During the summer I wrote a piece on the rise of emerging markets since World War II for the Delma Institute, a consulting firm based in the UAE. The piece is designed to be read on the web as an interactive (apparently that is what all the hip kids are doing nowadays). This blog post is a shameless plug to get you to read it. Below I pick a few juicy items from it to wet your appetite.
But first, who should read the full piece? It will make for perfect holiday reading if:
- You want to take extended bathroom breaks to escape your family and need some reading.
- You want a big picture overview – for yourself or your undergraduate students – of global economic development since WWII.
- You haven’t been on your computer enough during the last quarter.
The piece essentially tries to answer two questions: Have emerging markets ‘risen’? And will their ‘rise’ become more widespread? It does so by painting a picture of the major changes in the global economy since World War II, focusing on: 1. Increasing global economic integration and the spread of capital; 2. The rise of emerging Asia (and China in particular); and 3. The fall of communism.
So have emerging markets risen? Is ‘Africa’ really rising?
There is good reason for skepticism. Emerging markets, and in particular the Lower Income Countries (LICs), remain scr*wed because the majority of them are dependent on commodities for exports and foreign exchange, government revenue, and formal sector employment. As a result their growth paths have tended to rise and fall with the commodity price cycle. Sustained (and high) growth has been rare.
For example, the World Bank predicted during the most recent commodity cycle that Nigeria would catch-up with the US’s level of per capita GDP in 42 years time. That’s now been ‘delayed’ to almost 110 years. And no doubt it will take even longer now that Nigeria is forecast to be among the top 10 slowest growing economies in 2017.
Nevertheless, some emerging markets have managed to engage in sustained and rapid economic growth over the past few decades. From 1952 to 2008, I find that 22 non-Western countries saw their GDP per capita grow at more than double the US rate (‘rapid catch-up’). More than a third (40%) of these countries were in Asia, and many others were very small countries.
The rise of ‘the Rest’ is really an emerging Asia phenomenon. This is important since this is a very populous region. As a result, notes Branko Milanovic, more people than ever before are ‘catching-up’, even if most countries are still being left (further) behind.
You can see this in the graph below (Figure 1) which plots cumulative GDP per capita growth between 1952-2008 (y-axis), against that region’s per capita GDP in 1952.
Figure 1. Cumulative GDP Per Capita Continent Growth, 1952-2008
Source: Author based on Maddison Project data. Data is in PPP 1990 International GK$. See historical statistics note.
For catch-up to take place the poorest regions in 1952 should have grown the quickest. We generally see the opposite though: Those who were poorest in 1952 have grown the slowest, while those who were the richest have grown the quickest (excluding the USA which is a bit of an outlier). Certain Eastern European economies have done OK. They lie in the middle somewhere. But the big exception to the growing divergence is the group of 16 East Asian countries who, as a whole, saw rapid growth in GDP per capita over the past 6 decades, of more than a 6 fold increase.
This is reflected at the country level too (Figure 2). The Asian Tigers plus a bunch of other Asian economies are catching-up to the US’s GDP per capita. We can see a few Eastern European countries catching up too, as well as smaller, island, economies. South Korea leads the pack: its per capita GDP grew almost 25 fold between 1952-2008 (with the dotted horizontal line being the US’s growth rate during the period in Figure 2).
Figure 2. Cumulative GDP Per Capita Country Growth, 1952-2008
Source: Author based on Maddison Project data*. See historical statistics note.
What’s most remarkable is that, despite the economic catch-up being limited to a handful of countries, we are seeing genuine catch-up in non-economic indicators across continents. Alongside a variety of non-GDP indicators such as life expectancy, education, and health interventions, emerging markets are slowly converging with advanced economies (though we need more research on this to see if this really is convergence or just improvements). This is a particularly interesting finding since due to austerity, civil war, the Cold War, and who knows what else, the last half a century till 2000 was a write-off for many African countries especially. Nigeria’s GDP per capita, for example, was higher in 1970 than in 2003. For countries like Madagascar and the Republic of Congo, GDP per capita levels today are similar to those of 80-90 years ago. But despite this we are seeing (relatively) massive gains made in life expectancy in Africa and elsewhere over the past decade in particular.
This could mean that Africa’s growth during the last commodity cycle did in fact translate into important gains on the ground. The other interpretation is that parallel and largely independent to the commodity cycle, policy changes were taking place, which led to these important gains (see below).
Part of the story about why these gains have occurred – and the more general catch-up of ‘emerging Asia’ –is ‘globalization’. Globalization has enabled the spread of capital globally: its technology, ideas, and imperatives. While this entailed the spread of debt, crisis, and volatility to emerging markets, it has led to massive growth opportunities for previously backward economies; new technologies and ideas that facilitate future catch-up have – despite efforts to make them excludable – spread, been assimilated, bought, backward-engineered, and learnt online.
The global environment has, for select emerging markets (in Asia), been conducive to gaining access to these superior foreign technologies. Post-WWII the Cold War made the US more open to sharing its technology with developing economies. This was of great benefit to the Asian Tigers. Later, Japan shared a lot of its technology with China in the years when Deng Xiaoping was in power, before China was considered a potential economic threat.
But we shouldn’t get too carried away. For LICs policy changes have probably been far more important in improving health outcomes and life expectancy. One fun fact: before the ‘Heavily Indebted Poor Countries’ (HIPC) Initiative, eligible countries were, on average, spending slightly more on debt service than on health and education combined. Such social spending is now about five times more than debt service payments, according to the IMF. It’s hard to imagine this dramatic relative shift in spending away from debt and towards essential public services not having a profound impact on a range of important indicators.
What about prospects for the future: Will catch-up become more widespread? And in particular, how will the growing rivalry between the US and China shape the ability of ‘the Rest’ to catch-up with the West? As the West tries to hold onto its economic power the dynamics of global catch-up will change. The US today (over) protects its intellectual property; while the West as a whole is becoming increasingly concerned with China gaining access to its cutting edge technology. As a result it has begun to do all it can to restrict China’s access to its cutting-edge technologies (here and here). How this growing inter-state rivalry, and the emergence of China as an alternative center of economic gravity will impact economies in Africa, Latin America, and Asia remains to be seen.
So, if you liked this blog you might love my piece. And if you hated this blog, then you might still love my piece. Either way, why not read it (here), and send me some feedback on how to improve it.
Ilan Strauss is a consultant for UNCTAD. He is an Economics PhD student at The New School for Social Research.
*Notes: Data is in PPP 1990 International GK$. Only countries with more than double the growth of the US are labeled. Countries of the former Yugoslavia are analysed separately. The 15 republics of the USSR are studied as one entity. We do not include equatorial Guinea, an outlier, who saw cumulative GDP per capita growth during this period of 3700%.