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The ‘Rise of the South’: Global Convergence at Last?


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This article offers a political economy review of the literatures and the empirical evidence concerning the ‘Rise of the South’. The study focuses on global convergence (in the long-term, in the last 30 years, and in the aftermath of the 2008 global crisis), economic decoupling between developing and advanced economies, and the economic strategies which may help catching-up, especially the ‘flying geese’ paradigm and industrial policies supporting manufacturing sector growth. It shows that the mainstream literature suffers from significant weaknesses; that empirical claims concerning convergence and decoupling have been exaggerated, and that flying geese-type strategies are severely limited. Examination of the drivers of growth in the South and the policies implemented in key converging countries support the claim that political economy approaches can offer valuable policy insights to countries grappling with the challenges of long-term growth and development.
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The ‘Rise of the South’: Global
Convergence at Last?
Alfredo Saad-Filho
a Alfredo Saad-Filho, Development Studies , SOAS University of
London , Thornhaugh Street, Russell Square, London , WC1H 0XG ,
UK E-mail:
Published online: 09 Sep 2013.
To cite this article: Alfredo Saad-Filho , New Political Economy (2013): The ‘Rise of the South’:
Global Convergence at Last?, New Political Economy, DOI: 10.1080/13563467.2013.829432
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The ‘Rise of the South’: Global
Convergence at Last?
This article offers a political economy review of the literatures and the empirical
evidence concerning the ‘Rise of the South’. The study focuses on global conver-
gence (in the long-term, in the last 30 years, and in the aftermath of the 2008
global crisis), economic decoupling between developing and advanced econom-
ies, and the economic strategies which may help catching-up, especially the
‘flying geese’ paradigm and industrial policies supporting manufacturing sector
growth. It shows that the mainstream literature suffers from significant weak-
nesses; that empirical claims concerning convergence and decoupling have been
exaggerated, and that flying geese-type strategies are severely limited. Examin-
ation of the drivers of growth in the South and the policies implemented in key
converging countries support the claim that political economy approaches can
offer valuable policy insights to countries grappling with the challenges of
long-term growth and development.
Keywords: convergence, Rise of the South, global growth, industrial policy
Few issues have been as hotly debated recently in the field of development as the
‘Rise of the South’ (RoS), global convergence and North South decoupling.
These exchanges have been motivated by the far-reaching transformations in
the global economy during the last couple of decades, and the strong performance
of several developing economies (DEs), especially the so-called BRICS (Brazil,
Russia, India, China and South Africa). Their perceived success has lent
support to the argument that the world is ‘turning upside down’: the economic
and political supremacy of the West is being eroded, changes in global governance
will inevitably follow and the next generation of world-leading economies can
already be identified. More recently, and equally significantly, most DEs have
experienced only a shallow downturn followed by rapid recovery in the wake of
the global crisis starting in 2007, in contrast with the deep contraction and pro-
tracted slowdown in many advanced economies (AEs).
New Political Economy, 2013
Alfredo Saad-Filho, Development Studies, SOAS University of London, Thornhaugh Street, Russell
Square, London WC1H 0XG, UK. Email:
#2013 Taylor & Francis
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Convergence claims have often been associated with mainstream economics
predictions that the South must, eventually, catch up with the North. While
most economists have welcomed the RoS as a tardy but welcome validation of
these predictions, many political scientists and international relations scholars
have expressed concerns about the potentially destabilising implications of the
rise of Russia and, especially, China.
This article does not address these issues.
It focuses, instead, on the economic debates around convergence.
These debates are atypical for two reasons. First, and in contrast with most aca-
demic disputes, RoS was initially highlighted by writers based in private financial
institutions, rather than universities, international organisations or think-tanks
see, for example, Buiter and Rahbari (2011), King (2011) and Wilson and Purush-
othaman (2003), respectively, from Citibank, HSBC and Goldman Sachs. These
contributions tend to depart from a superficial diagnosis of RoS, and they
rapidly get down to the business of enthusing readers with the (financial) profit-
making opportunities that will inevitably follow. Second, this literature often con-
flates distinct temporal horizons: the very long term (decades or even centuries),
the last 2030 years (marked by the hegemony of neoliberalism and Washington
Consensus-type economic policies) and the recent (post-2007) crisis period. This
conflation has provided support to claims that there is an unproblematic RoS
driven by competitive markets, information technologies and transnational
business activity (‘globalisation’).
Despite the historical significance of the RoS, the conventional narrative is
flawed at three levels. First, it diagnoses generalised convergence, even though
the short- and medium-term evidence is mixed and the global economy has
diverged markedly in the long-term. Second, it confuses the achievements of a
small number of countries which have avoided mainstream policies with wide-
spread income and productivity gains secured by mainstream policies. Third, it
mistakenly claims that the South has, largely, ‘decoupled’ from the North or
even that the South can now drive Northern growth (‘reverse-coupling’). These
shortcomings can be explained by the neglect of history in most conventional lit-
erature, statistical oversights, and the hard-wired assumption that firm- and
country-level maximising behaviour, a competitive environment and conventional
macroeconomic policies must foster convergence. In contrast, the political
economy analysis which inspires this article suggests that the global economy is
defined by unevenness at multiple levels (including firms, production chains,
countries and regions), and that there is no automatic tendency for countries to
converge: outcomes depend on circumstances, domestic policies and global con-
straints which cannot be captured adequately by mainstream approaches.
This article includes this introduction and six substantive sections. The first
examines the mainstream literature on global growth and convergence, and the
evidence of long-term convergence. The second focuses on the development pol-
icies implemented in the postwar period, their impact on global inequality and
recent DE growth performance. The third reviews the period after the onset of
the global crisis. These sections show that moments of convergence have often
been decontextualised and exaggerated in support of a neoliberal policy agenda.
The fourth examines the potential drivers of convergence, especially transnational
production networks, the ‘flying geese’ paradigm, and the importance of trade and
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industrial policy. The fifth focuses on the ‘decoupling’ between the South and the
North. The sixth concludes this article.
1. Long-term patterns of growth
Evidence of sustained growth in the Northern ‘core’ of the world economy since
the Industrial Revolution, in contrast with slow growth or even decline in the
Southern ‘periphery’, has triggered several waves of debate about the scope for
global convergence, even if only in a purely logical ‘long-run’.
Veblen (1915) and Gerschenkron (1962) provided the analytical framework for
the analysis of long-term economic growth and its relationship with poverty and
inequality. They advanced the intuitively appealing idea that early developers
create technologies which others can learn, purchase or steal. Since the adaptation
of new methods of production is likely to be cheaper than their discovery, lateco-
mers have an inbuilt advantage and can fast-track their development. This view
was apparently supported by the post-World War II experiences in Japan and
Western Europe, where a productivity and growth surge was attributed to the
introduction of capital goods incorporating mass production technologies. If this
could be replicated elsewhere, capitalist economies might converge rapidly in
terms of per capita income, living standards, productivity and technology, dispen-
sing with the need for socialist revolutions or even large-scale state intervention.
These insights were incorporated into the growth literature through the work of
Domar (1946), Harrod (1939), Kuznets (1955) and Solow (1956). Kuznets’ work
was inductive, and focused on the discovery of empirical patterns linking growth
to inequality within rather than between countries. His inverted-U hypothesis
suggested that economic growth initially leads to greater inequality, which later
declines as workers shift towards high-productivity urban activities and the
benefits of growth trickle down. In contrast, Harrod and Domar developed a
simple Keynesian model with a production function with constant returns to
scale, where the growth rate of the gross domestic product (GDP) depends on
domestic savings (which automatically increase the capital stock), the rate of
depreciation (which erodes it) and the productivity of capital. In this model, if pro-
ductivity and the rates of saving and depreciation are constant across rich and poor
countries, their growth rates will equalise; hence, there is no relationship between
initial GDP per capita and subsequent growth rates (that is, relative but not absol-
ute convergence).
