Why economic growth among developing countries is slowing
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Why economic growth among developing countries is slowing
We’re almost a quarter of the way through the 21st century, and the past 25 years or so have been a tale of two economies when it comes to bridging the gap between the world’s richest and poorest countries. In the first decade of the 2000s, developing economies were growing at the fastest pace since the 1970s. But fast forward to the present, and it’s a much different story.
A new report from the World Bank documents this. Ayhan Kose is deputy chief economist there. He spoke with “Marketplace Morning Report” host Sabri Ben-Achour. The following is an edited transcript of their conversation.
Sabri Ben-Achour: There’s been a lot of growth, right? Developing economies now account for 60% of global economic growth. They represent almost double what they did in terms of output than they did 25 years ago. But it looks like that progress has stalled. Why has it stalled?
Ayhan Kose: We don’t see the type of, basically, reform momentum we saw in the 2000s anymore, when it comes to the fiscal policy, improving debt positions, the deficit positions. And you need to undertake structural reforms to improve the education services, health services, you need to find ways to attract foreign investment. All of these things together led to weaker growth outcomes.
Ben-Achour: Over the course of this past year, it’s become apparent in the United States that interest rates are going to be higher for longer than many people expected. And, of course, when you have high interest rates in developed countries, that tends to draw capital out of developing countries. To what extent is that going to be a problem for developing countries’ growth?
Kose: When the cost of capital increases, you see basically serious challenges bringing that capital. I already mentioned the challenges in terms of reforms, and then on top of that, you have the cost of capital increasing. Emerging developing economies have to react to increasing interest rates in advanced economies by increasing their own interest rates. So it’s a net negative for these economies.
Ben-Achour: The incoming Trump administration has promised more tariffs, which would affect the ability to import goods from developing countries. How important are exports for developing countries, and — by extension — how significant would across-the-board tariffs be for them?
Kose: A number of them — these are small countries — they rely on the markets overseas. For the global economy as a whole, our calculations suggest that we will see weaker growth if there are broad-based tariffs. Having said that, this does not mean that they couldn’t do anything. They are trading a lot with each other. They can deepen these trade agreements.
Ben-Achour: What do you think the biggest steps that can be done, either by countries themselves or the World Bank? What do you do to help these countries develop and grow?
Kose: There is no shortcut here. They need to invest, and investment nowadays has multiple benefits. We have needs when it comes to infrastructure. We have needs when it comes to climate. So there are a lot of synergies when you think about what these countries do.
Ben-Achour: China is an example of a developing economy that has been able to accelerate its growth tremendously. Is that something that can be replicated?
Kose: When we look at China, they basically undertook reforms in terms of their manufacturing base, thinking about their labor markets. I am not saying that it’s going to be replicable in other places. The bottom line is that there is no one-size-fits-all policy message. Countries need to think about how they can adjust depending on their advantages.
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