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The Real Heroes of the Global Economy

PRINCETON – Economic policymakers seeking successful models to emulate apparently have an abundance of choices nowadays. Led by China, scores of emerging and developing countries have registered record-high growth rates over recent decades, setting precedents for others to follow. While advanced economies have performed far worse on average, there are notable exceptions, such as Germany and Sweden. “Do as we do,” these countries’ leaders often say, “and you will prosper, too.”

Look more closely, however, and you will discover that these countries’ vaunted growth models cannot possibly be replicated everywhere, because they rely on large external surpluses to stimulate the tradable sector and the rest of the economy. Sweden’s current-account surplus has averaged above a whopping 7% of GDP over the last decade; Germany’s has averaged close to 6% during the same period.