Figure 1 - Share of the global economy in purchasing power parity terms
While the 1990s was a lost decade for much of the developing world, growth rates picked up significantly in the 2000s, with the number of developing countries beginning to converge strongly with the affluent OECD countries leaping from 12 to 65 (Figure 2). The strong performance of China and India has had a significant impact on the rest of the developing world.
Responding to this trend, the OECD has set out to strengthen its relations with major emerging economies. It has strengthened its links with Brazil, China, India, Indonesia and South Africa and recently welcomed Chile as its 31st member and it has extended invitations to join to Estonia, Israel and Slovenia. Russia is also negotiating to become a member.
What does the rise of large developing countries mean for development?
In converging countries
Since 1990, the number of people in the world living on less than a dollar-a-day has fallen by over one quarter - approximately 500 million. So far, however, these reductions have mainly been concentrated in one country – China. Other countries have made progress but at a pace insufficient to counter the effect of population growth. Poverty reduction still represents a major challenge for the developing world. Inequality in many rapidly growing developing economies has also been increasing.
"Thanks to the rapid growth rates in emerging economies, their governments can now afford to boost public spending on social protection. This is a powerful tool to reduce inequality." said Angel Gurría, Secretary-General of the OECD (read the full speech). "Investing in social infrastructure may also contribute to diminish the propensity to save of these economies, contributing to a more balanced global economy." he added.
In poor and struggling countries
Due to their rapid growth and sheer size, India and China influence the key macroeconomic variables that matter for poor countries: interest rates, the price of raw materials, and wage levels for low-skill jobs. They also have major impacts on global trading and investment patterns.
Poor and struggling countries will need national development strategies which respond to these global trends to ensure that they thrive in a global economy in which China and India have greater weight. The report finds that more could be made of the economic ties between developing countries. "South-South links" in trade, aid and investment are an increasingly important source of knowledge and finance for development. For example, lowering tariffs on trade between developing nations to the levels that prevail between northern countries would be worth almost double the gains achievable by a similar reduction on North-South trade.
Figure 3 - Potential gains from South-South trade liberalisation
Overall, shifting wealth is good news for development and good news for the global economy. "Growth in the developing world is an opportunity for the global economy to shift up a gear, which is confirmed by the role some emerging economies are playing in the current economic recovery", Mr. Gurría commented.