The article “A Game of Catch-up” which was published by The Economist on September 24th discusses how countries in Asia such as China, India and Indonesia are quickly catching up to the “old rich” countries such as America and the UK.
This article discusses briefly the history of the development of different countries and is really reminiscent of the Sokoloff article as it talks about a potential future reversal of fortune and tries to explain it. It first explains how early industrialization allowed countries in Europe and America to develop the best technology and have the highest standard of living and discusses how there was a “great divergence” between them and the rest of the world for two centuries. This set up the hierarchy of the rich West and the poorer East.
It then goes on to remark that recently a “great convergence” in standards of living between the East and West is occurring as technology and innovations (which originated from the West and Japan) are being adopted. Of these emerging countries, China and India are growing the fastest.
If we were able to theoretically construct Cobb-Douglas production functions for both China and India, we could hypothesize that the improvement of technology and policies is increasing the total factor productivity of both countries, i.e. A is increasing, causing China and India to produce higher levels of output with the same inputs. The article also mentions how technology and new production methods(improvements to efficiency a.k.a. increases to A) are allowing even small countries the opportunity to become economic leaders.
If we view “standards of living” as an indicator of economic prosperity (like GDP per capita), the idea of this “convergence of standards of living” runs parallel to the ideas behind economic convergence. The article discusses how the US has been growing very slowly since the financial crisis while emerging countries in Asia are growing fast, stating “The IMF forecasts that emerging economies as a whole will grow by around four percentage points more than the rich world both this year and next. If the fund is proved right, by 2013 emerging markets (on the IMF’s definition) will produce more than half of global output, measured at purchasing-power parity (PPP).” The IMF predicts a reversal of fortune by around 2013.
Some of the factors experts attribute to this potential reversal of fortune include the uncertainty of “Rich” countries like America due to the amount of debt they have accumulated, which scares off investors and turns them towards rapidly growing emerging economies.
Another contributor towards the growth of Asian countries is their changing of economic policies to those more open to international business. Both China and India previously had very closed economies, and their transformation to more open door policies is discussed as well. “In 1978 Deng Xiaoping won approval for a set of economic reforms that opened China to foreign trade, technology and investment. India’s big liberalisation came a little later, in 1991. The GDP of China and India is many times bigger now than it was in the mid-1970s. In both economies annual growth of 8% or more is considered normal. Average living standards in China are still only a sixth and in India a fourteenth of those in America at PPP exchange rates, but the gap is already much smaller than it was and is closing fast.” This improvement to growth is not attributed to increased efficiency like the adoption of technologies, but due to the reform of policies that previously acted something like a negative favor by design.
The article also makes a very interesting comparison between the reversal of fortune between the UK and US to the impending one between the East and West. It states, “Economic catch-up is accelerating. Britain’s economy doubled in size in the 32 years from 1830 to 1862 as increased productivity spread from cotton to other industries. America’s GDP doubled in only 17 years as it overtook Britain in the 1870s. The economies of China and India have doubled within a decade.” If we choose to predict based on this information, India and China will definitely grow (and perhaps surpass the United States and UK) at an even greater pace than what has previously been seen by the current world leaders.
The author further supports his theory of a future reversal of fortune by also discussing the shrinking of the West and juxtaposing it next to the rapid growth of the East. The article states “If emerging markets keep on growing three percentage points a year faster than America (a conservative estimate), they will account for two-thirds of the world’s output by 2030, reckons Mr Subramanian. Today’s four most populous emerging markets—China, India, Indonesia and Brazil—will make up two-fifths of global GDP, measured at PPP. The combined weight in the world economy of America and the European Union will shrink from more than a third to less than a quarter.”
In conclusion, I found one line in the text which seems to summarize the authors findings concisely and simply, “No country, or group of countries, stays on top forever. History and economic theory suggest that sooner or later others will catch up.”
The article can be found here: http://www.economist.com/node/21528979
No comments:
Post a Comment