Developing countries

2019: Growth of the portfolio investments of nonresidents to $310 billion

The stock markets of developing countries in 2019 attracted $ 310 billion the portfolio investments of nonresidents — against $ 194 billion the previous year.

2014-2017: Stop of growth of developing countries. Premature deindustrialization

From BRICS countries - the largest developing economies - at first sight decent growth in 2014-2017 only non-oil India and China, on the second show, more stare, only China, on the third, perhaps, nobody: what occurs for 2018 in economy of China, rather large-scale debt bubble.

Even in rare instances true reduction of a gap quite often stands sharp increase in internal inequality in developing countries behind it.

Fruits of economic growth in the poor countries are generally felt on itself by cosmopolitan elite which not always connects the destiny and the fate of the family with the native land though often loudly declares the patriotism.

The gap between ordinary citizens of the developing and developed countries practically does not change — except for China, several other Asian countries and some raw states.

Why growth of developing countries clogged? Problems began to the current technology wave of robotization which, probably, will repeatedly strengthen them. Reasons a little.

In the last several years the efficiency of an Asian business case began to decrease. The problem arose with its crucial element — industrialization of economy (an exception, as usual, China). The classical model of development assumes at first significant increase in a share of the industry in economy against the background of reduction of a share of the agrarian sector. At the same time change of structure of labor market and creation of jobs in the industrial sector is especially important.

Then, at a stage when the promsektor reaches an essential share in economy and the same essential share in structure of employment (peak — about a quarter of labor power in the USA in the 1950th and a third in Great Britain in the 1970th), the countries developed and already become the rich enter deindustrialization process — gradual release of work to the tertiary sector, the service industry.

Though the added value created in the industry at the same time falls in the developed countries not so strongly as employment, is the investigation of an increase in labor productivity and labor-saving technologies.

But by the end of 2017 to the poor countries there is something not keeping within classical model: they begin to deindustrializirovatsya, without having reached high income per capita. The countries become post-industrial at a low level development, or process of primary industrialization is stopped — the overflow of labor power from the agrarian sector goes to the industry extremely slowly or goes to the service industry at once. Or these two processes are combined.

The economist Dani Rodrik calls this phenomenon premature deindustrialization (premature deindustrialization): the share of industrial production in economy in modern developing countries begins to fall already at achievement of a threshold in 20% of employment and $6 thousand GDP per capita (in dollars of the 1990th).

As Dani Rodrik notes, industrial production has some peculiar features doing by its major driver of economic development. Read more here.

What broke in this driver of growth? Reasons of premature deindustrialization a little. First, and it is probably the most important reason: technology changes. Robotization, automation lead to reduction of manpower requirement in the industry. Multinational companies even more often replace manual work with robotization and begin to transfer production to the developed countries, is closer to the end consumer (reshoring).

Secondly, globalization of trade and openness of the world markets of goods led to the fact that industrial enterprises of many developing countries were not able to compete with cheap Chinese import (the Chinese it is export the focused industry uses the mass of competitive advantages — huge state subsidies, scale effect of production, the developed transport logistics).

Thirdly, according to Rodrik, the industry began to show demand for more highly skilled labor power. However, probably, this factor should be considered as addition of the first.

The premature deindustrialization observed for a long time called into question this model of growth. The outlined trend to return of industrial production to the developed countries (reshoring) connected first of all with robotization can finally finish it. Cheap labor power in the poor countries is necessary to the capital more and more seldom. Investors revaluate attractiveness of outsourcing of production in the developing economies and even more often favor creation of the robotic enterprises close to sales markets in the developed countries^[1].

For developing countries the processes of robotization connected together, a reshoring and deglobalization mean liquidation (failure from creation) new jobs in the industries and lack of hope for economic development.

For lack of industrial base the developing economies will be forced to look for new models of development. One of opportunities — growth due to development of a service sector. Some services are traded, i.e. information technologies and partly financial services can be exported, for example.

However, as a rule, these sectors require highly skilled labor power, at the same time in rather small amount. So they are not capable to create jobs for masses as the industry. The remained mass sectors of the service industry — technically backward and low-productive (sellers, drivers, cleaners, couriers) are also focused only on poor domestic market.

For an example of the happening processes of premature deindustrialization, see Economy of India.

2000-2014: Raw boom: Russia, Brazil, Republic of South Africa. Theory of decoupling

Reduction of a gap in the 2000th years was partly caused by a boom in commodity market which raised many developing economies, including Russia, Brazil and the Republic of South Africa from the five of BRICS. In the 2000th years there was fashionable a concept of decoupling — the advancing growth of developing countries and off-centering of economic activity from Europe and the USA to fast-growing regions.

But the raw supercycle ended in the middle of the 2010th years, it is not necessary to expect it in the course of the catching-up development it is more, and simply forgot about the theory of decoupling.

1945-2000: Export model of "Asian tigers"

The poor countries which in 70 years after World War II came very close on income per capita to the developed states can be counted on fingers of one hand (the most obvious examples — South Korea and Taiwan). The list of the countries at least reducing a gap and growing quicker than developed economies is more, but in recent years it decreases.

At first sight the gap between groups developed and developing countries is reduced, but if to consider the last not group, and separately, it turns out that for the lion share of growth otvetstven China and also some countries, dependent on its growth. Countries of Eastern Europe are helped by membership in the EU.

Economic development of Japan, South Korea, Taiwan, China was a variation of the same model of growth ("Asian model"). There is several her devil.

First, a rate on it is export the focused industry. Domestic markets of the poor countries cannot independently bring the country out of backwardness.

Secondly, orientation to cheap labor power and trudointensivny industries.

Thirdly, structural change of economy — mass transition of labor power from unproductive agrarian to the high-performance industrial sector.

Fourthly, the countries with rapid growth steadily showed very high share of investments into GDP (China reached extreme 50%) and, respectively, a low share of consumption in GDP. In other words, from year to year sacrifice the current consumption, gradually accumulating resources and investing them in the future (generally in the same the focused industrial production is export). As the Nobel laureate Paul Krugman, "perspiration, not inspiration" — sweat, but not inspiration precisely described Asian model.

Fifthly, the most comfortable conditions for domestic and foreign business.

Notes