The emerging economies are those who are cuurently in the path between the underdevelopment and the development situation. Of course they usually have an important role in the world economy. According to the flying geese model, these economies started to receive the labour intensive industries, and are now changing to the capital intensive industries and having an important role in some sectors.
However, maybe more than never, these economies are having an important role, especially in the current crisis.
Could the current economic situation be worse without the role of these economies? Could the solution for the current crisis be in the emergent economies?
That's what we are trying to see now.
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| Could the exit for the current crisis be in the BRIC's economic performance? |
The great performance
One of the biggest facts of the last decades is the development and the economic growth of the so called "emerging economies", especially the BRIC's: Brazil, Russia, India and China, that are now among the biggest contributors to the world economy. And their weight will increase in the next decades. And in the recent years, one factor appears: the intra-emerging economies trade. In 2005, already 50% of the trade of these countries were among them. This is the result of the improvement in the consumptions patterns and the increase in the domestic demand.
But there are other groups inside the big group of the emerging economies. And, if some of them have already an important role in the regional trade and are achieving the high-income, others are still in the beggining of their path. We can divide the emergent economies into three groups:
> the developed emergents, which includes countries with high economic growth rates, like the BRIC's, but have a long way to achieve the political and isntitucional development, and others like Portugal or South Korea which achieved a good level of industrialization but are facing some economic problems especially the middle-income trap, and in gaining a important position in the global market;
> the mono.economies, which have the productive activity extremly concentrated in one product. They can face the risk if they don't diversify their productive activity, neither take advantage of the good seasons of their mono-product;
> insufficient emergent economies, the countries which development path is still in the beggining phase. They were the countries who suffered the most with the crisis by the reasons we will se later.
So, in the beggining of the current crisis it seemed that the emergent economies will not be affected by it, or at least will suffer just a litlle bit. This idea that the economic performance of the emergent economies would be independent of the economic performance of the most developed economies, especially the USA, received many supporters, including the political leaders of the emergent economies.
So, when the current crisis started, the reactions from the emergent economies were almost nonexistent. And in fact they had good reasons to react like that. The most developed economies could renovate their debts thanks to the credibility they had in the international markets. And of course, the emergent economies didn't have the credibility to do that. So, the only way they had to constantly renew their debts was thanks to the currency reserves accumulated by the countries in the 90's. This accumulation was the result of years of comercial surplus with the outside, which led to a reduction in the debt and in the risk of financial crisis.
However, even with these good aspects, the trade between these economies and the western economies was still about 50% in the biggenning of the current crisis. With the progress of the economic crisis, it became obvious that emerging economies would be directly affected by the crisis started in the USA.
GDP growth in the BRIC's
Source: World Bank statistics 2014
Exports growth in the BRIC's
Source: data obtained by the information available on the World Bank Statistics 2014
By these graphics is possible to see that the recession arrived to the emergent economies later, but had negative effects especially in the mono-economies, whose industrial specialization made them more vulnerable to terms of trade deterioration. And even with the high cuurent accumulation, the markets were awared about what happened in the 90's, and the access to the credit became more difficult.
The second problems faced by the emergent economies, is the contraction of the international demand of the commodities (that still has an important weight in the total exportation in most of these economies). And the third is the decrease in the commodities and raw-materials prices, having especial effects in the insufficient emerging economies.
So, it seems a bad scenario for the emerging economies. However, these economies had two advantages comparing to the most developed countries. First, since they took place in the industrizliation process later, the creation and investment in financial securities which were the responsibles for the crisis, weren't so disseminated. And, since their were in the middle of the development process, the domestic market wasn't full explored like in the developed countries. So, the domestic demand was in the ascending process, and these countries could cover the decrease in the international demand, by the increase in the domestic demand. And since the big part of the population are now emerging from the poverty, they have enough income to consume the intensive labour, or low technologic products that the big part of these countries still produce.
And in three of the emerging economies, Brazil, India and especially China, they have an advantage, that can also give the opportunity to export to the most developed countries where the crisis is bigger: the so called "social dumping".
The techological assimilation, associated to the extremly low labour costs and bad work conditions, gives to China the possibility to produce and export products more sofisticated than before, at a more competitive prices than the companies in the developed economies. So, even with lower productivity, these economies can compete with the similar products produced in the developed economies, thanks to the lower prices.
Bur of course, even with the possibility to export to the developed economies with a competitive price, the emerging economies will recover faster than the others, thanks to the domestic demand. And of course the level of recovering will also depend on the government's role in these areas:
> fiscal and incentive policies;
> social programs to stimulate the domestic demand (give the opportunity to the people increase their consumption, especially for the goods that the country can't put in the external market);
The recovering of the emerging economies can in fact help the recovering of the most developed economies. But to achieve that it will be necessary the coordination of policies and procedures at the international level. The basic areas of intervention are the creation of a new finantial regulation system, the reform of the international financial system and the extension of the regulation and the penalization to the fiscal paradises.
So, as we can see in this article, the reason why the people speak more now about the emerging economies, is because the exit for the current crisis could depend a lot of their performance.
