The outbreak of pessimism about the global economic outlook, which seems easy to justify in the case of the developed economies, has now begun to spread to the emerging economies as well. For example, John Plender and Michael Pettis have recently warned that “miracle” rates of growth in the emerging world, notably in China and the rest of Asia, cannot be expected to compensate for failing growth in the US and Europe. These warnings require us to ask some deeper questions about the longevity of the Asian growth miracle.
Before the financial crash, economists tended to attribute the explosion of growth in the emerging world to three main factors: improvements in fiscal and monetary policy, legal reforms to property rights and reductions in barriers to trade in order to encourage integration with world markets. It was widely believed that these three ingredients were both necessary and sufficient to unleash a process of convergence, whereby emerging economies would gradually import technology from the developed world, and would consequently close the productivity gap with countries such as the US.
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