Abstract
Using international data starting 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points when their per capita incomes reach around $17,000 in year-2005 constant international prices, a level that the People’s Republic of China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates.
Highlights
It is not an overstatement to say that one of the most important developments affecting humankind in the late 20th and early 21st centuries has been the rapid economic growth of large emerging markets, starting with the People’s Republic of China (PRC), extending through much of Asia, and experienced increasingly in other parts of the developing world
If we reduce the $10,000 threshold to $7,500, we do pick up 15 additional cases, but most of these appear to be reflections of special circumstances that depressed growth relative to trend for an extended period rather than sustained slowdowns in increasingly mature economies
Japan is a well-known example: there is a first slowdown in the early 1970s; and a second slowdown in the 1990s
Summary
It is not an overstatement to say that one of the most important developments affecting humankind in the late 20th and early 21st centuries has been the rapid economic growth of large emerging markets, starting with the People’s Republic of China (PRC), extending through much of Asia, and experienced increasingly in other parts of the developing world. Significant growth slowdowns in, say, Brazil, the PRC, and India would have a major impact on the global economy at a time when the world depends on these large emerging markets and their smaller brethren for incremental demand. The collapse of exports and growth during the global crisis, especially the fourth quarter of 2008 and first quarter of 2009, highlights the risks of excessive dependence on external demand This explains why rebalancing growth toward domestic sources of growth has become a priority for policy makers in the PRC. The closest cousin to our analysis is Ben-David and Papell (1998) They examine a sample of 74 advanced and developing countries spanning the period 1950–1990 and look for statistically significant breaks in time series for GDP growth rates.
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