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Asiaphoria, the idea that the global centre of gravity will shift to China and India, has almost become conventional wisdom. But challenging this view are economists Lawrence ‘Larry’ Summers and Lant Pritchett.
In a new paper, the authors argue that the rise of India and China should be seen as a continuation of the rise of Asian economies which started with the rise of Japan followed by so-called ‘Tiger’ economies of East Asia. The authors estimate that if the two Asian giants continue to grow at their current pace, then the combined GDP gain in 2033 will be $56 trillion. But if their growth reverts to the global mean, then the combined GDP gain falls to $14 billion – a difference of almost $42 trillion.
Reverting to the global mean growth would mean a gain of $11 trillion to China rather than $51 trillion which would be achieved under the current growth scenario. The corresponding figures for India are around $3 trillion and $5 trillion respectively.
But on the question of why growth would slow, the explanation offered is far from convincing. According to Summers and Pritchett, growth will slow “Mainly, because that is what rapid growth does. Our confidence in the prediction that growth will slow is much larger than our confidence in being able to specify why or how or when exactly it will slow.” Rather than identifying country-specific road blocks that will impede growth they argue that based on past patterns of growth “episodes of super-rapid growth tend to be of short duration and end in decelerations back to the world average growth rate.”
While catching up at lower levels of income is easier, maintaining growth at higher levels of income is challenging. In the case of China, while the country is expected to slow down as it transitions to a more domestic consumption oriented economy, but expecting it to slow down to global average is debatable.
But what is rather puzzling is that the authors’ projections for India are based on a growth of 6% which many argue is lower than its potential growth. One could argue, of course, that in absence of the next generation of reforms to raise productivity by tackling factors markets - land, labour, capital and entrepreneurship – the country will not revert back to the high growth trajectory of 8-9% of the past. But even if the country grows at 6%, despite expectations that the new government will unleash a slew of measures to raise growth, it is likely to become the third largest economy in the world in the coming decades.
