Kemal Derviş: Will Technology Kill Convergence?

Kemal Dervis SpeakerWriting for Project Syndicate, distinguished Turkish Economist, Kemal Derviş discusses the slowdown of emerging economy growth.

Derviş explains, countries such as China have seen a decrease in growth after decades of nearly double-digit growth, and as their growth slows, so does it’s demand for oil and commodities, resulting in severe effects for other emerging economies that depend on commodity exports. As advanced economies tentatively recover from the 2008 crisis, the differential growth in the emerging and advanced economies such as Hong Kong, Singapore, and South Korea has declined considerably.

Derviş asks the question of whether the growth differential will remain as low as it is today? Those who believe that will typically rely on the following three arguments.

First, they argue that much convergence has already taken place in manufacturing. Second, “the emerging-market bears point out that these economies have gained major productivity benefits from the migration of surplus rural labor to urban areas, a surplus that will soon be exhausted.” The third argument is that emerging economies are not implementing fast enough the structural reforms needed in order to support long-term growth.” Derviş believes there is some truth to this argument, but there is no proven way to measure the pace of their implementation.

He describes a possible fourth mechanism at work, which was the “shift of activities in both the services and manufacturing sectors from advanced economies to developing countries with lower wages.”

In conclusion, he believes it is difficult to argue that the emerging economies have collectively slowed in their structural-reform efforts, and that “the technology-induced shifts that are underway could portend big disruptions in global value chains.”

“The key to enabling continued convergence – even at a fairly rapid pace – is good political governance. Developing-country governments must implement policies aimed at managing the impending transformation, while maintaining social solidarity and cohesion. That is the challenge they must meet at this time of great disruption.”

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