Thursday, 29 November 2018

New Currents for Shifting Wealth

The 2019 OECD Perspectives on Global Development (PGD) have been released in Incheon, Korea.  Since its inception in 2010, the OECD Development Centre’s PGD series has investigated the increasing economic weight of developing countries in the world economy, a phenomenon referred to as “shifting wealth”. The 2010 PGD report "Shifting Wealth" had argued that the center of economic gravity in the world was shifting to Asia, changing the course of development for lower- and middle- income countries. That has proved correct.

The global macroeconomic effects emanating from shifting wealth run deep throughout the developing world and crucially determine how poor countries deal with reducing poverty. Consequently, shifting wealth has redefined development strategies and partners for poor countries. It has changed output linkages between emerging and developing countries, wages and terms of trade, and not least the geography of development finance.

With appropriate strategies, low-income developing countries could grow faster, lifted by the weighty fast-growing emerging countries. The initial opening of the China and India has hurt some middle- and high- income countries in the short term and at specific manufacturing locations. However, the sustained growth of these two emerging economic giants feeds global growth. Thus, it improves the long-term prospects of both low- and middle-income countries.

This sixth edition of the series, Rethinking Development Strategies, picks up on the shifting wealth theme by examining the rise of emerging countries and the implications for international relations. It pays particular attention to China’s evolving role. The second chapter (drafted by Michael Stemmer & myself) contains three main messages:
 Since the 1990s, shifting wealth has evolved in three distinct phases: an opening up phase (1990-2000), a phase of pervasive convergence (2001-08), and a post global financial crisis (GFC) phase (2009-present).
 Although shifting wealth has slowed down since the GFC, largely due to China’s domestic economic transformation, economic convergence continues.
 This continuation is buoyed by growth in India, new low-cost labour manufacturing hubs and strong South-South linkages between developing economies. To be sure, these South-South linkages are largely China driven.

The main message for the G20 meeting this weekend in Buenos Aires therefore is: 
A US-driven trade war against China will harm the economic prospects not just of China, but even more so in poorer countries.

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