While only very few countries have actually succeeded in joining the group of high-income economies over the past few decades, partial income convergence is a reality. Of the 24 countries with a population of 60 m or more, nine countries have a per capita income of USD 5,000 or less. Of these nine, a full seven are located in a geographically almost contiguous crescent stretching from Pakistan in the West to Indonesia in the East. With a combined population of 2 bn, these Indian Ocean economies are bound to emerge as a major centre of economic gravity over the course of this century.
The BRIC acronym picked out the largest emerging economies. Faster growth than in the mature economies was projected to catapult the BRIC into the economic first division, which it is doing. Underpinning the rise of the BRIC is the assumption of conditional income convergence. An entire strand of thought, the so-called dependencia school, was founded upon the belief that peripheral economies would never get promoted to the first division.
Interestingly, excluding city-states such as Hong Kong and Singapore and small, resource-rich countries such as Qatar or Brunei, a very limited number of countries have actually succeeded in joining the group of high-income economies (e.g. Korea, Taiwan) during the past three decades or so. Per capita income in the world’s more populous countries (> 40 m) is either below USD 15,000 or above 30,000. While Korea and Taiwan are the exceptions that prove the rule, partial income convergence is a reality. The pace of income convergence varies, however. Among the BRIC, China’s per capita income (in 2005 dollar terms) increased from USD 2,700 in 2000 to USD 6,800 in 2010, while Brazil’s only rose from USD 9,700 to USD 10,100. India’s per capita income rose by more than 80% and Russia’s slightly more than 60%. By comparison, the “lead” economy, the US, saw per capita income rise by less than 8%.
This convergence process was preceded by economic divergence. The term “great divergence” has been coined to refer to China’s relative economic decline, the most stunning instance of divergence. While Western Europe and North America experienced the so-called “industrial revolution” in the 18th and 19th century, China stagnated economically. When faced with foreign pressure, it, unlike Japan, failed to channel it into a concerted national effort to emulate the economic success of the West. The debate about what caused this relative decline remains unresolved. Explanatory factors include the dismantling of its ocean-going navy in 1432, the lack of geo-political competition, the limited commercialisation of farming, the failure to exploit new technologies, the lack of access to cheap commodities (preventing it from escaping the Malthusian trap) etc.
Whatever the explanation, it was gradual economic liberalisation in China (and India) that from the late 1970s onwards moved economic growth to a tangibly higher level. Similar to Brazil, India and Russia, where very different economic models (import-substitution-based industrialisation and centralized planning) eventually ended in failure, China allowed for the freer functioning of market forces. In addition to economic liberalisation, obstacles to the free flow of goods, information and (certain types of) capital were reduced, allowing it not only to access international technology and best practices but – thanks to domestic liberalisation efforts – also to apply advanced technology productively. Naturally, other factors helped facilitate the acceleration of economic growth, but the combination of technological diffusion and low per capita incomes (reflective of a low stock and high marginal productivity of capital) have a significant impact on the pace of income convergence. Income growth slows down as per capita income approaches the level of the “lead” economies.
The BRIC economies have captured the public imagination given their size. With income convergence not restricted to the BRIC, it is worth asking which other emerging economies combine demographic weight and favourable medium term economic growth prospects. Naturally, predicting to what extent these economies will be able to unlock their growth potential requires spotting political and economic turning points. This is difficult, but not impossible. Myanmar, for one, seems poised to experience just such a major juncture.
In demographic terms, there are 24 countries whose populations exceed 60 m (roughly the size of France or Italy or the UK or pre-unification Germany). Two countries have populations larger than 1 bn (China, India), nine countries have populations of 100-400 m and another 13 have populations of 60-100 m. Population growth rates vary greatly, but, as one would expect, tend to be relatively high in countries with low per capita incomes. Out of these 24 countries, six have per capita incomes of USD 30,000 or more (US, France, Italy, the UK, Germany and Japan) and nine countries have per capita incomes of less than USD 5,000. Seven of these nine countries are located in a geographically almost contiguous crescent stretching from Pakistan in the West to Indonesia in the (South-)East with a combined population of 2 bn.
This group consists of Pakistan, India, Bangladesh, Myanmar, Vietnam, the Philippines and Indonesia. As a group these countries have already been registering solid economic growth over the past decade. Growth-enhancing economic reform could turn them into new stars among the emerging economies. But even if these economies maintain current economic growth rates – this is not unrealistic given the very considerable gap between them and the “lead” economies and given that other catch-up economies in the past maintained high growth rates for several decades – their relative size will continue to increase. By way of illustration, only three decades from now, Indonesia may be larger than Europe’s largest economy, Germany. By 2050, Vietnam may have caught up with Germany, too, while the other Indian Ocean economies will be 1/2 to 2/3 the size of Germany. Thanks to a larger base, the gap in terms of dollar GDP would continue to close at an accelerating pace even if real GDP growth were to slow (as is likely) over time. Naturally, such a catch-up scenario will only materialise if the global economy remains open and the convergence economies manage to maintain political stability.
Project this convergence forward by another 50 years and one can see why some historians have suggested that world history keeps moving westward. Similarly, the 1800s and 1900s were the Atlantic centuries due to the dominance of Britain and the US. The 2000s, due to the rise of China and the continued importance of the US, will come to be known as the Pacific century. If the above group of countries manages to avoid political instability and pursues reasonable economic policies, the 2100s may well be remembered as the Indian (Ocean) century (Kaplan 2010, Hulsman).