Solow’s influential growth model builds on these insights. It includes a pro-
duction function with decreasing returns to scale, and assumes individual optimis-
ing behaviour, perfect competition, costless technological progress and the
equalisation of marginal returns to the factors of production. Since capital is rela-
tively scarce in poor countries, its marginal productivity must be higher than in the
rich economies, and capital should flow from rich to poor countries. For these two
reasons (higher marginal productivity and capital flows), the South should be able
to short-circuit the introduction of the latest technologies, raise productivity,
accumulate and grow faster than the rich countries in the transition to their
(logical) long-run equilibrium position. Since the Solow model predicts
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convergence while setting aside differences in the institutional and policy environ-
ments across countries, it was associated with the notion of unconditional
Despite their econometric sophistication, most studies of unconditional conver-
gence have been unpersuasive. They tend to suffer from several limitations,
including questionable datasets, inadequate models, the mutual determination of
parameters and outcomes (Rodriguez 2006),
and closed economy assumptions,
which rule out international trade, flows of capital and labour, technology transfers
and institutional learning (including the effect of Washington Consensus-type
conditionalities), even though neoclassical theory claims that international inte-
gration is a key driver of growth (Islam 2003: 343).
By the mid-1970s most observers had accepted that poor countries are not con-
verging, and that the distribution of income was deteriorating across the develop-
ing world. Yet, the Solow model has remained influential, because it is simple,
optimistic and follows directly from the postulates of neoclassical economics. A
recent illustration is provided by Wilson and Purushothaman (2003: 6):
[D]eveloping economies ... have the potential to post higher
growth rates as they catch up with the developed world. This poten-
tial comes from two sources. The first is that developing economies
have less capital (per worker) than developed economies ...
Returns on capital are higher and a given investment rate results
in higher growth in the capital stock. The second is that developing
countries may be able to use technologies available in more devel-
oped countries to ‘catch up’ with developed country techniques. As
countries develop, these forces fade and growth rates tend to slow
towards developed country levels.
The limitations of traditional growth theory, and increasing recognition of
global divergence, helped to popularise the alternative mainstream view that con-
vergence is both rare and policy-dependent, or that it is conditional: each economy
tends towards its own income level in the long-run, depending on their policies,
institutions and circumstances. In order to converge, DEs must adopt the
‘correct’ economic policies and implement the ‘necessary’ structural reforms.
These insights were incorporated into competing variants of endogenous (new)
growth theory since the mid-1980s (Romer 1994; Barro and Sala-i-Martin 2003).
The controversies between supporters of conditional and unconditional conver-
gence have been inconclusive (see, for example, the special issue of Knowledge,
Technology & Policy, 13 (4), 2001): while some authors estimate progressive
reductions in global inequality since World War II, others find a large increase
in the dispersion of global per capita income. This is partly due to differences
in the structure of their models, and partly due to the difficulty of combining
national accounts categories with household income surveys. Specifically, new
growth theory has been criticised for its vagueness, unrealistic assumptions (e.g.
that technology is freely available and useable everywhere) and poor empirical
results. More recently, an extensive literature has investigated the relationship
between openness and convergence; for example, Sachs and Warner (1995)
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suggested that open economies tend to converge, while closed economies do not,
but their findings have been criticised heavily (Ocampo and Taylor 1998; Ocampo
While mainstream studies remain mired in these methodological and empirical
difficulties, historical analyses provide an incontrovertible picture of long-term
divergence. Five hundred years ago, Asia, Africa and Latin America had 75 per
cent of world population and a similar percentage of world income. By 1950,
their population share had declined to two-thirds, and their income share had
tumbled to 27 per cent. In contrast, the population share of the AEs had risen
from one quarter to one-third, while their share in world income reached 73 per
cent. These trends have been reversed only marginally. The DE share in world
GDP rose from 15 to 22 per cent between 1970 and 2005; however, as a proportion
of AE income per capita, the DEs remained below 5 per cent. By the same token,
the ratio of the average GNP per capita of the richest quintile of the world’s popu-
lation to the poorest quintile rose from 31:1 in 1965 to 60:1 in 1990, and 74:1 in
1997 (Nayyar 2009: 2, 6, 13; see also Nayyar 2006, 2008; UNCTAD 2012a). In his
careful examination of long-term global growth, Pritchett (1997: 3, 10) forcefully
concludes that:
Divergence in relative productivity levels and living standards is
the dominant feature of modern economic history. In the last
century, incomes in the ‘less developed’ ... countries have fallen
far behind those in the ‘developed’ countries, both proportionately
and absolutely ... [F]rom 1870 to 1990 the ratio of per capita
incomes between the richest and the poorest countries increased
by roughly a factor of five and ... the difference in income
between the richest country and all others has increased by an
order of magnitude ... [T]he conclusion of massive divergence is
robust to any plausible assumption about a lower bound [for
national per capita incomes].
Long-term divergence can be attributed to the industrial revolution and the
spread of manufacturing production in the AEs, colonialism and the commercial
and financial plunder associated with modern imperialism, and the revolution in
technologies, transport and communication since the late nineteenth century.
They drove the dramatic expansion of trade and markets among the AEs while,
simultaneously, creating DE dependence on AE markets, finance and technology
(Nayyar 2006: 1545, 2009: 4, 5, 10; see also Pomerantz, 2004; Reinert 2007;
Rodrik 2011b: 12). As the Latin American structuralists put it, the AEs became
the engine of growth of the DEs.
2. Development in the age of neoliberalism
Most DEs were heavily penalised by the international debt crisis and by exception-
ally low commodity prices between the early 1980s and the early 2000s (Nissanke
and van Huellen 2012). Under strong pressure from the IMF, the World Bank and
the US administration, dozens of DEs and former socialist economies discarded
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their developmentalist economic strategies, which tended to stress manufacturing
sector growth, and introduced policies inspired by the Washington (and, later,
post-Washington) consensus. In many countries, these policies fostered one
and, sometimes, two ‘lost decades’ with little if any per capita income growth,
rising inequality, deindustrialisation and the proliferation of precarious forms of
employment (UNCTAD 1997, 2012a; Bayliss et al. 2011).
An expanding literature beginning with Cornia et al. (1987) documented the
human costs of conventional adjustment policies, and showed that the inter-
national financial institutions were, at least, oblivious to the growth of deprivation
and the disproportionate burden on the poor arising from conventional policies. In
their defence, the IMF and the World Bank deployed questionable appeals to the
empirical evidence, selective references to the occasional (invariably temporary)
star performers, and insisted that the problem was not with the policies but with
their insufficient implementation, opening the way to subsequent discourses
around corruption and good governance, which shifted the blame to the underper-
forming countries themselves (Fine and Saad-Filho 2013).
Within the mainstream, the disappointing performance of the DEs was con-
strued as evidence for new growth theory. In this discourse, ‘getting the insti-
tutions right’ became a mantra, just like ‘getting the prices right’ was the
mantra of the Washington consensus (Rodrik 2006: 979 80). This culminated
in the tautological proposition that, if convergence had failed to materialise, this
must have been because the ‘correct’ policies and institutions were either
missing or were applied incorrectly. This logical inversion renders conventional
policies and neoclassical growth theory immune to criticism, which prevents
meaningful policy debate.
The conventional argument that the DEs failed in 1950 80 because their inter-
ventionist strategies created inefficiencies, macroeconomic instability and fos-
tered fiscal and balance of payments crises does not stand up to scrutiny.
Although most DEs underperformed, annual income growth rates between the
early 1960s and the mid-1990s in South Korea and Taiwan (China) exceeded
11 per cent; Brazil’s income per capita rose 8.7 per cent per annum in 1950 80
and Mexico’s rose 7.4 per cent. In contrast, annual income growth in most AEs
rarely exceeded 3 per cent. Experience also does not support the view that devel-
opmentalist strategies can be quickly replaced by ‘market-driven outward-
oriented strategies’ simply by downsizing the public sector, reducing inflation
and opening markets to foreign trade and capital flows (Gore 2000).
Dismay with the economic underperformance of most DEs was supplanted by a
wave of optimism in the mid-1990s, which intensified in the early 2000s as most
DEs recovered smoothly from the bursting of the dotcom bubble, and soon main-
tained annual GDP growth rates around 5 percentage points higher than the AEs
¨z 2012: 10). As a consequence, ‘the world’s economic centre of gravity has
moved towards the East and South, from OECD [Organisation for Economic Co-
operation and Development] members to emerging economies ... This realign-
ment of the world economy ... represents a structural change of historical signifi-
cance’ (OECD 2010: 15).
