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Sustaining Economic Growth in an Age of Deglobalization

The dawning age of deglobalization undoubtedly poses considerable challenges for developing and emerging economies, which largely have little hope of gaining enough of a foothold in high-end manufacturing sectors to move beyond middle-income levels. But Malaysia and Chile have shown that there is another way.

SEOUL – Global value chains have had some tough years. First, the COVID-19 pandemic created barriers and bottlenecks, especially in manufacturing. Then, Russia’s war in Ukraine further disrupted GVCs, particularly those involving agriculture and energy. With the fragility of globally dispersed supply networks now fully exposed, countries around the world are seeking to strengthen domestic or regional networks instead.

For developing economies, especially middle-income countries, the advent of deglobalization poses a new challenge. After all, some of the most successful development strategies have relied on GVCs. How can economies continue to develop – and even to reach high-income status – if that strategy is no longer viable?

High-income status is notoriously difficult to achieve. The so-called middle-income trap – the growth slowdown that often sets in first – ensnares most emerging economies, with per capita income remaining at 20-40% of the level in the United States in PPP terms for several decades.