FORT LAUDERDALE, FLORIDA – Developing countries are facing major obstacles – many of which they have little to no control over – to achieving sustained high growth. Beyond the headwinds generated by slow advanced-economy growth and abnormal post-crisis monetary and financial conditions, there are the disruptive impacts of digital technology, which are set to erode developing economies’ comparative advantage in labor-intensive manufacturing activities. With the reversal of these trends out of the question, adaptation is the only option.
Robotics has already made significant inroads in electronics assembly, with sewing trades, traditionally many countries’ first entry point to the global trading system, likely to come next. As this trend continues, the imperative to build supply chains based on the location of relatively immobile and cost-effective labor will wane, with production moving closer to the final market. Adidas, for example, is already building a factory in Germany, where robots will produce high-end athletic shoes, and is planning a second one in the United States.
Given all of this, developing countries need to act now to adapt their growth strategies. A sensible framework for doing so must account for several key factors.
First, the problems in advanced countries – from slow economic growth to political uncertainty – are likely to persist, reducing potential growth everywhere for an extended period. In this context, developing countries must not succumb to the temptation to try to boost demand through unsustainable means, such as the accumulation of excess debt.