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Sunday, July 31, 2011

"The Great Divergence, the Other Way Around"

Dani Rodrik:

The great divergence, the other way around, by Dani Dodrik: 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...

Here's the follow-up: Will the divergence in growth result in eventual convergence in incomes?

    Posted by on Sunday, July 31, 2011 at 12:06 AM in Development, Economics | Permalink  Comments (16)

          


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