The great divergence, the other way around

As rich economies' prospects dim under their crushing debt burdens and political paralyses, the world's hope for economic dynamism rests with developing nations. These countries had an exceptionally good decade before the global financial crisis struck. And most among them have recovered quickly.

Check out this picture, which I find quite interesting:

For the first time ever, developing countries as a group grew have been growing faster than industrial countries. Not only that, as the figure makes clear, the growth differential between the two groups has been widening in favor of the poor countries.

And it isn't just China, India, and a few countries that have been doing well. For a change, Africa and Latin America actually experienced some convergence with rich countries over the last decade.

Many analysts have projected these trends forward and predict rapid global growth, largely off the back of emerging and developing nations. In the words of a Citigroup report, "this time will be different."

I am not sure that it will. Growth in Latin America and Africa is fragile; much of it is making up for lost time rather than real convergence. Asia, I am more optimistic about. But growth in Asia has required unconventional policies (undervalued currencies, industrial policies) that will be difficult to rely on in a world where rich countries are facing economic crises.

More on these points later...

Comments

[Account Deleted]

Yes, it is convergence of developing countries, but most of their economies are fragile. It is going to be divergence in the future.

[Mitch Friend]

I think we are seeing the lagged effect of the developing world's export of goods and savings to the developed world. The developed world took on debt as a result and now they have reached saturation and have stagnated. I would be concerned that the developing countries will be hurt soon by a lack of demand for their products and savings

[Account Deleted]

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[Tim Worstall]

My word, what a graph.

The take off of developing country growth comes just as we get the Washington Consensus on what stupid things developing countries shouldn't do which will limit economic growth in developing countries.

Mere correlation or causation?

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So developing countries are growing and developed countries aren't so much? Awesome.....*nods enthusiastically

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[Dwight Cramer]

I'd offer three thoughts on your note.

1. The 'developed world' is a construction with some validity, but I'm not sure about it's continued viablility. The very idea that the rest of the world would 'converge' on the results of the most it prosperous subgroup group is problematic. Anyway, the developed world was a 20th century outcome of the godawful transformations of the first half of the 20th century and represented a historical segue from the old metropolitan states of the 19th century European empires. I'm not sure what the future will bring, or even how relative prosperity should be measured (per capita is not a foregone conclusion). Nor is the continued existence of a subset of developed nations.

2. On a policy point. I wonder if the creation of reliable demand (preferably in domestic markets) is not more important that best practices assimilation of foreign technology. The old fashioned approach to that was autarchy, I suppose the modern version would be the creation of modest American style saftey net to remove the need for astonomical savings rates (though the Americans appear to be unraveling theirs for whatever reason). So, in Latin America, for instance, the imposition of a minimum wage for domestic servants results in a somewhat more prosperous lower class and sales of a lot more washers, dryers, dishwashers, etc. into middle class househbolds.

3.The problem with the developed/developing world dichtomy is a bit like the ones between lawyers and laymen or Jews and gentiles. It may mean something to be a lawyer or a Jew, but the terms 'layman' and 'gentile' cover a world of differences. InLatin America alone, consdier how differnt the situations are in Ecuador, Venezuela and Brazil, all of which appear at least to be on vectors, much less Peru and Columbia, which are at actual points of inflection.

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[Account Deleted]

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[Account Deleted]

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We must look to developing countries.

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[morkel001]

I am not sure that it will. Growth in Latin America and Africa is fragile; much of it is making up for lost time rather than real convergence. Asia, I am more optimistic about. But growth in Asia has required unconventional policies (undervalued currencies, industrial policies) that will be difficult to rely on in a world where rich countries are facing economic crises. china outsourcing

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