Changing role for emerging economies

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Steep fall in world markets. Major investment banks up for grabs. What next, you may well ask. The steep recession triggered-off by the US sub-prime crisis is just about three months old, but it is already plain that the Bric economies must haul the OECD out of the morass. But even if that is clear, certain other aspects need a rethink.

Out of those, the ones, which merit serious consideration relate to the (altogether) different role which is being played now by fast-growing emerging economies such as the ones belonging to the Bric, Next 11 and some others. Their new role as ‘locomotives’ of the world economy, and the OECD in particular, needs to be re-thought.

The Bric, for instance, can no longer be that just by maximising the growth of their manufactured exports to erstwhile OECD locomotives like Germany and the US. Nor can they take for granted the latter’s absorption of developing economy emigrants to staff the service sectors. Also gone, accordingly, is the assurance of growth in remittance repatriations.

In short, we are quite a distance from the days when development used to be measured by an economy’s export-to-GDP ratio. It is now the turn of developing economies, and the Bric in particular, to absorb developed country exports and host FDI. Plus, they must do both alongside sustained rises in productivity and prudent fiscal policies. Also, they must do all of those despite the failure of the WTO’s latest, Doha, Round. They must enter into free-trade-agreements (FTAs) and institutionalise monetary cooperation with regional, or other like-minded, economies.

As for the emerging reality on the ground, the IMF reports two basic alterations in global economic growth. The first one of them is that emerging economies have indeed started playing the role of growth-drivers in the world economy.

China alone has accounted for 25% of global expansion over the past five years while the remaining Bric economies filled in another 25%. The four of them account for half of the total expansion of the world economy. (Vietnam, which belongs to the Next 11 grouping, may not have Bric membership but grew by 8.5% in 2007. That makes it, an Asean member, the third fastest of all economies, after China and India.) In sum, the emerging and developing economies together account for 66% of global expansion.