Paul Lachine

Risky Growth Engines

While the rich world puts its post-crisis house in order, developing countries as a whole are becoming the new engine of global growth. But switching locomotives is never free of risk.

WASHINGTON, DC – While the rich world puts its post-crisis house in order, developing countries as a whole are becoming the new engine of global growth. Increasingly, they are a force pulling the advanced economies forward. But switching locomotives is never free of risk.

As my colleague Marcelo Giugale and I argue in our recent book The Day After Tomorrow, there are at least four tracks along which this switchover is taking place. First, public- and private-sector balance sheets in most emerging economies are relatively clean. While deleveraging is ongoing in advanced economies, many developing countries will be able to explore untapped investment opportunities – infrastructure bottlenecks being a glaring example.

Second, there is a large inventory of technologies that the developing world is yet to acquire, adopt, and adapt. Thanks to breakthroughs in information and communication, transferring those technologies is becoming cheaper and safer. Furthermore, decreased transportation costs and the breakup of vertical production chains in many sectors are facilitating poorer countries’ integration into the global economy.

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