Emergence of a multipolar global economy (1)
In several columns since Today’s Zaman began publishing more than four years ago, I have stressed the ongoing seismic shift in the global balance of economic weight and power from the developed world in the North and the West to the developing world in the South and the East.
This shift has been driven primarily by the rapid growth of increasingly robust emerging market economies (EMEs), as vividly depicted by the spectacular rise of China, as opposed to the tepid growth of recently crisis-prone developed economies. I have also discussed in several columns the profound economic and political implications of this global diffusion of economic growth and power for business and government policymakers around the world.
Last Tuesday, the World Bank (WB) released the advance edition of its 174-page “Global Development Horizons [GDH] 2011-- Multipolarity: The New Global Economy,” which offers an excellent quantitative analysis of this sweeping economic transformation. This flagship annual report joins the WB’s two existing flagship annual reports, “Global Development Finance” (GDF) and “Global Economic Prospects” (GEP). It takes over the thematic analysis that used to appear in the GDF and the GEP. The GDH is intended to serve “as a vehicle for stimulating new thinking and research on anticipated structural changes in the global economic landscape.” The inaugural edition of the GDH has four sections: “Overview,” Chapter 1: “Changing Growth Poles and Financial Positions,” Chapter 2: “The Changing Global Corporate Landscape” and Chapter 3: “Multipolarity in International Finance.”
In this column, I will focus on the major empirical findings and projections in Chapter 1. In the next two columns I will discuss those in Chapters 2 and 3. In Chapter 1, multipolarity is defined as the concurrent existence of more than two global growth poles. “Growth pole” is defined as an economy that drives global growth through its size, dynamism and linkages with the rest of the world. “GDH 2011” uses a quantitatively based definition of a growth pole, “multidimensional polarity index,” that depends on an economy’s contribution to global growth, adjusted by the strength of the spillovers from domestic to global growth through three distinct channels: international trade, investment and technology diffusion.
Global growth leadership has varied over the last two millennia. China and India were the dominant growth poles until the first half of the second millennium. Western Europe, beginning in the 1500s, captured the leadership in global growth. But during much of the first half of the last century, Western Europe began to share its growth leadership with Japan, the US and the former USSR, which emerged as new growth poles. Toward the end of the second half of the last century, however, the EMEs, led by China, began to evolve as the newest growth poles as measured by their multidimensional growth polarity indices. China is the only EME that is now an indisputable growth pole. With the start of the 21st century the global economy became increasingly multipolar, greater multipolarity coinciding with the spread of globalization.
Among the top 15 economies, ranked globally by their 2004-2008 average multidimensional polarity indices, China captures the top spot with and index of 26.20, followed by the US and the eurozone, with indices of 20.33 and 10.86, respectively. Turkey is ranked 13th with an index of 3.07. In the Eastern Europe and Central Asia region, however, Turkey is ranked second among 30 countries after Russia, which is ranked seventh globally.
“GDH 2011” offers three scenarios over the 2011-2055 forecasting period. According to the most likely baseline global economic scenario, the EMEs are projected to evolve as increasingly significant engines of global growth. They will account for 45 percent of global real output (compared with 37 percent in 2011 and 30 percent in 2004) as their average annual 4.7 percent growth rate will exceed the developed world’s rate of 2.3 percent. The EMEs will increase their share of international trade to equal that of the developed world. The evolving landscape of the global economy will result in more diffuse distribution of economic size and power in a multipolar world. China, already a growth pole, and India are likely to lead the EMEs as new growth poles. Other potential growth poles among the EMEs, besides India, are Russia, South Korea, Malaysia, Singapore and Turkey.
How successful the EMEs, as potential growth poles, will be in generating self-sustained and domestically driven growth remains to be seen. History tells us that an economy’s success in staying a growth pole depends on the ability to foster its indigenous innovative and productive capacity to drive its growth, as it concurrently develops its domestic demand to support growth abroad. Its growth has to benefit increasingly from total factor productivity (TFP), defined as the share of growth not attributable to increases in capital and labor inputs. TFP is attributed to long-run technological progress, which requires, besides adoption and diffusion of foreign technology initially, domestic technological innovation increasingly. Domestic technological innovation, in turn, requires investment in human capital, through education and training, as well as in research and development (R&D). This is a challenge Turkey has to meet to fulfill its potential as an emerging growth pole.