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Chapter 14 Emerging Global Players: The Countries

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EMERGING COUNTRIES IN A

GLOBAL WORLD

Philippe Lasserre

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GDP 2010 (current US$)

GDP per capita (current US$)

Population (million)

Average growth

(1990-2010) % of GDP

North America 15390 45152 341 1,0% 24,4%

Europe 17340 33000 523 4,1% 27,3%

Asia and Pacific 17650 16650 3670 6,7% 28,0%

Latin America 4630 8230 623 7,3% 7,3%

Africa 1590 1630 974 4,0% 2,5%

Middle East 1880 15000 120 6,8% 3,0%

Transition ex USSR 1910 7107 363 5,4% 3,0%

World 63120 9227 6840 5,4% 100,0%

The world in 2010

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What is an emerging country?

There is no clear definition of what an emerging country is, but this term often describes countries with:

high economic growtha growing middle classa high degree of infrastructure investments a market which is opening up to international trade and investment

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Different types of emerging countries

Emerging giants: Brazil, Russia, India, China (BRICs)Transition economies: Eastern EuropeIndustrializing countries: Latin America, Asia, Africa (e.g. South Africa, Chile, Malaysia) The developing world (e.g. Vietnam, Nigeria, Pakistan)

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Average growth yearly rate (1990-2010)

GDP/Capita (2010)

Countries life cycle

0 5000 10000 15000 20000 25000 30000 35000 40000 45000 5000000%

01%

02%

03%

04%

05%

06%

07%

08%

Africa

Transition Economies

Latin AmericaMiddle East

Asia and Pacific

Europe

North America

Bubbles proportional to GDP 2010

Source: World Bank. World Development Indicators

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-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

BRICs

USAEU

World

High economic growth

Poland, Czech Rep, Hungary

Malaysia, Chile, South Africa

Source: World Bank. World Development Indicators

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8Source: World Bank. World Development Indicators

High economic growth cont.

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Middle class effect in emerging countries

%

Poor Middle class RichVery poor

+ 20%

+ 66%

Average

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Evolution of urban household income in China

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 40000 100000 150000 200000 250000

GLOBAL AFFLUENTS

MASS AFFLUENTS

UPPER MIDDLE CLASS

LOWERMIDDLE CLASS

POORS

25000

1995

2005

2015

2025RMB

USD~ 3000 ~4500 ~12000 ~24000

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Middle class in China: McKinsey Survey 2011

 2 0 0 0 2 0 1 0 2 0 2 0

A) Total Population(Million)

1262 1338 1450

B) Urban Population %:

36% 45% 55%

C) Percent of Urban population in Middle Class Affluent, Mainstream and Value (%)

63% 90% 95%

D) Urban Middle Class Population(Million)=A*B*COf which Afflent+ main Stream

28 5

540

43

760

430

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High degree of infrastructure investments

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Opening up to international trade and investment

Source: World Bank. World Development Indicators and UNCTD World Investment Report , 2010)

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Forecast in 2001/2003 for 2050 by Goldman Sachs

BRICs: the path to 2050

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The world in 2050 according to Goldman Sachs

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The world in 2050 according to Goldman Sachs cont.

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Growth drivers - Labour force input

- Middle class

- Export

- Investments

- Productivity

Conditions for growth - Macro stability

- Openness

- Education

- Institutions

Disregarded - Inflation, cycles, wild cards

Growth of BRICs

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18APAC 02 / 18

The emphasis on growth over development

• Easier to achieve and to measure• Less subjective and controversial• A safe heaven for technocrats

The social impact of growth

• Widespread dislocation, winners and losers• Rapid change and resistance to change• Deterioration of direct environment• Relative loss of position (income/status, etc.)

The obsession with growth

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China: the potential for continuing high growthPros• Examples from East Asia• Resources

• Workforce input• Investments

• Total factor productivity• Introduction of market efficiency• Technology flow/education• Foreign investment• Infrastructure improvements• Banking reforms

• Government

Cons• Public debt

• Lending to SOEs• Social welfare system

• Unemployment• Rural/urban• SOEs/private• Manufacturing/services

• Inequalities• Corruption• Energy shortages• Environmental degradation• Institutions

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20APAC 02 / 20

Growth driversLabour force input

- Excellent demographics- Unfortunate labour laws

Investments- Low, but increasing saving rate/industrial investment- Good financial system; high foreign-exchange reserves

Productivity- Large pool of scientists and engineers- Very poor physical infrastructure- Old and new technology

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“Shining India”

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ChinaThe factory of the worldLed by strong governmentHigh domestic savingsHigh inflow of DFIRelatively good infrastructure

but:Weak legal systemWeak financial systemInefficient allocation of capital

China and India

IndiaThe ‘back office’ of the worldFor knowledge-intensive industriesExcellent educational institutionsWorld-class professionalsEmerging MNCs

but:Weak physical infrastructureShortage of capitalWeak government

Electronics/sport shoes Cars Software/pharmaceuticals

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AssetsOil/gas windfall profitsFrom deficit to surplusFrom debtor to creditorStabilization fund

Relatively good infrastructureGood technologyEducation

Russia: A Balance Sheet

LiabilitiesPolitics run marketsDominance of stateObsession with controlAmbiguity towards FDI

Institutions/administrationRule of lawCorruption (rank 143!)

Russia: assets and liabilities

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Brazil: the country of the future• Independent since 1822 • Diversified economy (agriculture, mining, manufacturing)

• Miracle years from mid-60s to mid-70s• Followed by oil shocks, financial crisis - The ‘lost decade’ - Hyperinflation, stagnation, debt

• Lulu (II) government today - Finally higher growth - Financial stabilization

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Four tenants of a ‘good institutional environment’:

1. Rule of law

2. Property rights

3. Transparency and quality of bureaucracy

4. Stability (political and macro) Independent central bank Checks and balances

Relationship between income and institutions

Low High

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Aggregate governance measure

Log

of re

al G

DP p

er c

apita

This index measures the overall quality of governance including the degree of corruption, political rights, public sector efficiency, and regulatory burdens.

A virtuous/vicious Cycle

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-2.00

-1.00

0.00

1.00

2.00

6 7 8 8 9 10 10 11

Real GDP per capita2005

(log scale)

Ag

gre

gat

e G

ove

rnan

ce M

easu

re2

00

5

High income countries

Low income countries

Middle income countries

32000160008000

40001000 2000

The role of institutionsRule of lawControl of corruption

Voice and accountability Political stability

Government effectiveness Regulatory quality

Poor countries

Good institutions

Rich countries

Bad institutions

ChinaIndia

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