Peter Drysdale — The problems for Asia’s growth

The middle income trap.

… there’s a whole literature out there that warns that middle income countries like China and a number of other emerging Asian economies, such as Malaysia and Thailand, face a number of major hurdles in the transition from middle to higher incomes, and others, like India and Indonesia, have still to break through to upper middle income. Over the past half century or so, many countries have committed to promoting economic development and catching up to the income and productivity levels achieved in advanced industrial economies. These emerging economies were the great hope for global growth. But the remarkable fact is that only 13 of 101 countries across the world which have made it to middle income status have been able to complete the transition from lower or middle income levels to high income levels since 1960, and catch up to the technological frontier. This is the so-called ‘middle income trap’.

David Dollar points to the strong empirical relationship between the quality of institutions (as measured by the World Governance Indicators’ Rule of Law index) and economic growth. Yet institutional quality does not change very much from year to year or sometimes even from decade to decade, so it is hard to explain why countries have periods of high growth followed by low growth (or vice versa).

The resolution of the puzzle, says Dollar, maybe that institutions which are well-suited to one phase of economic development may be ill-suited to another.…

East Asia Forum
The problems for Asia’s growth
Peter Drysdale

Dan Steinbock — The Beginning of the AIIB Epoch

Emergence in a complex adaptive system. Adaptive rate and return on coordination increasing.

The launch of the Asian Infrastructure Investment Bank heralds a new era in which international multilateral institutions are no longer owned, controlled and operated by advanced economies alone.

For years, the G7 nations have pledged substantial governance reforms in international multilateral institutions, such as the International Monetary Fund, the World Bank and the Asian Development Bank. But the promises were left unfulfilled, not least because these organizations are dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationalities of their leaders.

In this context, the China-proposed Asian Infrastructure Investment Bank represents the needs of emerging countries which have been failed by the international multilateral institutions that were created and remain frozen in the mid-1940s...

Over the past few years, the White House has seen the BRICS’ New Development Bank as a potential threat to the existing multilateral organizations. It is pushing for a trans-Pacific trade bloc, which excludes China. And it has opposed the reserve currency status of the Chinese yuan.

As a result, senior US figures have argued that Washington has mishandled its response to China’s efforts to serve as a “responsible stakeholder” in the world economy. Among others, former secretary of Treasury Lawrence Summers has said the US cold-shouldering of the AIIB may be recalled as the moment America “lost its role as the underwriter of the global economic system”....

Economonitor
The Beginning of the AIIB Epoch

Dan Steinbock | research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Center (Singapore)

The original version was published by China Daily on June 29, 2015.

See also

Recalibrating the ‘Pivot to Asia’: Behind the 7the Sino-US Strategic & Economic Dialogue

While ratcheting down the military confrontation, it is too little, too late. China is already arming up and the PLA is under no illusions about US objectives as long as its policy is global hegemony.

Jeff Spross — How Renewables In Developing Countries Are Leapfrogging Traditional Power

Lots of poorer countries may be gearing up to largely skip fossil fuel reliance in favor of renewables, if a report released last week is any indication. 

It’s long been assumed that developing nations — particularly those in Africa and Asia — would need to follow the same course as the United States and other western powers, relying on traditional fossil fuels to build their economies before transitioning onto renewable energy. It’s one of the reasons many critics think efforts to keep global warming under 2°C are either doomed or would be hopelessly destructive. 

But according to Climatescope 2014 — a worldwide analysis by Bloomberg New Energy Finance (BNEF) of 55 countries in Latin America, the Caribbean, Asia, and Africa — developing countries’ renewable energy capacity grew 143 percent between 2008 and 2013. By contrast, the wealthy western nations in the Organization for Economic Cooperation and Development (OECD) — in North America, Europe, Australia, and so forth — saw only 84 percent growth. This was while total grid capacity for the nations covered by the Climatescope analysis rose over 30 percent, but grew only 9.6 percent for the OECD countries. 

The report focused on forms of renewable power other than large hydroelectric plants, because those can take years, if not decades, to install, while wind only requires two to three years and solar needs only a few months. But when large hydroelectric is thrown in, Climatescope nations now have 666 gigawatts of clean energy installed, and OECD nations have 806 gigawatts.…

“Clean energy is the low-cost option in a lot of these countries,” Ethan Zindler, a Washington-based Bloomberg New Energy Finance analyst, told Bloomberg news. “The technologies are cost-competitive right now. Not in the future, but right now.”

Like they leapfrogged over landlines to cell phones and to digital transactions bypassing traditional banking services.

Climate Progress
How Renewables In Developing Countries Are Leapfrogging Traditional Power

Jeff Spross

Yves Smith — George Mangus Warns of Broad Impact of Emerging Markets Turbulence

In the runup to the global financial crisis, George Magnus, who was then chief economist at UBS, was one of the most insightful commentators and was early to call how bad things might get. He’s best known for coining the term “Minsky moment” in early 2007, which he described as when “lenders become increasingly cautious or restrictive, and when it isn’t only over-leveraged structures that encounter financing difficulties . . The risks of systemic economic contraction and asset depreciation become all too vivid.”

Magnus returns and does not find much reason to be optimistic. In a comment today at the Financial Times, he discusses Turkey’s economic and political situation in some detail, and then discusses the potential for continued, widespread upheaval:

Naked Capitalism
George Mangus Warns of Broad Impact of Emerging Markets Turbulence
Yves Smith

Worldwatch — GDP: The ‘rest’ surpasses the ‘west’

Real-World Economics Review Blog
GDP: The ‘rest’ surpasses the ‘west’
Posted by Merijn Knibbe

Turning point?

Carey L. Biron — Developing World to Dominate Global Investment by 2030

According to the World Bank and numerous other analysts, wealth in developing countries is today largely locked up among the elite....

Of potentially considerable concern in the bank’s projections is where this new wealth will end up being concentrated.

“It’s one thing for the pie to be increasing, but how equitably is it being distributed?” Kar asks.

“Equity is a huge problem, as the rich seem to be getting richer and the poor getting poorer. Further, it seems the nouveau riche in the developing countries are a bit more callous than the established rich in developed countries.” 

Inter Press Service
Developing World to Dominate Global Investment by 2030
Carey L. Biron

Neoliberalism at work.

Philip Pilkington — An Alternative Economic Approach for Developing Economies

One of the main concerns with implementing economic policy in developing countries is inflation. Many of these countries do not have sufficient productive capacity to ensure that their population is able to consume the goods and services they desire when their living standards rise. This often leads to rising imports, currency devaluation and inflation when policy is geared toward rising incomes.

These are some of the problems that Randy Wray dealt with in his recent post on a jobs guarantee program as it might be implemented in developing countries. Wray says that in order to overcome inflation from higher incomes, the program should be implemented very gradually. While this seems like a sensible approach I think that Wray is being slightly too modest about what sort of policies Modern Monetary Theory (MMT) can facilitate to ensure both full employment and price stability.

Read it at Naked Capitalism
Philip Pilkington: MMT, Functional Finance and Dirigisme – Sketch of an Alternative Economic Approach for Developing Economies
by Philip Pilkington