Thursday, September 29, 2016

The Great Catch-Up

Ricardo Hausmann

How can developing-country policymakers facilitate and support their economies’ structural transformation? Can China avoid the “middle-income trap”? What does economic convergence mean for investors? Can emerging-market consumers pick up the slack of diminishing Western demand? Can every poor country find the means to “catch up”?

Over the last two decades, a “great convergence” has been underway. Developing countries have replicated the institutions and technologies of their developed counterparts, lifting many millions out of poverty and fueling the emergence of a dynamic and growing middle class. Meanwhile, in developed countries, high debt levels, currency debasement, and financial mismanagement have undermined GDP growth and contributed to a decline in living standards. As a result, developing economies’ per capita income has risen at almost triple the rate of advanced economies’.

But these “catch-up” effects will not last forever. Indeed, the leading beneficiaries of this trend are already showing signs of fatigue, reflected in diminishing growth forecasts. Now, emerging economies must enact reforms that sustain their growth momentum, boost productivity, and reduce systemic risks.

To grasp the challenges facing developing countries as they shift their focus from GDP growth to structural transformation requires expertise in macroeconomic volatility, financial crises, and the determinants of long-term growth. And few observers have more experience in these areas – both practical and theoretical – than Ricardo Hausmann.

Hausmann, Director of the Center for International Development and Professor of the Practice of Economic Development at Harvard University’s John F. Kennedy School of Government, has devoted his academic career to understanding what drives – and what undermines – economic development. And, as Venezuela’s Minister of Planning and as a board member of its central bank, he saw firsthand the obstacles that developing-country policymakers must overcome.

Every month in The Great Catch-Up, written exclusively for Project Syndicate, Ricardo Hausmann helps readers to understand the global economy from the perspective of the rising – and soon to be rising – powers that are driving its transformation.

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