Perceptions of global realignment are often supported by the simple extrapol-
ation of recent performance differences. For example:
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Suppose China were to follow Japan’s path during the 1950s and
1960s. Then it would still have 20 years of very fast growth in
front of it, reaching some 70 per cent of US output per head by
2030. At that point, its economy would be a little less than three
times as large as that of the US, at PPP, and larger than that of
the US and western Europe combined ... At recent rates of
growth, India’s economy would be about 80 per cent of that of
the US by 2030. (Wolf 2011)
However, expectations of imminent and unproblematic convergence are exag-
gerated. First, they are generally based on PPP$ measures of the size of DEs,
which are designed to compare living standards in different countries. Although
they are useful for that purpose, it is the market value of domestic output that
determines the contribution of each economy to global supply and demand and
the expansionary and deflationary impulses which they transmit to the rest of
the world (Akyu
¨z 2012: 28). Second, recent DE growth was largely fuelled by
high commodity prices which, in turn, responded to global growth, the financiali-
sation of commodity markets, the recovery of Latin America after two decades
under the (post-)Washington consensus, the stabilisation of several African
countries, and the gigantic US-centred speculative bubble which burst in 2007
08. These conditions are hardly replicable, much less over several decades (see
Section 3). Third, DE growth has been highly uneven, and the star performers
happen to be the most populous countries in the world.
Fourth, and despite the
hype, there may have been no convergence at all:
the convergence observed in the 2000s was not statistically signifi-
cant. This suggests that any improvement is tentative, and the situ-
ation could quite easily be reversed if, for instance, the strong
growth performance of the largest convergers (above all India
and China) fails. Nonetheless, the ‘change of gear’ in the 2000s
was important in psychological terms, helping to shake off the
development pessimism of the 1990s. (OECD 2010: 37)
Leaving aside the conflation of ‘not statistically significant’ (i.e., one cannot
confidently state whether or not convergence is taking place) with ‘tentative’ (it
is taking place but gradually and hesitantly), it is clear that claims of global con-
vergence hinge almost entirely on the performance of two countries, China and
India: over-arching claims about recent convergence need a stronger grounding
on reality.
3. Convergence after the crisis
With the outbreak of the global crisis, the international economic environment
deteriorated rapidly in all areas that had previously supported expansion in
DEs. Net capital flows turned negative, commodity prices tumbled and economic
activity contracted rapidly in most AEs, leading to a sharp drop in DE exports.
After growing 7 per cent per annum for several years, AE imports fell by 12
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per cent in 2009; volumes recovered in 2010, but subsequently stagnated because
of the Eurozone crisis (Griffith-Jones and Ocampo 2009; IMF 2009, ch. 4;
UNCTAD 2012a; Akyu
¨z 2013: 31).
The policy responses in most AEs were based on state-sponsored financial
sector stabilisation, fiscal spending and monetary policy activism. In contrast,
DE policies tended to be both more varied and proportionately larger. This was
partly because of the more diversified sources of disruption affecting the DEs
and, partly, because most DEs had sounder macroeconomic, balance of payments
and financial positions than the AEs, giving them additional policy space. The
fiscal package in 15 Asian DEs reached 7.5 per cent of 2008 GDP, almost three
times the average level in G7 countries, and China’s alone reached US$600
billion (13 per cent of GDP). Large fiscal stimuli were also introduced in Argen-
tina, Brazil, Korea, Malaysia, Singapore and Thailand, generally focusing on
increased spending in infrastructure and construction (Akyu
¨z 2012).
These aggressive responses were supported by the rapid recovery of North
South capital flows. This was an unintended consequence of the fiscal and monet-
ary policy relaxation in the AEs, which was meant to support the banking system
and restore lending. A large part of the resources created by AE fiscal deficits, low
interest rates and central bank asset purchases slipped to more dynamic (and
higher interest rate) economies in the South. The continuing success of large
DEs despite the crisis reinforced the perception of global convergence and gave
credence to the view that the South had ‘decoupled’: it could now grow faster
than the North, and independently of the latter’s tribulations (see Section 5).
Unfortunately, the forces driving DE recovery since 2009 cannot be sustained;
in the longer term, it is also impossible to rebuild the growth-promoting conditions
of the pre-crisis global economy (see Section 2, and Bremmer and Roubini 2011):
unless fundamental changes take place in DE policy-making and in their global
integration, including their dependence on foreign markets and foreign capital,
the recent spurt of convergence is likely to exhaust itself. The limitations to
growth in China are the most significant example, because of the size and impor-
tance of the country’s economy and its influence on global commodity demand.
Despite its extraordinary economic achievements, China suffers from severe
underconsumption due to the low share of household income in GDP (that is, extre-
mely low wages) and high precautionary savings, since the lack of social provision
compels families to save in order to meet their future health, education and housing
needs. Consumption growth has lagged GDP growth since the early 2000s; on the
eve of the crisis, private consumption was only 36 per cent of GDP, and it declined
further subsequently (in contrast, in AEs consumption often reaches 70 per cent of
GDP). In 2009, investment accounted for half of GDP and for 80 per cent of
China’s growth. As Bellamy Foster and McChesney (2012) rightly put it:
no country can be productive enough to reinvest 50% of GDP ...
without eventually facing immense overcapacity and a staggering
non-performing loan problem. China is rife with overinvestment
in physical capital, infrastructure, and property ... this is evident
in sleek but empty airports and bullet trains (which will reduce
the need for the 45 planned airports), highways to nowhere,
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thousands of colossal new central and provincial government
buildings, ghost towns, and brand-new aluminum smelters kept
closed to prevent global prices from plunging ... Overcapacity
will lead inevitably to serious deflationary pressures, starting
with the manufacturing and real-estate sectors ... All historical
episodes of excessive investment including East Asia in the
1990s have ended with a financial crisis and/or a long period
of slow growth.
Chinese policy-makers recognise that the country cannot return to its pre-crisis
pattern of growth, in which double-digit GDP growth rates were supported by
booming exports to AEs. This is both because AE demand is likely to remain
weak for years, and because Germany and Japan are also engaged in export-led
growth. Their strategies would require the USA to revert to its pre-crisis position
of driver of global demand, which is unfeasible and might endanger the global
monetary, trading and financial systems. Because of these constraints, China
must now rely primarily on domestic demand for growth, making it essential to
raise consumption significantly. However, so far Chinese policy-makers have
focused on marginal interventions to reduce household savings, e.g. lowering
interest rates, rather than boosting household income and restoring the public pro-
vision of basic goods and services in order to reduce precautionary savings.
Attempts to boost consumption through subsidies for vehicle and appliance pur-
chases have created only temporary surges, while support for the housing
market has fuelled a real estate bubble. The main driver of growth remains
public sector-backed investment.
Given its key role supporting the global demand for commodities and as a
source of investment in resource-rich DEs, a permanent slowdown in China pre-
sents significant risks for other DEs. These risks are compounded by the shift of
Chinese growth towards consumption, which is less import- and commodity-
intensive than either investment or exports, and by the increasing efficiency of
use of materials in China (Akyu
¨z 2013: 3, 29, 41). The global impact of the econ-
omic transformations in China is compounded by the adjustment programmes
imposed in several countries, most notably in the Eurozone periphery. They com-
press demand, promote the illusion that all countries can export their way to
growth and, ultimately, increase the global deflationary gap.
The fragilities in the global economy suggest that the favourable conditions in
commodity markets may not last. The forces sustaining AE capital flows to DEs
are also susceptible to change, because historically low interest rates in AEs and
the appetite for investment in DEs cannot continue indefinitely (Akyu
¨z 2012: 43).
The immediate threat is a sharp increase in global risk aversion due to falling
growth in AEs, imbalances in large DEs, economic contraction and financial fra-
gility in the eurozone, US fiscal policy stalemate or oil supply risks. If capital
flows and commodity prices decline, the most vulnerable countries will be the
commodity exporters with large current account deficits, while such oil-importing
deficit countries such as India and Turkey are marginally less vulnerable because
they would benefit from falling energy bills. Although several DEs hold large
international reserves, these are often borrowed reserves accumulated from
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capital inflows, rather than earned reserves due to current account surpluses. They
have a counterpart in net foreign exchange liabilities, often liquid portfolio flows
and short-term loans, which would present a threat in the event of loss of
4. Drivers of convergence
Despite the fragility of claims of global convergence, the mainstream literature
has promptly identified three drivers of this process. First, the (post-)Washington
consensus policy reforms which, allegedly, have secured rapid and stable growth
where they have been applied correctly. Second, the spread of global capitalism,
which ‘doubled the number of people working in ... market-oriented economies
and so halved the capital/labour ratio ... [W]ages ... at subsistence levels ...
reduced the cost of a range of traded goods and services, and made the take-off
possible in a number of ... countries’ (OECD 2010: 17, 47, 48). Third, and trivi-
ally, faster DE growth triggers currency realignments which turbo-charge the
underlying convergence.
