11 October 2014

The Economist: “Economic convergence: The headwinds return”

Closing In

Since 2008 growth rates across the emerging world have slipped back toward those in advanced economies. When the new ICP estimates are applied, the average GDP per head in the emerging world, measured on a purchasing-power-parity (PPP) basis, grew just 2.6 percentage points faster than American GDP in 2013. If China is excluded from the calculations the difference is just 1.1 percentage points. At that pace convergence with rich-economy incomes happens over a period of time more like a century than a generation. If China is included, emerging economies could expect to reach rich-world income levels, on average, in just over 50 years. If China is left out, catch-up takes 115 years.

The Economist

A worrying trend for the future of the global economy. Although in retrospect not exactly surprising: the rapid growth in developing countries was largely powered by their lower labor costs and shifting standardized manufacturing from developed economies. As the contribution of industrial output to the GDP creation in developed countries decreased over the years, services now contribute more GDP than any other branch. This area, including healthcare, education, leisure, is harder to ‘outsource’ to other countries, because it requires specialized education and a degree of ‘closeness’ – you want your doctor to be close by in case of emergency. Or, as in the case of financial services or technical support, outsourcing is taking predominantly low-tier jobs, which are easier to automate and less value-added. It’s no wonder these types of jobs were at the top of the 2014 job creation charts in the US. This makes another wave of growth in emerging economies less likely in the near-term, and difficult in the medium term, without reform and substantial investment in education and governance.

Downriver, upmarket: a trip through industrial history

Post a Comment