Indian day laborers around fire Andrew Caballero-Reynolds/AFP/Getty Images

Reigniting Emerging-Economy Growth

It is no secret that emerging economies are facing serious challenges, which have undermined their once-explosive growth and weakened their development prospects. Whether they return to the path of convergence with the advanced economies will largely depend on how they approach an increasingly complex economic environment.

HONG KONG – It is no secret that emerging economies are facing serious challenges, which have undermined their once-explosive growth and weakened their development prospects. Whether they return to the path of convergence with the advanced economies will largely depend on how they approach an increasingly complex economic environment.

Of course, these economies’ development path was never simple or smooth. But for most of the post-World War II period, until as recently as ten years ago, it was relatively clear-cut. Countries needed to open their economies at a sensible pace; leverage global technology and demand; specialize in tradable sectors; pursue a lot of investment (some 30% of GDP); and promote foreign direct investment, with appropriate provisions for knowledge transfer.

Throughout this process, the emerging economies recognized the importance of allowing market mechanisms to work, guaranteeing property rights, and safeguarding macroeconomic and financial stability. Perhaps most important, they knew that they had to focus on generating employment, particularly in urban areas and modernizing sectors, and on inclusiveness more broadly.

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