This reading of RoS assumes that ‘all successful
countries have used market signals and international competition as the fundamen-
tal mechanism for resource allocation’ (Harrison and Sepulveda 2011: 10).
It is hazardous to speculate about the drivers of an unproven process of conver-
gence. The mainstream drivers are also tautological, because the ‘failing’
countries are always said to have violated the conventional policy prescriptions;
conversely, the sins of the successful countries are, retrospectively, minimised.
In what follows, a more reasonable set of drivers of growth in the converging
countries is examined.
4.1. Global trade and production networks
No area has been as symbolic of the RoS as international trade. In 1990, North
North exchanges still accounted for nearly 60 per cent of global trade, with
SouthSouth trade barely reaching 8 per cent and the DE share of global
exports touching on 23 per cent. By 2008, NorthNorth trade had declined to
40 per cent, SouthSouth trade had reached 20 per cent, and the DE export
share was 37 per cent (OECD 2010: 71).
The expansion of DE trade can be attributed to faster growth in most DEs than
in the AEs, the rise in commodity prices, and the rapid opening to trade in many
DEs, leading to a steep climb in their export- and import-to-GDP ratios. Although
impressive, these figures can exaggerate DE trade performance and its potential
impact. First, although higher commodity prices lift national income, they do
not directly imply economic ‘success’, except tautologically. Second, while
GDP includes only value-added domestically, total exports (X) and imports (M)
include value-added in other countries; consequently, trade growth tends to
inflate the X/GDP and M/GDP ratios without any implications for local income
or welfare. This effect is especially significant in countries joining transnational
production networks, involving imports of inputs, processing and subsequent
exports for consumption mainly in AE markets. Third, trade growth is a poor
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indicator of development, because trade generally responds to rather than leads
economic growth (Ocampo and Taylor 1998).
SouthSouth trade has grown rapidly but unevenly: East Asia currently
accounts for three-quarters of the total, and China alone for 40 per cent. In con-
trast, India’s share is only one-tenth of China’s, because of the country’s
smaller economy and lower participation in vertically integrated production
chains (OECD 2010: 72; ADB 2011: 47, 53; Akyu
¨z 2012: 30).
Vertical chains shape East Asian trade: 8090 per cent of East Asian South–
South exports are absorbed within the region, and 40 per cent of the total
exports of the largest East Asian DEs are to other members of this group,
while only 22 per cent of their exports are of final products. Before the crisis,
only 12 per cent of Korean and Taiwanese exports went directly to the USA
and about the same to the EU, while 25 per cent went to China, largely for
further processing and re-export. Conversely, in 200307, over 60 per cent of
Chinese imports were reprocessed for export; under 15 per cent were consumed
and 25 per cent invested (see Athukorala 2010; Kim et al. 2010; Lim and Lim
2012). Around 80 per cent of China’s exports to the USA are reprocessed, but
most of the value-added stays in the AEs; the other East Asian DEs also tend to
earn more than China itself. A striking example is provided by the manufacture
of iPhones:
According to the Federal Reserve Bank of San Francisco, “In 2009,
it cost about $179 in China to produce an iPhone, which sold in the
United States for about $500. Thus, $179 of the U.S. retail cost con-
sisted of Chinese imported content. However, only $6.50 was actu-
ally due to assembly costs in China. The other $172.50 reflected
costs of parts produced in other countries” ... The Chinese
economy today is ... structured around the offshoring needs of
multinational corporations geared to obtaining low unit labor
costs by taking advantage of cheap, disciplined labor ...In this
global supply-chain system, China is more the world-assembly
hub than the world factory. (Bellamy Foster and McChesney 2012)
Despite their large trade volumes China and the other East Asian DEs have little
scope to drive growth in the South, because their trade is heavily integrated into
regional production chains and their net exports are geared to AE markets
which capture most the value created along the chain, leaving little available
for circulation within the South. Large current account-deficit countries, such as
Brazil, India and Turkey, have even less scope to drive DE growth because of
their much lower imports and heavy reliance on AE capital.
4.2. Beyond ‘flying geese’
The vertical integration of production in East Asia has been called the ‘flying
geese’ pattern of development. This metaphor was originally deployed by
Kaname Akamatsu in the 1930s to explain the growth of late developers like
Japan, and its subsequent interaction with neighbouring DEs; it was later
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applied to other groups of countries. Allegedly, the Japanese economy originally
imported simple Northern consumer goods, then built the capacity to produce
them domestically with government support, then produced better goods for
export, and then followed a similar sequence for more sophisticated goods. As
Japan developed, wages increased and firms shifted the production of simple
goods to neighbouring economies with lower wages, but using Japanese capital
and technology. As these countries’ technological capability improved, they
also graduated to more sophisticated goods and spread low-tech production to a
third tier of countries, and so on. This paradigm has obvious similarities with
Vernon’s (1966) product-lifecycle approach which, however, focuses on individ-
ual products rather than countries.
ADB (2011) suggests using flying geese as a paradigm for NorthSouth inter-
action, with Northern countries as the leading goose bringing along a flock bound
together by trade-promoting foreign direct investment (FDI). Naturally, this devel-
opment strategy is conditional upon the liberalisation of trade and investment,
good governance and respect for the rule of law a seemingly very different strat-
egy leading to the same post-Washington consensus-type policy priorities.
The combination of historical interpretation and policy prescription underpin-
ning the flying geese paradigm is insufficient at four levels (Chang 2011). First,
as was shown in Section 4.1, East Asian development has included both tighter
integration within the region and the incorporation of East Asia into the global
economy through production for AE markets. The growth of regional trade is
not generally due to the flow of final products, but to the flow of inputs to pro-
duction for extra-regional consumption. Movements of capital, technology and
manufacturing capacity within the region, and the upward mobility of countries,
were predicated on AE markets, which may not be available to newer generations
of DEs after the crisis.
Second, it is implicitly assumed that transnational corporations (TNCs) are ben-
evolent conveyors of industrial knowledge, willing to share their technologies
through FDI, licensing, subcontracting, technical assistance and joint projects,
and that local firms in countries down the chain can absorb new technologies
smoothly and expand and diversify their output despite the competitive pressures
from firms based in more advanced countries. This may not be the case:
[E]xpanding factory Asia to other regions in the South ...may be
dislocative in the short and medium run. Faced with more intense
competition, domestic industries may be unable to thrive; underca-
pitalized, they may be crowded out of markets for scarce resources,
such as skilled labor and capital equipment. (ADB 2011: 43)
The upshot may be a complex pattern of transnational integration with deindus-
trialisation (Rasiah 2011). To the extent that manufacturing development takes
place, it is likely to increase local dependence on imported capital, technologies
and components, with limited linkages across local suppliers. This helps to
explain why poorer countries entering the East Asian regional division of
labour often run trade deficits vis-a
`-vis Japan, the first-generation newly
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industrialising economies, and China (for example, China has accumulated large
surpluses in its growing trade with Laos and Cambodia).
Third, instead of being either the outcome or the harbinger of growing co-oper-
ation between independent DEs, East Asian integration closely resembles the tra-
ditional trade and investment relations between North and South.
Fourth, and more prosaically, it is not clear that significant tranches of manu-
facturing production will move out of China any time soon. Given the country’s
rapidly improving infrastructure and vast reserves of unskilled labour, manufac-
turing production is more likely to migrate within China for the foreseeable
future, drastically reducing the scope for ‘flying geese’ with other DEs.
In sum, expectations that flying geese provides a realistic depiction of East
Asian industrialisation, and that it can support the convergence of new DE econ-
omic blocs, gloss over the analytical and historical shortcomings of this model,
and greatly exaggerate its policy relevance. Despite these limitations, South-
centred production networks can diversify the sources of DE growth, expand
the scope for DE manufacturing production and open new export markets. This
can depart from the production of low-tech goods or host assembly operations
in poorer DEs, while the more advanced countries provide markets, technology,
capital and trade and investment credit. These arrangements can be supported
by monetary and financial policy integration and the expansion of regional infra-
structure. This would not amount to a BRICS-centred flying geese strategy,
because the production networks, markets and sources of capital would be diver-
sified, rather than being centred in one leading economy; the physical and financial
infrastructure would include a range of countries, rather than connecting ever
more closely a given hierarchy of countries, and manufacturing development
would be closely linked with national industrial policies, rather than accommodat-
ing to TNC strategies (IMF 2011; UNCTAD 2011; Chang 2011; Dahi and Demir
This approach can bring multiple benefits. First, DEs have an increasing impact
on the global demand for commodities and the global terms of trade, and their
growth benefits poorer commodity exporters. Second, South South production
networks would reduce dependence on the AEs and allow DEs to increase
exports, reap economies of scale and command imported goods which would
otherwise be unavailable. Third, trade diversification will reduce the DE exposure
to fluctuations in the terms of trade, since the growth of the world as a whole is
bound to be less volatile than the growth of the North. Fourth, DEs can export rela-
tively more sophisticated goods to the South than to the North, helping to increase
their technological capacities. Fifth, SouthSouth trade can support the diffusion
of more appropriate technologies among DEs. Finally, closer interaction between
DEs can support improvements in economic policy-making across these countries.
