21.05.2021 – 12:42
It once seemed possible that covid-19 could cause a milder blow to poor economies than rich ones. Instead, the virus looks set to turn developing countries in their quest for income from advanced economies. Real GDP per capita in America shrank by about 4% in 2020, only about half a percentage point higher than the average in emerging markets, in terms of purchasing power parity. But forecasts made by the IMF in April suggest that US growth will outpace that in the developing world this year; with the still devastating pandemic in countries like Brazil and India, the growth of poor countries will probably still lag behind. Even more troubling, the pandemic could reshape the global economy in ways that make the continued convergence towards the rich world income a tougher slogan. Worse prospects for poor countries, in turn, will make it more difficult to manage future crises, from pandemics to climate change. The rich world should take note.
Economists once calculated that incomes in poor economies should naturally reach those in richer ones, based on experience in 19th-century Europe and the early 20th century, when industrial stagnation prevailed (and often surpassed it). ) Britain. Backward countries can borrow the latest knowledge from major countries, the thought went and their limited capital base promised fat returns for investors. In the 1950s two economists, Robert Solow and Trevor Swan, separately developed economic growth models in which higher returns on capital in poor countries than in rich ones lead to more investment, generating faster growth and convergence. . As researchers gathered more data for more countries, however, it became clear that the 20th century was not a period of convergence, but rather of “divergence, of great time,” in the words of Lant Pritchett of Oxford University. .
Then, just as economists had abandoned the idea of convergence, poor countries began to grow rich countries in an extraordinary way. Between 1985 and 1995 per capita income in the developing world fell behind those in affluent countries at a rate of 0.5% per year, according to a new paper by Michael Kremer of the University of Chicago, Jack Willis of Columbia University and Yang You of the University of Hong Kong. But from 2005 to 2015, revenues converged at a rate of 0.7% per annum. The slow growth in the rich world helped the displacement, but more important was a broad acceleration in the growth of poor countries. Most importantly, the portion of emerging economies experiencing catastrophic declines shrank dramatically, according to recent work by Harvard University’s Dev Patel and Justin Sandefur and Arvind Subramanian of the Center for Global Development. Average annual growth rates were negative in 42% of low-income countries in the 1980s, compared with only 16% in 2000 and 2010.
This turn in wealth had far-reaching implications for issues from global poverty, which has declined over the past generation, to geopolitics. However, economists are not sure why growth suddenly took off, and so struggle to estimate how much convergence will continue. Even before the pandemic there were strange tendencies. Low-income countries outperformed those with higher incomes by 1.5 percentage points per year in the 2000s (and give me to come between the dollars better still) but the gap shrank by only 0.65 percentage points in 2010 Proper convergence became less widespread, geographically, as the years 2010 continued. Income in the developing Asian and European economies continued to gain from those in America, Latin America, the Middle East and sub-Saharan Africa filled more around year 2013.
The decline in real output per person in 2020 erased roughly a decade’s worth of income gains in those remaining regions. Some countries can make up for these losses quickly, although persistent vaccinations and persistent outbreaks complicate matters. Rising commodity prices could increase the fortunes of natural resource exporters, while the migration of more online services after covid-19 could open up opportunities for trade. In some ways, developing countries have become even more economically viable. Mr. Kremer and his co-authors examine 32 indicators of governance quality, macroeconomic policy, and financial development and find that, for 29 of them, performance improved more in poor countries than in rich ones between 1985 and 2015. Convergence was also developed in all masses of culture, such as attitudes based on surveys towards inequality and labor. Once they have become more like rich countries, poor countries may find it easier than in the past to maintain sustainable growth, as rich economies tend.
However, other factors that boosted growth in 2000 and 2010, such as China’s rapid development and the trade explosion associated with the spread of global supply chains, cannot be easily repeated. Concerns of the wealthy world about supply chain reliability, exacerbated by logistical stalemates now plaguing the global economy, could actually lead to a shrinking trade. Perhaps more troubling is the possibility that pandemic trauma will cause political and social instability, especially in the remaining regions, undermining the basis for sustainable growth.
Concluding arguments
Poor countries can hardly withstand such obstacles. Even at the pace of gaining the last two decades it would take the emerging average economy about 170 years to close half of its income gap, say Mr. Patel and co-authors. The recent increase has not greatly reduced the dependence of the poor world on the benevolence of the rich world, as demonstrated by a gap trapped in vaccination rates. And the costs of climate change just show up.
The rapid growth at the beginning of this century encouraged the governments of the affluent world to view developing countries more as lucrative markets or strategic rivals than charities. But poor countries remain more vulnerable to crises. And with each crisis, achieving sustainable growth becomes even more difficult. The policy of the rich world in matters from trade to aid must take this into account.
Translated and adapted for Konica.al by The Economist