Economics: BRIC Wall

If projections of future growth look rosy for emerging markets, however, history counsels caution. The post-war period is rich in examples of blistering catch-up growth. But at some point growth starts to disappoint. Gaining ground on the leaders is far easier than overtaking them.

[A study says] on average, growth slowdowns occur when per-head GDP reaches around $16,740 at PPP. The average growth rate then drops from 5.6% a year to 2.1%.

This estimate passes the smell test of history (see chart).

Openness to trade appears to be a potent stimulant: the authors attribute the outperformance of Hong Kong and Singapore to this effect. Lifting consumption to just over 60% of GDP is useful, as is a low and stable rate of inflation. Neither financial openness nor changes of political regime seem to matter much, but a large ratio of workers to dependents reduces the odds of a slowdown. An undervalued exchange rate, on the other hand, appears to contribute to a higher probability of a slowdown. The reason for this is not clear but the authors suggest that undervaluation could lead countries to neglect their innovative capacity, or may contribute to imbalances that choke off a boom.

For more, see BRIC Wall, April 14, 2011 at The Economist.