4.3. Industrial policy and manufacturing growth
Most converging countries have dislocated binding cost, technological, labour
market and balance of payments constraints through the expansion of high-pro-
ductivity manufacturing activities. The DE share in world manufacturing value-
added (at 1975 prices) increased from 8 to 11 per cent between 1960 and 1980.
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In the following decade, this share (at 1980 prices) rose only marginally, from 14
to 15 per cent, but between 1990 and 2007 this share (at 2000 prices) shot up from
16 to 27 per cent (Nayyar 2009: 20). Unfortunately, these achievements were con-
centrated in a small number of countries, especially Brazil, China (including Hong
Kong and Taiwan), India, Indonesia, Korea, Malaysia, Mexico, Singapore, South
Africa, Thailand and Turkey.
Their successes depended on the careful selection of sectoral priorities, rapid
capital accumulation, technological learning and institutional adaptation, sup-
ported by a conducive financial, institutional and regulatory framework, which
can be encapsulated in the notion of industrial policy (Amsden 1997, 2001;
Weiss 2011; Fine et al. 2013). These experiences confirm the views of such het-
erodox economists such as Nicholas Kaldor, Rau
´l Prebisch, Michał Kalecki,
Albert Hirschman, Petrus Verdoorn, Luigi Pasinetti and Anthony Thirlwall that
economic growth is sectorally biased: a unit of value-added can have a very differ-
ent impact on long-term growth, depending on the sector where it is produced
(Tregenna 2009: 43440).
The manufacturing sector plays a key role in rapid growth and development for
five reasons. First, manufacturing growth fosters diversification, backward and
forward linkages, agglomeration economies and dynamic economies of scale
through learning-by-doing. Thus, manufacturing tends to ‘pull’ the other econ-
omic sectors, even when they are initially larger. Second, manufacturing offers
greater scope than agriculture or services for productivity growth through the
development and adaptation of new technologies. These innovations are sub-
sequently diffused across the economy through the spread of new skills and pro-
duction methods and the sale of manufactured inputs. Third, manufacturing
productivity tends to rise with the rate of growth of manufacturing output, poten-
tially creating virtuous circles of growth across the economy. Fourth, manufactur-
ing can more easily foster export diversification and the production of import
substitutes, which can alleviate the balance of payments constraint. Fifth, manu-
facturing sector wages tend to be relatively high, which can support demand
growth and improvements in living standards. Hence, intersectoral shifts of
labour and other resources towards manufacturing can help to raise productivity
and growth rates in DEs; conversely, economic structures narrowly determined
by static comparative advantages, as is envisaged by mainstream economics,
are sub-optimal for long-term growth and for global convergence.
Successful policies supporting manufacturing sector growth are, almost invari-
ably, heterodox. Nowhere did markets spontaneously conjure the conditions for
long-term manufacturing growth, and economic planning has been extensively
used in all converging countries. In another striking contrast with neoclassical
growth theories, several countries with high rates of investment and growth
have financed them through domestic (rather than imported) savings, and some
fast-growing DEs were even capital exporters. For example, Japan, Singapore
and China have run current account surpluses throughout their extended periods
of rapid growth (Buiter and Rahbari 2011: 3). Conversely, until recently most
Latin American countries had followed the policy agenda of the Washington insti-
tutions and, even in the mid-2000s, it was argued that their disappointing growth
was due to the failure to implement fully the conventional reforms. These claims
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vanished completely since the region’s performance improved markedly during
the last decade, while alternative policies were implemented in several countries.
In sum, economic success has never been about ‘getting prices right’; it is, instead,
mainly about ‘getting state intervention right’ (Nayyar 2009: 23).
The liberalisation of trade and finance plays at most a secondary role in sus-
tained growth processes, and they often generate instability and crises. On the
one hand, arguments for free trade often exaggerate its potential impact on
growth, because they are normally based on a perfectly competitive world
where goods prices reflect social costs. Without this assumption, it cannot be
claimed that free trade is systematically superior to protection. Even when inter-
national competition raises the efficiency of domestic firms, the free-trade dis-
course generally ignores the costs of change, including unemployment, lower
wages, deindustrialisation and balance of payments instability, which must be
considered for the adequate evaluation of the policy alternatives. On the other
hand, the mainstream systematically exaggerates the positive impact of capital
mobility, while underestimating its costs and destabilising implications. For
example, it emphasises the foreign exchange and technology inflows due to
FDI, but disregards technological dependence and the ensuing capital outflows
(trivially: FDI is not unconditional aid). In the absence of data on profit repatria-
tion, royalty payments, imports, re-investment and impact on domestic capital
markets, it is impossible to ascertain the contribution of FDI to long-term econ-
omic growth. Rowthorn and Kozul-Wright (1998: 29) rightly point out that:
FIGURE 1. International financial flows and fixed investment (% of world GDP)
Source: UNCTAD (2012b: 21).
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[F]inancial flows are rarely associated with the flows of real
resources ... Rather, they are primarily related to the purchase
and sale in secondary markets of liabilities created for the financing
of already existing real assets ... They are extremely volatile and
subject to bandwagon effects, capable of generating gyrations in
security prices, exchange rates and trade balances. They make
little contribution to the international allocation of savings or diffu-
sion of technology and hence to a reduction in international dispar-
ities in per capita income. Indeed, the combination of financial and
trade liberalization can very easily upset the domestic accumu-
lation dynamic by shifting incentives towards the non-tradable
goods sector and placing a premium on more liquid but less pro-
ductive assets.
These concerns are supported by long-term data suggesting that international
financial flows are associated with a falling, rather than rising, trend for fixed
investment (Figure 1).
5. Decoupling at last?
Rapid growth in large DEs has provided support to claims that the South has
‘decoupled’: it can now grow faster than the North, regardless of the latter’s tribu-
lations. In this literature, coupling is defined as business cycle synchronicity
between two countries or regions; conversely, decoupling is ‘the emergence of a
business cycle dynamic that is relatively independent of global demand trends and
that is driven mainly by autonomous changes in internal demand’ (ADB 2007:
66). Some contributions in this literature claim that business cycles have converged
among DEs and AEs, while they have diverged between these groups of countries
(Kose et al. 2008; Kose and Prasad, 2010: xiii). An alternative interpretation of
decoupling is that DE and AE business cycles may have remained in synchrony,
but their trend rates of growth have diverged (Brahmbhatt and Silva 2009: 2).
North–South decoupling would have far-reaching implications for global
dynamics; for example, it would alleviate DE dependence on AE markets,
finance and technologies. Support for competing versions of decoupling, and
even for its extreme version, reverse-coupling (the claim that DE growth now
determines AE performance) has grown exponentially after the global crisis.
For example, Bergsten (2008) stated that:
The global economy has clearly decoupled from the US and world
growth remains close to 4 percent in spite of the absence of any
increases in domestic US demand. Continued expansion abroad,
especially in the emerging market economies, has ...cushioned
the slowdown ... [W]e are ... experiencing the first episode in
history of reverse coupling, in which the rest of the world pulls
the U.S. forward rather than the opposite ... The traditional
relationship where ‘the world catches cold when the U.S.
sneezes’ no longer holds.
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An alternative interpretation of these performance differences after the crisis is
that the financial relationship between DEs and AEs has diverged from their real
relationship; that is, ‘real decoupling’ has been accompanied by ‘financial coup-
ling’, or greater ‘cross-market financial interdependence’ (Yeyati and Williams
2012: 2).
