Answer to Question #198669 in Economics for Samuel Amartey Arm

Question

Carefully assess the possibility that today's developing country will attain the level of economic development enjoyed by today's developed countries.

Answer 1

In the 1990s, the economies of developing countries, considered as a whole, began to grow faster than developed countries (in per capita terms), instilling optimism about the prospects for convergence in GDP and income in these two groups of countries. From 1990 to 2007, the average annual per capita GDP growth in developing countries was 2.5 percentage points higher than in developed countries. And in 2000-2007, this gap increased to 3.5 percentage points.

While not all countries have made progress (many small economies have not performed as well), there has been a clear transformation in the structure of the global economy as a whole. Asian countries were especially fast catching up to the developed world, thanks to the large dynamic economies of India and, even more so, China (which has experienced double-digit GDP growth for almost three decades).

However, after the global financial crisis began in 2007, the dynamics changed. At first, convergence seemed to be accelerating. In developed countries, economic growth has stalled, and the advantage of developing countries in per capita GDP growth has increased to 4 percentage points.

However, in 2013-2016, economic growth slowed down in most developing countries, especially in Latin America, where Brazil's growth rates were negative in 2015 and 2016.

Developing countries, which have finally acquired the necessary skills and institutions, have adopted technologies from developed countries, while benefiting from an abundant and cheap labor force.

In addition, current advanced technologies (such as robotics, artificial intelligence, and bioengineering) are more complex than industrial technology; they seem to be more difficult to copy. With smart technology increasingly crowding out low-wage jobs, the cost competitive advantage of developing countries could be severely diminished.

Much here will depend on what kind of nominal kind of additional work will be required. It is often considered critical to have a wide selection of highly skilled workforces for the implementation of artificial intelligence technologies. In some cases this may be true, but in other cases the opposite may be true. For example, new technologies displacing labor may provide an opportunity to start activities for which there was a lack of skilled labor. Thus, full automation can lead to an increase in the share of economic activity located in developing countries.

Another factor that will influence the process of technological renewal in developing countries is the willingness of global companies to invest. The distribution of benefits will depend in part on structures and pricing in the global market. But it will likewise depend on how effectively countries learn the lessons of regulation, in particular the way in which rules are developed that attract investors, help capture important segments in value chains, and reap a fairly large share of the benefits of innovation. Those countries that learn quickly will be able to grow faster than developed countries, even in the high-tech sector.