It’s been interesting to watch how the conventional wisdom on rapid convergence – developing countries closing the gap with the advanced economies – has been changing over the last few years. It wasn’t so long ago that the world was in the grips of emerging-markets mania, projecting wildly optimistic growth numbers decades into the future.
For the last 4-5 years, I have been writing that the pace of convergence we have experienced over the last two decades is unsustainable. There were temporary factors (cheap capital, low interest rates, high commodity prices, rapid Chinese expansion) which would begin to reverse themselves. And perhaps most importantly, export-oriented industrialization was running out of steam much earlier, even in the relatively successful countries following on the heels of the Asian export powerhouses.
A piece in The Economist summarizes the new conventional wisdom:
“In the absence of such stimuli [the commodities boom and hyperglobalization], history suggests that catch-up will be a long, difficult grind, built on slow improvement in institutions and worker skill levels. The past 15 years have changed perceptions regarding just what is possible. But they also deceived people into thinking broad convergence is the natural way of things. It looks like the world is now being reminded that catching up is hard to do.”
Yes indeed. And all of this was perfectly predictable several years ago.
It’s also interesting to see how the bounce back from a former, overstated conventional wisdom generates its own exaggerations. Contrary to much grumbling at the present, I do not think economic convergence is dead. I continue to think that developing countries as a whole will grow more rapidly than the advanced economies. But some of this will be due to a trend decline in the growth rate of the advanced economies. And the rate of convergence will not be nearly as rapid as what we have seen over the last two decades.
Everything in moderation, folks.