Decoupling is generally attributed to DE ‘trade diversification, commodity
strength and, particularly, the emergence of China ... [which has overtaken] the
G7 as the main global factor behind output fluctuations in the emerging world’
(see also IMF 2008: 25; Yeyati and Williams 2012: 17). Other contributing
factors are the ample scope for DE technological catch-up despite the AE slow-
down, and the growing independence of DE exports from Northern markets
(Dooley and Hutchinson 2009; Haddad and Hoekman 2010: 74 5). These
claims are essentially identical to those concerning North South convergence
which, as was shown in Sections 1–3, tend to conflate different time horizons
(long-term, the last few decades, and the post-crisis period) in order to offer an
over-simplified and overly smooth picture of market-led catch-up.
Closer examination of the decoupling hypothesis reveals significant weak-
nesses. First, Wa
¨lti (2009: 3) assessed business cycle synchronicity between 34
DEs and four groups of AEs, and concluded that it has not declined recently.
These results support the view that ‘globalisation brings national business
cycles closer together’, rather than ‘decoupling’ them. Second, while decoupling
(just like the earlier notion of convergence) has drawn support from the DE ability
to avoid the worst of the global crisis, it subsequently lost credibility as the loss of
AE dynamism eventually exhausted the potential sources of DE growth (Cohan
and Yeyati 2012). Trivially:
Saying that China has decoupled from the US because China grows
at 5% while the US experience an output decline of 2% is wrong. If
the trend growth rate is 9% in China and 2% in the US, both
countries are 4 percentage points below trend and their business
cycles are therefore perfectly in tune. This is a hypothetical
example, but it makes the point. (Wa
¨lti 2009: 2)
Current debates and the trajectory of leading DEs show that real decoupling is
incompatible with financial coupling (UNCTAD 2012a; Akyu
¨z 2013). In other
words, if the South intends to decouple from the North in the realistic sense
of sustaining growth independently of AE cycles, by pursuing appropriate devel-
opment policies and neutralising external shocks it must reduce its degree of
exposure to global financial flows, and make greater efforts towards regional
and South–South integration of production, trade and finance.
6. Conclusion
Convergence is essential for the achievement of a more equal and balanced world
economy, and decoupling would help the South to sustain its convergence. Despite
encouraging signs recently, those goals remain both distant and elusive. Much of
the catch-up in the last three decades is attributable to fast growth in a small
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number of DEs and, more recently, to the impact of high commodity prices; per-
formance disparities within the South remain significant and, over the long-term,
most DEs have underperformed significantly relative to the AEs.
Despite the weight of the evidence supporting a cautious assessment of global
trends, mainstream economists and private financial institutions have proclaimed
global convergence and decoupling enthusiastically and, sometimes, with one eye
on the profits that their own rosy predictions can bring into existence. There is a
striking mismatch between their optimism, the weakness of the theories support-
ing convergence claims and the ambiguity of the empirical evidence. Unsurpris-
ingly, the convergence literature is, also, badly fragmented, and scholarly
debates have often been conflated with disputes about economic methodology,
alternative growth theories and the merits of rival databases.
Overly optimistic accounts of the RoS generally draw upon a voluntaristic and
historically inaccurate assessment of the achievements of the DEs, as if the adop-
tion of mainstream policies were a necessary and sufficient condition for sustained
growth. Presumably, DEs should either specialise according to their purported
comparative advantages, or seek integration into a liberalised flying geese-type
formation producing for wealthier markets. These approaches ignore the
growth, employment, distributional and other costs of DE attachment to main-
stream development strategies. The successful AEs and the converging DEs did
not simply specialise according to static comparative advantages instead,
they introduced context-sensitive industrial policies in order to build dynamic
competitive advantages (Amsden 2001; Chang 2002; Fine 2006; Reinert 2007;
Williamson 2011). In contrast, mainstream strategies offer only a low-wage,
capital-, technology- and foreign market-dependent road to growth, which has
become especially fraught with uncertainties in the wake of the most severe
global crisis since the Great Depression. Experience shows that successful and
socially desirable development strategies require the insulation of domestic
policy space, including domestic finance, from AE policy choices, in order to
promote strategic DE integration drawing upon selective manufacturing, proces-
sing and high value-added sectors. This institutional environment can support
the implementation of targeted industrial policies to enhance employment, pro-
ductivity and wages simultaneously, expand the social and economic infrastruc-
ture attached to a developmental welfare state, and promote regionally
integrated chains of production of goods and services for DE consumption
(Saad-Filho 2007; UNRISD 2010; Fine 2011).
The current age of neoliberalism is characterised by uneven and combined
development; it has created unprecedented prosperity for some countries, pro-
vinces and households, while others have declined in relative and even in absolute
terms, and suffered significant poverty and exclusion effects (UNCTAD 2012a).
Rapid growth across most DEs in recent years was largely due to an unsustainable
pattern of global accumulation centred around US current account deficits, which
is unlikely to return. Recent perceptions of convergence were also influenced by
the extraordinary performance of China and India – the world’s most populous
countries but, still, also those with the largest number of poor households.
Brazil and South Africa have performed relatively poorly, while Russia remains
an oil- and gas-dependent wild card. Despite their recent achievements, these
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countries also have huge numbers of poor people, and serious deficiencies in their
social and economic infrastructure. Most other DEs are either too small, or grow
too slowly, to make a significant difference to global poverty and inequality even
in the medium term. These patterns of development are not conducive to rapid and
sustained convergence either within or between countries.
Thirty years of tight macroeconomic policies, concentration of income and
falling real wages in all major AEs, including the USA, Germany and Japan,
and in China and other DEs, accompanied by overinvestment especially in
export-intensive industries integrated in global production chains, have created
a worldwide tendency towards underconsumption and deflation.
The counter-
vailing impact of financialisation and explosive growth in consumer lending,
especially in the USA and the UK, was insufficient to stabilise global accumu-
lation. Since these imbalances operate both at a national and at a global level,
their resolution depends on coordinated national, regional and global policy
Two immediate challenges demand a rethink of DE development strategies.
First, the risk of further global slowdown, which could be triggered by continuing
stagnation in Western Europe, Japan and the USA. Second, DEs cannot expect the
return of the growth pattern they enjoyed during the early 2000s boom even after
the eventual recovery in Europe, the USA and Japan. These challenges can be
addressed only through a careful choice of economic policies supporting rapid
accumulation and productivity growth, and the co-ordinated expansion of employ-
ment and demand, preferably assisted by greater South South integration and co-
operation initiatives.
This article has argued that perceptions of decoupling and global convergence
(in any time-scale), and arguments about their sustainability, should be tempered
by a hefty dose of realism. Detailed studies, drawing upon experiences of success
as well as failure, are needed in order to explain the recent patterns of growth in the
South, and to provide policy guidance for the DEs. Convergence and decoupling
are important for these countries, and progress towards these goals would facilitate
distributional improvements, employment creation and poverty alleviation. Faster
progress along these lines is essential; it is now also increasingly feasible,
although it remains conditional on unconventional policy choices.
1. Economic development is conventionally measured by the country’s gross domestic product per capita
(GDPpc), calculated either in current dollars (US$) or in purchasing power parity dollars (PPP$). Global con-
vergence implies that GDPpc rises faster in the South than in the North for a considerable time, preferably in
both measures. RoS is a broader term, concerning the global political economy implications of economic
convergence. The terms ‘North’ (advanced economies, AEs) and ‘South’ (developing economies, DEs)
are rarely defined precisely. The country classifications used by the World Bank and the IMF are explained
in and
htm#q4b. Without loss of generality, in this article the ‘North’ refers to the World Bank’s High Income
OECD countries, and the ‘South’ to low, lower-middle and upper-middle income economies (http://data. This excludes 38 high-income
non-OECD countries and territories, among them several tax havens, Cyprus, Hong Kong and Macao
(China), Singapore and the GCC countries.
2. See Bremmer (2009) for a taste of the literature.
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3. This limitation (which is similar to sample selection bias) is best exemplified by studies of convergence
among countries at comparable income levels (e.g. OECD members), for which data are more easily avail-
able. Since these countries have already converged, the test is biased in favour of the convergence hypoth-
esis. Convergence tends to disappear when a wider set of countries is considered (Jones 2002).
4. For a more nuanced view, see Rodrik (2011a).
5. Ocampo et al. (2009: viii) claim that ‘there is no strong or sustained global trend towards economic conver-
gence, especially during the last quarter century of greater economic integration’; see also Taylor and Rada
6. For similar claims, see Buiter and Rahbari (2011: 4), Harrison and Sepulveda (2011: 7), O’Neill and Stup-
nytska (2009: 21– 3) and Wilson and Purushothaman (2003: 1).
