxena, “Growth Dynamics: The Myth of Economic Recovery,” Working Paper No. 226 (Basel: Bank for International Settlements, 2007); and Valerie Cerra, Ugo Panizza, and Sweta C. Saxena, “International Evidence on Recovery from Recessions,” Working Paper No. 09-183 (Washington, D.C.: International Monetary Fund, 2009).

3

These are the words used by Federal Reserve Bank of Dallas President Richard Fisher in a speech at the University of California, as reported by Reuters on September 4.

4

Commisssion on Growth and Development, Post-Crisis Growth in Developing Countries: A Special Report of the Commission on Growth and Development on the Implications of the 2008 Financial Crisis (Washington, D.C.: World Bank, 2009), p. 2.

5

“[M]acroeconomics … has succeeded: its central problem of depression prevention has been solved.” Robert E. Lucas, “Macroeconomic Priorities” (2003 AEA Presidential Address), American Economic Review, Vol. 93, No. 1 (2003), pp. 1-14.

6

George A. Akerlof and Robert J. Schiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Glohal Capitalism (Princeton, N.J.: Princeton University Press, 2009).

7

Fred Bergsten and Arvind Subramanian, “America Cannot Resolve Global Imbalances on Its Own,” Financial Times, August 19, 2009.

8

For this to happen in a big way, the pace of governance reform at the IMF would have to increase.

9

Latest findings by Thomas Piketty and Emmanuel Saez, cited in “A Long Way Down” (editorial), New York Times, September 16, 2009.

10

Following the delivery of his prepared remarks, Dr. Dervi§ answered questions from audience members, as typically happens after Per Jacobsson Lectures. Unfortunately, technical difficulties with the equipment used to record the lecture prevent the reproduction of the question-and-answer session here.