While Europe and the US are struggling with low growth and calls for austerity, some key developing economies are thriving. In a commentary at Project Syndicate, Dani Rodrik points out that, unlike their counterparts in most developed economies, "[p]olicymakers in China, Brazil, India, and Turkey worry about too much growth, rather than too little."
As is often the case, fiction best reflects the changing mood. The émigré Russian novelist Gary Shteyngart’s comic novel is as good a guide as any to what might lie ahead. Set in the near future, the story unfolds against the background of a US that has slid into financial ruin and single-party dictatorship, and that finds itself embroiled in yet another pointless foreign military adventure – this time in Venezuela. All the real work in corporations is done by skilled immigrants; Ivy League colleges have adopted the names of their Asian counterparts in order to survive; the economy is beholden to China’s central bank; and “yuan-pegged US dollars” have replaced regular currency as the safe asset of choice.
But can developing countries really carry the world economy? Much of the optimism about their economic prospects is the result of extrapolation. The decade preceding the global financial crisis was in many ways the best ever for the developing world. Growth spread far beyond a few Asian countries, and, for the first time since the 1950’s, the vast majority of poor countries experienced what economists call convergence – a narrowing of the income gap with rich countries.
This, however, was a unique period, characterized by a lot of economic tailwind. Commodity prices were high, benefiting African and Latin American countries in particular, and external finance was plentiful and cheap. Moreover, many African countries hit bottom and rebounded from long periods of civil war and economic decline. And, of course, rapid growth in the advanced countries generally fueled an increase in world trade volumes to record highs.
Still, Rodrik is not too quick to dismiss the possibility that some developing economies will become effective engines for global growth. He is, for example, generally pleased to see improved economic governance in the new economies. But, he warns that moments of high growth for sizable economies will remain just that: moments.
Read The Future of Economic Growth here.
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