7. ‘The influence of China and, increasingly, India is disproportionate and overwhelming ... Excluding China,
the contribution of developing economies to PPP adjusted global GDP growth was around 40% ... in 2008.
Including China raises the contribution of the emerging and developing group to almost 70%’ (OECD 2010:
8. ‘Countries ...grow richer on the back of appreciating currencies. Currencies tend to rise as higher pro-
ductivity leads economies to converge on Purchasing Power Parity (PPP) exchange rates ...About two-
thirds of the increase in US dollar GDP from the BRICs should come from higher real growth, with the
balance through currency appreciation. The BRICs’ real exchange rates could appreciate by up to 300%
over the next 50 years (an average of 2.5% a year)’ (Wilson and Purushothaman 2003: 2, 6).
9. China, Hong Kong (China), Indonesia, Republic of Korea, Malaysia, Philippines, Singapore, Taiwan (China)
and Thailand.
10. These relationships hold; however, the manufacturing industry is defined, e.g. whether it includes manufac-
turing alone, or also construction, mining, transportation, some utilities, or the entire non-agricultural sector;
see Williamson (2011).
11. ‘China’s policies on property rights, subsidies, finance, the exchange rate and many other areas have so fla-
grantly departed from the conventional rulebook that if the country were an economic basket case instead of
the powerhouse that it has become, it would be almost as easy to account for it ... One can make similar
statements for Japan, South Korea and Taiwan during their heyday ...As for India, its half-hearted,
messy liberalization is hardly the example that multilateral agencies ask other developing countries to
emulate’ (Rodrik 2011b: 18).
12. ‘The world economy suffers from underconsumption because of low and declining share of wages in national
income in. In the OECD countries, the wage share dropped by 10 points in the past 25 years. In China, the
share of wages and household income in GDP are much lower than in AEs ...and [t]he wage share has
dropped by about 10 percentage points since the mid-1990s’ (Akyu
¨z 2013: 36).
Notes on contributor
Alfredo Saad-Filho is professor of political economy at the School of Oriental and African Studies (SOAS), Uni-
versity of London, and was a senior economic affairs officer at the United Nations Conference on Trade and
Development. He has published extensively on the political economy of development, industrial policy, neoliber-
alism, democracy, alternative economic policies, Latin American political and economic development, inflation
and stabilisation, and the labour theory of value and its applications.
ADB (2007), Asian Development Outlook: Growth amid Change (Mandaluyong City: Asian Development Bank).
ADB (2011), Asian Development Outlook: South-South Economic Links (Mandaluyong City: Asian Development
¨z, Y. (2012), The Staggering Rise of the South? South Centre Research Paper 44.
¨z, Y. (2013), Waving or Drowning: Developing Countries after the Financial Crisis. South Centre Research
Paper 48.
Amsden, A. (1997), ‘Bringing Production Back In: Understanding Government’s Role in Late Industrialization’,
World Development, 25 (4), pp. 469–80.
Amsden, A. (2001), The Rise of the “Rest”. Challenges to the West from Late-Industrializing Economies (Oxford:
Oxford University Press).
Alfredo Saad-Filho
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Athukorala, P.-C. (2010), Production Networks and Trade Patterns in East Asia: Regionalization or Globaliza-
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Barro, R. and Sala-i-Martin, X. (2003), Economic Growth, 2nd ed. (Cambridge, MA: MIT Press).
Bayliss, K., Fine, B. and van Waeyenberge, E. (eds) (2011), The Political Economy of Development: World Bank,
Neoliberalism, and Development Research (London: Pluto Press).
Bellamy Foster, J. and McChesney, R.W. (2012), The Global Stagnation and China. Available from: http:// [accessed 2 August 2013].
Bergsten, F. (2008), ‘Trade Has Saved America from Recession’, Financial Times, 30 June. Available from: [accessed 2 August 2013].
Brahmbhatt, M. and Silva, L.P. (2009), The Global Financial Crisis: Comparisons with the Great Depression and
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... La primera representa la principal potencia económica, mientras que España, siendo una economía desarrollada perteneciente a la OCDE, está ubicada en la periferia de un área avanzada como la Eurozona (Del Río, 2018), con un PIB pc que representa en torno al 59-65% del estadounidense en 1995-2014. Brasil, sin embargo, es un ejemplo de economía semiperiférica con enclaves industrial y financiero (Palazuelos, 2015), integrando el grupo de las economías emergentes -los BRIC-, y cuyo PIB pc es la quinta parte del de EEUU (Banco Mundial, 2017). En este sentido, las dos décadas de estudio se caracterizan por el giro hacia políticas económicas con cierto carácter neoliberal en España y Brasil, en las cuales la estabilidad monetaria y una apreciación del tipo de cambio se convirtieron en aspectos distintivos. ...
... Una primera aclaración es necesaria: el análisis comparativo privilegia la utilización de los tipos de cambio de mercado en lugar de la PPA, como de hecho utilizaban los organismos internacionales hasta principios de 1990s. Ello se debe a que la perspectiva adoptada enfatiza el desarrollo productivo comparado de las economías, no el poder adquisitivo de sus habitantes (Freeman 2004, Saad-Filho 2014, Mateo, 2020. 8 A los efectos del propósito de investigación, la adquisición de los elementos que permiten la mejora productiva, los bienes de capital, se lleva a cabo en divisa internacional a tipo de cambio de mercado, e incluso las deudas asociadas se vinculan a la misma paridad. ...
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Este artículo muestra un análisis comparativo de la dinámica de acumulación en tres economías con desigual nivel de desarrollo productivo, Estados Unidos, España y Brasil, durante el período 1995-2014, destacando las particularidades de los ratios del stock de capital y su relación con la productividad laboral. A pesar de que la evolución de las categorías de la acumulación guarda ciertas similitudes, la investigación revela que estas economías adolecen de una cierta disparidad en la relación de los ratios capital-trabajo y capital-producto, logran un menor avance en la productividad laboral, y además, no se constata ningu-na tendencia hacia la convergencia de España y Brasil con EEUU en términos de la productividad laboral en dólares. Palabras clave: stock de capital, productividad, semiperiferia.
... However, as a proportion of advanced economies income per capita, developing economies remained below 5% (Saad-Filho, 2013). Agnew (2001) adds that divergence between rich and poor countries has increased significantly during the globalisation era (1970 to the present) compared to previous periods. ...
... The stark reality of the unevenness of global economic development (Saad-Filho, 2013;Agnew, 2001) and the bucking of this trend by a select group of the fortunate few underpins most of the intellectual contestation around developmental statecraft (Swilling & Annecke, 2012). Khan's (2010) synthesis of the Chalmers/Chang/Mkandawire capitalist developmental-state praxis frames this contestation and the dialectal debate about which set of state interventions best counteracts the hegemony of neo-liberal development ideology. ...
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The renewed sociological interest in neo-liberalism is important for the development of Human-Centered Sustainable Economic and Social systems for the 21st century. This paper explores whether the critical enquiry of knowledge production in social science is suggesting a return to a form of enquiry which does not rely on the abstraction of the economy from society, history and polity. The paper suggests that the Cambridge School of classic political economy and its focus on embedding the economy into society, the fair distribution of economic surpluses and the pursuit of human well-being should form the conceptual basis of the alternative social and economic systems required to transition to sustainability.
... These insights were incorporated into the growth literature through the work of Evsey Domar, Roy Harrod, and especially Robert Solow. Solow's influential growth model became especially prominent, and was associated with the notion of unconditional convergence (for a more detailed presentation, see Saad-Filho, 2013). ...
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... There is a need then to distinguish between the relative advantages and disadvantages between developing countries of the south, and yet scholarship consistently lumps together 'emerging'/middle income countries with lesser 24 On debt-financed development and a rebuttal to neo-developmentalists, see: (Fischer 2018) 25 (Horner and Hulme 2019) For a more thorough political economy take, see: (Saad-Filho 2014) developed countries which are far from such levels into the same acronyms such as EMDs (emerging and developing countries) (Grabel 2019); DTCs (developing and transition economies) (Saad-Filho and Tomkinson 2017); and DECs (developing and emerging countries) (Gabor 2018a). This is not merely a semantic issue, but an analytic, conceptual, and descriptive matter which shapes how people think about forms of coupling and integration or polarization within the 'south' and between certain 'southern' states and the global 'north.' ...
