Convergence and divergence – emerging markets, global value chains and industrial policy

Containers are loaded onto a container ship at a shipping terminal in the harbour in Hamburg

According to a recent piece in The Economist, economic convergence with the US among so-called emerging markets has slowed in the ten years since the great recession. The difference in the growth rate of GDP per capita has slipped since the 2000s from an average of over six percent in emerging Asia to about four percent. Emerging Europe has slowed less, but from a lower rate, while Latin America, North Africa, Sub-Saharan Africa and the Middle East are now beginning to fall behind again, at least on average.

This is disappointing for champions of economic theories of convergence resting on the globalisation of the world economy. It is also bad news for those still living in poverty in the countries slipping back. Of course, slowing convergence need not mean that absolute poverty is no longer falling. But it does mean that the prospects for reducing inequality between rich and poor nations and more widely-shared prosperity are for now receding. Given that the US has not grown particularly fast since it emerged from recession, it means that only emerging Asia continues to be a truly dynamic region in economic terms. And even this mantle may be under threat as growth slows in China, affecting supply chains throughout Asia. Continue reading


Asia’s ‘other communist dynamo’ – Vietnam and economic transformation

Moneyweek magazine recently ran a piece extolling the virtues of the Vietnamese economy and pinpointing it as an emerging market worth investing in. Perhaps as an unintended consequence of Trump’s trade war, Vietnam may benefit from US-China tensions as production and exports shift away from China to some extent. However this outcome remains highly uncertain, since Vietnam itself may also become a victim of US tariffs.

The story of Vietnam since it began its own version of China’s ‘opening up’ and path of development as a ‘socialist-oriented market economy’, called Doi Moi, literally meaning ‘renovation’, has to date been pretty successful. This began in 1986, and since 1990 the country “has notched up the world’s second fastest growth rate per person after China”. This has led to dramatic falls in poverty as wages have kept up with or exceeded productivity, which has itself grown fairly rapidly. Continue reading

Hirschman’s Linkages: Passé in the Age of Global Production Sharing? — Developing Economics

How does economic development happen? After World War II, many development economists rose to prominence, such as Paul Rosenstein-Rodan (the big push), Arthur Lewis (the dual-sector model), Walter Rostow (the linear stages of growth) and Albert Hirschman (unbalanced growth and linkages). Given the continued importance of industrial policy, it is particularly worthwhile to revisit the […]

via Hirschman’s Linkages: Passé in the Age of Global Production Sharing? — Developing Economics

Economic development in Palestine and beyond – via Developing Economics blog

An interesting and timely piece by Patrick Kaczmarczyk on promoting economic development in Palestine, via the excellent Developing Economics blog. The first two paragraphs are below.

Successful economic development in Palestine will require an adequate theory of development, industrial policy, and institutional reforms.

Recently, the Palestine Economic Policy Research Institute (MAS) published a comprehensive study on Palestinian economic development. In this report, co-authored by my colleagues Heiner Flassbeck, Michael Paetz, and I, we explore possible solutions as to how Palestine could sustainably finance its deficits. Now, after the Israeli elections, Jared Kushner, the US President’s son-in-law and senior advisor, is set to announce the details of the US Peace Plan for the Israeli-Palestinian conflict. Given that the Peace Plan is expected to include a large economic component to solve the conflict, it will be interesting to see to what extent it addresses the fundamental problems we identified in our research.

Our results suggest, succinctly, that under current conditions of excessive imbalances in the external sector (trade and current account), any issuance of debt securities requires fixing these imbalances first, for which, in turn, strategic public intervention is critical. This finding may come as a surprise to most policymakers, as orthodox economic theory suggests that the most efficient ways for countries to develop is through market led (as opposed to state led) policies. Historical evidence demonstrates that none of the advanced countries followed this path in their own development, yet the idea of ‘the market’ as the most efficient development tool is still widespread. Based on this belief, Western institutions wreaked havoc in developing countries during the 1980s and 1990s, and continue to do so (although some institutions, notably the IMF, show significant progress in learning from past experiences).

Mariana Mazzucato’s economics: value and the role of the state

Mariana-Mazzucato2Mariana Mazzucato is known for her view that the state plays a vital role in promoting innovation, which is an essential part of the process of economic growth and development. In her book The Entrepreneurial State she debunked the myth that a flourishing economy requires the state to ‘get out of the way’ of the private sector.

In her latest, The Value of Everything, published earlier this year, she attempts to reignite the debate over the sources of value which, she argues, has been neglected in mainstream circles since the rise of neoclassical economics at the end of the nineteenth century.

Indeed, until the neoclassical school became influential, the source of value in economics was a central concern and a matter of some controversy. The Mercantalists saw gold and precious metals as source of value, and their accumulation was held to be the object of economic policy. For the Physiocrats, only land and natural resources produced value, while for the Classical political economists like Adam Smith, industry was the source. Karl Marx held that labour and its production of a surplus product were the origin of value. Continue reading

Big data and complexity: evidence for the structural approach to economic development

This post summarises some of the ideas in an interesting article from the May issue of the Cambridge Journal of Economics. The piece shows that an analysis of ‘complex networks’ using ‘big data’ lends support to structuralist arguments about growth and development. I briefly discuss the implications for industrial policies intended to promote the ‘catching up’ of poor countries with richer ones.

The Cambridge Journal of Economics (CJE) is an influential heterodox journal published six times a year. It includes as one of its patrons nobel prize-winner Amartya Sen and as associate editors Ha-Joon Chang, Mushtaq Khan and Anwar Shaikh, whose ideas I have sometimes discussed in previous posts.

As CJE articles are usually behind a paywall, I thought it would be helpful to summarise and comment on one or two when they are interesting and relevant to this blog. Continue reading

High wages vs high savings as models of development

I refer to the work of Michael Pettis quite often on this blog. He strikes me as a highly original thinker, combining macroeconomics, finance, development, political economy and economic history in a way which provides a deep understanding of world economic events.

He recently posted here about what he sees as the two main models of economic development which nations have used to transform their economies at certain times in history: the high wages model, and the high savings model.

Models of development can be described as a set of policies and institutions which aim to develop the economy and achieve sustained rises in productivity and output via industrialisation and the advancement of technology.

For Pettis, both models aim to raise wages and productivity, but they are distinct from one another in how they drive the investment which makes this possible. Continue reading