The Economic Growth of the BRIC Countries: A Threat to the Dominance of the Developed World?
1. Introduction
The global economic order has been upended by the rise of the BRIC countries (Brazil, Russia, India and China). These countries have been the driving force behind the world economy in recent years, accounting for more than half of global economic growth since the global financial crisis (GFC) in 2008. The continued growth of the BRICs is widely seen as a threat to the dominance of the developed world. In this paper, I will argue that the economic growth of the BRICs is not a passing phenomenon, but is likely to continue well into the future. I will first discuss the factors that have contributed to the rapid economic growth of the BRICs, before discussing the challenges that they face. Finally, I will argue that despite these challenges, the BRICs are likely to continue their fast growth past the recovery of developed countries.
2. Consumer spending and savings in the BRIC countries
A key reason for the strong economic growth of the BRICs has been their high levels of savings and investment. The save-and-invest model of development, which was first proposed by economist Lawrence Klein in 1955, has been a major driver of economic growth in China and other Asian economies. This model involves high levels of savings being invested in productive enterprises, leading to rapid economic growth. The success of this model is evident in China, where saving rates are among the highest in the world, at around 50% of GDP (OECD, 2017). These high savings rates have been directed into investment projects such as infrastructure and manufacturing, leading to strong economic growth. Similar trends can be seen in other BRIC countries such as India and Brazil (IMF, 2017).
Another factor that has contributed to the strong economic growth of the BRICs is their large populations. With a combined population of over three billion people, the BRICs account for over 40% of the world’s population (UN, 2017). This large population gives them a significant domestic market which helps to insulate them from external shocks. Additionally, their large populations mean that they have a large pool of labor which can be directed into productive activities. This has been a major driver of China’s economic success, as its vast labor force has contributed to its position as the world’s leading manufacturing economy ( WTO, 2016). Finally, their large populations also give them a significant consumer base which drives demand for goods and services.
3. The global financial crisis and its aftermath
The global financial crisis (GFC) erupted in 2008 and resulted in a sharp slowdown in global economic growth. As demand for goods and services declined sharply, many developed economies entered into recession. However, while developed economies were struggling, the BRICs continued to grow rapidly. In 2009, while developed economies shrank by an average of 3%, China’s economy grew by 8% (World Bank, 2010). This divergence was largely due to different responses to the crisis. While developed economies implemented austerity measureswhich restricted government spending and led to job losses, China stimulus package injected $585 billion into its economy (BBC, 2009). This government spending led to an increase in demand for goods and services which supported economic growth. Additionally, while many developed economies were struggling with high levels of debt, China’s low levels of debt helped to insulate it from the worst effects of the crisis (IMF, 2010).
The different responses of the BRICs and developed economies to the crisis had a significant impact on the global economy. The GFC led to a sharp decline in global trade and investment, as demand for goods and services declined. However, while developed economies were struggling, the BRICs continued to grow rapidly. This led to a rebalancing of the global economy, with the share of global GDP accounted for by the BRICs rising from 22% in 2008 to 30% in 2013 (World Bank, 2014). This shift in the balance of global economic power was a major shock to the developed world, which had been used to being the dominant force in the global economy.
4. Rebalancing of the global economy
The global financial crisis and its aftermath have led to a significant rebalancing of the world economy. The share of global GDP accounted for by developed economies has declined sharply, from 64% in 2008 to 53% in 2013 (World Bank, 2014). Meanwhile, the share of global GDP accounted for by emerging economies has risen from 36% to 47%. This shift in the balance of economic power is likely to continue in the future. One reason for this is that emerging economies are expected to continue growing at a faster rate than developed economies. According to projections by the International Monetary Fund (IMF), emerging economies are forecast to grow by an average of 4.9% per year between 2018 and 2022, while developed economies are forecast to grow by an average of just 2.1% per year (IMF, 2017). Another reason why the rebalancing of the world economy is likely to continue is that many developed economies are facing significant challenges. For example, many developed economies have high levels of debt which will act as a drag on growth (IMF, 2010). Additionally, many developed economies have aging populations which will lead to slower growth as the working-age population declines ( OECD, 2017). In contrast, many emerging economies have young populations which will support growth in the future.
5. Conclusion
In this paper, I have argued that the economic growth of the BRIC countries is not a passing phenomenon, but is likely to continue well into the future. I have first discussed the factors that have contributed to their rapid economic growth, before discussing the challenges that they face. Finally, I have argued that despite these challenges, the BRICs are likely to continue their fast growth past the recovery of developed countries.