This thesis offers a detailed study of the disadvantages of post-Cold War late development at the confluence of shifting regimes of development finance. As Lao PDR emerged from relative isolation at the end of the Cold War, it was quickly integrated into a Bretton Woods-led regional and global development regime that was itself undergoing a shift from aid to private-sector led development. This thesis contends that liberalizing reforms initiated by the Asian Development Bank and driven further under the aegis of the World Bank in its bid to re-enter the global hydrolending landscape through its landmark NT2 project in Laos led to the introduction of tools of modern finance into contemporary Lao infrastructure building. Seemingly small and innocuous institutional innovations brought to Laos and installed by OECD-DAC agencies, some for the purposes of environmental conservation, led to perverse outcomes and momentously facilitated a watershed of financialized regional infrastructure investment by state-coordinated business groups from neighbouring Thailand, Malaysia and China in the aftermath of the Asian (1997) and Global (2008) financial crises. The installation of financial instruments and practices by Bretton Woods institutions intending to further the public-private-partnership (PPP) paradigm and business interests of corporations established in OECD states has instead paved the way for the expansion and deepening of financial markets in the name of development led by emerging Asian business actors eager to transition from ‘national champions’ to international powerhouses. This historical account demonstrates both continuity and change as the neomercantilist aspirations of East and Southeast Asia’s emerging economies beneficially utilize the liberalizing environment spearheaded by Bretton Woods institutions to further their own interests while creating parallel governance institutions and divergent lending and environmental practices to the Development Assistance Committee. Based on over fifteen months of in-country research and interviews, this thesis sheds light on the ways in which state elites internalize ideologies of development in pursuit of autonomous economic development while reinforcing conditions of dependency through external economic reliance. Building on insights gleaned from early dependency scholars, this thesis provides a critical contribution by adapting their observations concerning constraints to development for a post-Bretton Woods development landscape which has shifted from MNC-led industrial investment to finance-driven portfolio investment. In doing so, this thesis upends the traditional ‘centre-periphery’ framing of asymmetric exploitation by introducing the notion of ‘proximate dependency’ to capture the pernicious dynamics of exploitation between (post-WWII) late developers and their even later (post-Cold War) brethren, cutting against popular discourses of south-south development.
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In the last three decades, the global economy has witnessed an ambivalent phenomenon of integration through disintegration. Whilst the amount of regional and global trade dramatically increased, vertical specialisation prompted the outsourcing of manufacturing, assembling, and other business functions regionally and globally. The slicing up of value chains and the consequent surge in trade of intermediate goods drew the attention of scholars interested in the economic, social, and environmental consequences of this phenomenon. Yet, most of the literature on value chains has concentrated on the institutional and market linkages between firms in developed economies and delocalised suppliers in the global South. Conversely, less attention has been paid to the rise in South-South trade that accompanied the development of South- South and regional value chains. The following chapters provide new evidence on the opportunities and constraints that participation in value chains across North-South, South-South, and regional trajectories entails for local suppliers in developing countries. This is achieved by means of a mixed-methods approach that combines firm-level export data with over 100 semi-structured interviews across the Kenyan leather sector. On the one hand, results show how North-South value chains are characterised by more profitable and stable relationships between buyers and local suppliers. Nonetheless, whilst defined by higher product and process standards, linkages with developed economies appear to prevent rather than encourage local value addition. On the other hand, South-South value chains are governed by instability and distrust underpinned by pressures to reduce prices and lack of upgrading opportunities. Like the global South, regional value chains are characterised by fierce competition and low profitability. Even so, they often constitute an alternative for small suppliers willing to venture into new products and functions. Particularly, the local and regional markets represent an upgrading platform for innovative firms whose low capital endowments prevent them from accessing premium North-South value chains. In this case, industrial policy and entrepreneurship play a crucial role in enabling smallholders to upgrade in a competitive environment.
The economic literature on capital flows to developing countries has shared two important commonalities since the 1990s. Published works (whether they focus on the external situation or stress the domestic determinants of capital flows) tend to assume a beneficial effect of capital inflows, which leads to an improvement of peripheral institutions, whose deficiencies are ostensibly the main cause of economic turmoil and/or failure in attracting capital flows, in continuity with New Institutional Economics. In doing so, mainstream economists deliberately overlook the asymmetric characteristics of the international monetary system and the persisting hegemony of dollar. Raul Prebisch’s pioneering work on business cycles in Latin America provide an alternative view, one capable of amending the existing mainstream literature. On the one hand, Prebisch stressed the destabilizing role of capital inflows on Latin American economies, particularly short-term speculative capital. On the other hand, Prebisch designed a set of counter cyclical monetary policies in order to contrast capital volatility, particularly during downturns. An analysis of stylized facts shows that, when correctly updated, Prebisch’s theory has remarkable explanatory potential when applied to Latin America’s current economic and financial situation.
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This paper seeks to examine whether Malaysia is facing negative deindustrialization by examining value-added, trade and productivity trends over the period 1990-2005. The evidence produced in the paper is concrete enough to confirm that Malaysia is facing negative deindustrialization. While it is typical, as part of the process of structural change, to see a rise and fall in the share occupied by manufacturing in the GDP, the evidence shows that Malaysia is indeed facing premature deindustrialization with a trend slowdown in manufacturing value-added, trade performance and productivity since 2000. Not only has the trade performance of manufacturing been falling, manufacturing labour productivity has also slowed down, with the key sectors such as electric-electronics, textiles and transport equipment showing either negative or low productivity growth since 2000. Malaysian industrial policies have been fairly successful in connecting with the global value chains of multinationals and in developing resource-based industries, but have not achieved the same success in stimulating their transformation to high value-added activities. The lack of effective institutional change, partly explained by ethnic policies, is advanced as the prime reason for the setting in of negative deindustrialization in Malaysia.
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This paper argues that the conditions for Asian monetary integration are not conducive but that efforts at monetary cooperation should proceed at three fronts – exchange rate cooperation, coordination of capital flows control, and strengthening of regional financial liquidity management as in the Chiang Mai Initiative and regional surveillance. In the area of financial integration, the authors critically review the reasons and performance of regional local currency bond markets. While the advantages of local currency bond markets are well known, the authors highlight the risks and downside, namely foreign exchange volatility, macro‐ economic instability, non‐inclusive financing, and pro‐cyclicality. The authors propose attention should be given to other institutional financing structures namely more regional and national long‐term credit/development banks that can reduce instability associated with capital markets while addressing the problems of currency and maturity mismatch as well as pro‐cyclicality and non‐inclusive financing.
Location of new products, 191. — The maturing product, 196. — The standardized product, 202.
The recent wave of state intervention in emerging-market countries, a reaction to the Current global recession, signals that the free-market tide has receded. In its place has come state capitalism, a system in which the state functions as the leading economic actor. The United States' best response is to lead by example in promoting the free market.
The world economy is yet to move towards strong and sustained growth after the onset of the great recession in 2008. Even if the crisis in the North is resolved, developing countries are likely to encounter a much less favourable global economic environment in the coming years than they did earlier. If they wish to repeat the spectacular growth they enjoyed in the run-up to the crisis, they need to improve their own growth fundamentals, rebalance domestic and external sources of growth, and reduce their dependence on foreign markets and capital. This requires abandoning the Washington Consensus, and seeking strategic rather than full integration with the global economy.
Five years after the Great Financial Crisis of 2007–09 began there is still no sign of a full recovery of the world economy. Consequently, concern has increasingly shifted from financial crisis and recession to slow growth or stagnation, causing some to dub the current era the Great Stagnation. Stagnation and financial crisis are now seen as feeding into one another.… To be sure, a few emerging economies have seemingly bucked the general trend, continuing to grow rapidly—most notably China, now the world’s second largest economy after the United States. Yet, as [IMF Managing Director Christine] Lagarde warned her Chinese listeners, “Asia is not immune” to the general economic slowdown, “emerging Asia is also vulnerable to developments in the financial sector.” So sharp were the IMF’s warnings, dovetailing with widespread fears of a sharp Chinese economic slowdown, that Lagarde in late November was forced to reassure world business, declaring that stagnation was probably not imminent in China (the headline ran: “IMF Sees Chinese Economy Avoiding Stagnation.”) This article can also be found at the Monthly Review website, where most recent articles are published in full. Click here to purchase a PDF version of this article at the Monthly Review website.
I. Introduction, 65. — II. A model of long-run growth, 66. — III. Possible growth patterns, 68. — IV. Examples, 73. — V. Behavior of interest and wage rates, 78. — VI. Extensions, 85. — VII. Qualifications, 91.