By Nicole Stinson
Photo courtesy of epSos.de.
Developing countries are dominating global growth and production according to a new report released by the International Monetary Fund (IMF) this month but international development economists are not celebrating.
While all eyes were focused on the would-be US debt crisis, the developing world celebrated a little success of its own with the release of the World Economic Outlook (WEO) report. Published twice a year by the IMF, the Oct. 8 update, found that emerging markets still account for the majority of global growth and they predict this trend will continue into 2014.
For the next two years, the IMF expects that developing countries will collectively grow on average between 4.5 and 5.1 percent.
According to the IMF, a collective organization of 188 member countries, 36 nations qualify as advanced economies including the United States, Australia, Canada, Singapore, Israel, Hong Kong, and most of Europe. The remaining countries are classified as developing or emerging economies with the exceptions of Anguilla, Cuba, the Democratic People’s Republic of Korea, Somalia, and Montserrat. Limitations in data and membership prevent the IMF from including these five countries.
In the report, the IMF predicts that China will continue to lead economic growth for developing economies. The recovery in oil production in the developing nations of the Middle East and North Africa will be the driving force for the development of the Third World.
Quartz, using data produced by the IMF, also found that developing economies are likely to be producing more value in good and services by the end of 2013 with their combined gross domestic product (GDP) exceeding advanced economies by $1.6 trillion. Together, developing countries are expected to have a GDP of $44.4 trillion. These results factor in the purchasing price parity (PPP) or the relative cost of similar goods between the different economic markets.
The gross domestic product (GDP) is commonly used as an economic measure of country’s standard of living and financial health. It considers private and government spending as well as the nation’s total exports less their imports.
“This rise in GDP in developing countries is also a sign of hope,” Calestous Juma, a professor of international development and director of the Science, Technology and Globalization Project at Harvard University tells BTR. “It is a sign of widening economic opportunities.”
The IMF attributes the economic growth to recent policy changes made by a number of countries considered as developing. “Many of them have adopted stronger policies during the past decade, have higher reserves, and flexible exchange rate regimes,” they state in the WEO report.
“Poor countries are not made poor by some natural law,” Sameer Dossani, an international advocacy coordinator and blogger at Action Aid tells BTR. “As these countries undergo economic transformation, the gaps between the richer countries and the poorer countries should narrow.”
Economists and experts in the field of international development, however, still remain skeptical.
“PPP makes sense to compare the standard of living. It does not make a lot of sense to me to aggregate to the level of the whole economy,” Wojciech Kopczuk, a professor of Economics and International and Public Affairs at Columbia University tells BTR.
“This adjustment is not useful though, for thinking about the level of their output and economic activity relative to the US,” he says.
Things are cheaper in developing countries relative to advanced economy countries and that is what the PPP is used for but it does not indicate the success of an economy, Kopczuk explains.
Bill Gates, chairman of Microsoft also believes there are limitations to using GDP data for poorer countries. As a co-chair for the Bill and Melinda Gates Foundation, a foreign aid organization, Gates’ interests also the future of developing economies.
These countries are often behind in their reporting methods, he writes for Economia.
In 2010, Ghana updated its reporting methods and the nation’s GDP increased by 60 percent, upgrading it from a low-income to lower-middle country. This increase startled economists around the world; however, it was later found that Ghana had changed its base year from 2003 to 2006 which distorted their results.
Even Juma who remains optimistic on the future outlook of developing economies admits, “the growth will be uneven and unpredictable.”
“Which is why countries need to work more closely together to ensure the spread of its benefits,” he says.
Dossani also remains critical.
“The richest 18 percent of countries still control almost as much wealth as the bottom 82 percent of countries combined this is hardly progress,” he says.
The dominance of China in the WEO data for developing countries, also distorts the overall outlook for developing economies.
“Without China and to some extent without India and Brazil the situation looks bleaker for developing countries.”
China has predicted growth rates of above seven percent over the next year. For other developing nations such as Brazil these are down at 2.5 percent and 2.9 percent for South Africa according to the WEO report.
“In many ways we are still living in the highly polarized world that colonialism helped establish,” he says.