Will Technology Kill Convergence?

WASHINGTON, DC – At last week’s annual meetings of the World Bank and the International Monetary Fund in Lima, Peru, one topic that dominated discussions was the slowdown in emerging-economy growth. Hailed in the wake of the 2008 financial crisis as the new engines of the world economy, the emerging economies are now acting as a drag on global growth, and many argue that their era of rapid expansion – and their quest to achieve convergence with advanced-country income levels – is over. Are the doomsayers right?

There is certainly reason for concern – beginning in China. After decades of nearly double-digit growth, China appears to be experiencing a marked slowdown – one that some argue is actually worse than official statistics indicate.

As China’s growth slows, so does its demand for oil and commodities, with severe effects for other emerging economies that depend on commodity exports. Moreover, the benefits of lower commodity prices do not seem to have materialized among net importers, except perhaps India; if they have, they have been far from adequate to offset other growth-damaging forces.

Meanwhile, the advanced economies are tentatively recovering from the 2008 crisis. As a result, the differential between growth in the emerging and advanced economies – aggregated from IMF data, and including Hong Kong, Singapore, South Korea, and Taiwan in the emerging group – has declined considerably. Indeed, after averaging three percentage points for two decades and rising to 4.8 percentage points in 2010, the percentage-point differential fell to 2.5 last year and is expected to amount to just 1.5 this year.