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Asia Economy Last Updated: Aug 25, 2010 - 4:29:43 AM

Developing and emerging countries are likely to account for nearly 60% of world GDP by 2030
By Finfacts Team
Jun 25, 2010 - 3:59:40 AM

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According to Perspectives on Global Development: Shifting Wealth, a new publication from the OECD Development Centre, the economic and financial crisis is accelerating a longer-term structural transformation in the global economy. Longer-term forecasts suggest that today’s developing and emerging countries are likely to account for nearly 60% of world GDP by 2030.

The rapid growth of emerging economies has led to a shift in economic power: forecasts based on analysis by the late economist historian, Angus Maddison, suggest that the aggregate economic weight of developing and emerging economies is about to surpass that of the countries that currently make up the advanced world. The Paris-based think tank says that in 2010, its 31 developed-country members will account for 51% of world economic output. But with the rapid growth of China, India and other developing economies, that share has narrowed from 60% in 2000 and the OECD predicts it will shrink further to 43% by 2030.

The OECD publication, which was launched in Paris last week, says that in 2009 China became the leading trade partner of Brazil, India and South Africa. The Indian multinational Tata is now the second most active investor in sub-Saharan Africa. Over 40% of the world’s researchers are now in Asia. As of 2008, developing countries were holding US$4.2trn in foreign currency reserves, more than one and a half times the amount held by rich countries. These are just a few examples of a 20-year structural transformation of the global economy in which the world’s economic centre of gravity has moved towards the East and South, from OECD members to emerging economies, a phenomenon the report calls “shifting wealth”.

Perspectives on Global Development shows how developing countries have become important economic actors and demonstrates the dynamism of the new South-South economic ties. Although the process has been ongoing for 20 years, the opportunities and risks for poor countries posed by shifting wealth are only starting to be understood.

OECD non-member economies have markedly increased their share of global output since the 2000s, and projections predict that this trend will continue. This realignment of the world economy is not a transitory phenomenon, but represents a structural change of historical significance.

The report says it is no longer enough to divide the world simply between North and South, developed and developing countries. In order to understand the complexity of the shift, it takes  and develops former World Bank president James Wolfensohn’s concept of a “four-speed” world. This splits the world into Affluent, Converging, Struggling and Poor countries according to their income and rate of growth per capita relative to the industrialised world. This framework reveals a new geography of global growth, exposing the heterogeneity of the South: some developing countries are beginning to catch up to the living standards of the affluent, others are struggling to break through a middle-income “glass ceiling”, and some continue to suffer under the weight of extreme poverty.

Seen like this, two distinct time periods emerge in terms of growth performance. For most developing economies, the 1990s were another “lost decade”, hampered by financial crises and instability. Two regions in particular failed to rebuild their economic fortunes: Latin American growth responded only weakly to reforms, and sub-Saharan Africa continued to stagnate.

In the 2000s things moved up a gear and much of the developing world enjoyed its first decade of strong growth in many years. The new millennium saw the resumption - -  for the first time since the 1970s  --  of a trend towards strong convergence in per capita incomes with the high-income countries. The number of converging countries (that is, countries doubling the average per capita growth of the high-income OECD countries) more than quintupled during this period (from 12 to 65), and the number of poor countries more than halved (from 55 to 25). China and India grew at three to four times the OECD average during the 2000s. Nevertheless, there was a great diversity in outcomes and a group of struggling and poor countries continued to underperform.

The report asks what factors underlie the realignment? First, the opening of the formerly closed large economies of China, India and the former Soviet Union brought a supply shock to the global labour market. An additional 1.5 billion workers joined the open market-oriented economy in the 1990s. This reduced the cost of a range of traded goods and services, and made the take-off possible in a number of converging countries, principally in Asia.

Second, growth in the converging countries boosted demand for many commodities, particularly fossil fuels and industrial metals, transferring wealth to commodity exporters and bringing an immediate boost to growth across Africa, the Americas and the Middle East. Third, many converging countries moved from being net debtors to net creditors, keeping US and global interest rates lower than they might otherwise have been.

As these processes accelerated, global imbalances grew sharply which has led some observers to call for an appreciation of the Chinese currency, the renminbi. However, the authors say a rapid and premature appreciation may harm Chinese growth and, by extension, some of China’s economic partners, including many countries already falling in the “struggling” and “poor” categories of the four-speed world. At a deeper level, the imbalances reflect structural issues and addressing them may require profound social changes in China to boost consumption.

The OECD said trade and investment links between developing economies are growing rapidly. It estimated that while world trade flows quadrupled between 1990 and 2008, flows between developing economies increased tenfold.

“This trade could be one of the main engines of growth over the coming decade,” the OECD said.

It estimates that if developing countries cut their tariffs on goods produced by other developing countries to the levels that now apply to trade between developed economies, the world economy would receive a $59bn boost.

Some years ago, the then EU trade commissioner, Peter Mandelson, said that 70% of tariffs paid by developing countries, are paid to other developing countries.

Also last week, the IMF's Finance & Development publication said Asia is moving into a leadership role in the world economy.

A copy of the report can be downloaded free from Scribd

OECD page with links to videos etc

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