Emerging markets such as China, India, and Brazil are rapidly growing right now, but as the author states, "Gaining ground on the leaders is far easier than overtaking them."
Naturally the initial growth rate of an emerging economy is going to be far higher than that of a leading economy. Those who are trying to catch up tend to take the path that the leaders have already blazed for them. Borrowing technology and increased productivity from shifting workers from agriculture to manufacturing boost savings and investment. This allows emerging economies to narrow the gap in a rather short amount of time.
After this burst of wealth and prosperity it becomes more difficult for emerging economies to continue this growth rate because the amount of loanable ideas becomes depleted. Now these countries must become innovators thus making improvements more difficult and causing growth rates to slow.
A research study shows that when an emerging country's per-head GDP reaches approximately $16,740 their growth rate tends to fall nearly 3% the following year. In accordance with this study China could hit this "middle income trap" by 2015 due to their aging population, low value of consumption, and a relatively undervalued currency. Governmental reforms may help fend off this trend, but only time will tell if China's growth rate will take a blow.
By Tommy Walker
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