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The World Economy goes East: should the West get hysterical?

Danny Quah of LSE has a new article “The Global Economy’s Shifting Centre of Gravity“. Here’s the shift, where black dots denote the easterly shift that has already happened 1980-2007, and red dots the projected shift 2010-2049:

[CORRECTION: I got the following paragraph wrong {the original in brackets}: {The future shift extrapolates current trends. This is iffy given how individual country growth is mean-reverting, but I will leave that for another day.} Danny Quah has clarified to me that he does take mean reversion into account, so I apologize to him for misreading his description of his technique, and there is nothing “iffy” about it.]

If the Economy indeed continued East this way, is this really bad for the West? Professor Quah does not address this in the article, but of course the question begs asking.

The answer is: Of course not. Economic growth is not an elimination tournament like the current NCAA basketball madness, where one team wins and the other goes home. When a previously poor part of the world gets richer, everybody wins.

Temporarily and illegimately assuming the role of official spokesman for the West, here’s our view: the richer are our trading partners, other things equal, the more demand for our products, the more and better jobs created thereby, the more gains from trade, the more innovation as the extent of the world market grows, and the more we can benefit from the additional human capital and innovation happening in the East.

And then temporarily and illegimately becoming development spokesman: higher growth in the poorer East means catching up to the richer West. Isn’t that what we always wanted?

In sum, what’s not to like?

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15 Comments

  1. MJ wrote:

    Given that China > US > EU is the rough order of current economic dynamism, this map is a little misleading. If, instead, the dividing line was drawn down the Atlantic ocean rather than the Pacific which would now be in the middle of the map it might be more representative, although then the centre of economic gravity would be seen to be shifting westwards …

    Posted March 22, 2011 at 1:40 am | Permalink
  2. Noah wrote:

    Um…if you were to center this map on the South Pacific, the center of gravity would barely have moved at all!

    Why didn’t Quah use a POLAR projection? Since he’s fixed the latitude of his “center of gravity,” a polar projection would be unambiguous. Weird.

    Posted March 22, 2011 at 1:59 am | Permalink
  3. Sam Gardner wrote:

    If “being rich” means having more purchasing capacity, the argument is right. If the goal of becoming rich is to have power, to be the top dog in the fight for status and security, then it is absolutely wrong: the rat race is not aimed at getting rich, but at being the boss.
    Happiness, of course, is another ball game.

    Posted March 22, 2011 at 2:33 am | Permalink
  4. DRDR wrote:

    While I believe the overall thrust of the analysis, it’s not necessarily true that the East getting better off makes the West better off. Even in the simplest 2×2 Ricardian comparative advantage model, if inferior Eastern technology perfectly copies Western technology so they have the same relative factor requirements, East is clearly better off, while the West no longer has any gains (or losses) from trade. This was the actual main point of Paul Samuelson’s controversial 2004 JEP paper (which did not endorse protectionism, contrary to the press). However, there are other sources of gains from trade that could overcome this negative effect for the West, such as trade with scale economies & love of variety, but we can’t immediately dismiss the Samuelson concern.

    Also, if East is becoming better off and making the West worse off by taking proprietary technology, that adds another dimension of concern. Yet I do recognize the hypocrisy in American concern about the East stealing IP, while at the same time American schools teach children to admire Francis Cabot Lowell for “studying and memorizing” British power loom designs — especially true in the Merrimack Valley where I grew up.

    Posted March 22, 2011 at 10:54 am | Permalink
  5. z wrote:

    What Sam Gardner said. Economic power is political power and strategic influence. People notice that stuff when it wanes.

    Posted March 22, 2011 at 11:09 am | Permalink
  6. Jerome Turner wrote:

    Can you really say that growth in one area does not reduce growth in another when there are energy constraints like we face today? At least in the short-run, that is likely not the case.

    Posted March 22, 2011 at 12:10 pm | Permalink
  7. Danny Quah wrote:

    Just to clarify, the extrapolations do assume mean-reversion in individual country growth paths. Bill, you know as well as anyone, I’m with Solow on that. The extrapolations might well be iffy, but it won’t be for the reason you state.

    I have discussed technical details on the projections with some of your readers here [I assume, since the queries raised are worded almost exactly identically]. The projections are not arbitrary nor Atlantic-centric nor equator-centric – they are minimum-distance mappings, subject to a 3D/2D transformation. And the latitude in the projections is not fixed but emerges, year by year, from the calculations.

    Posted March 22, 2011 at 12:35 pm | Permalink
  8. William Easterly wrote:

    Sam and z, first of all, I am sure the West is going to be richer than East for still a long time to come. Second of all, I’m not sure why anyone should care about the kind of power and status that you talk about, but if you do I will respect that. Third, I am not sure that power and status depend only on per capita income in such a simple way.

    Posted March 22, 2011 at 2:35 pm | Permalink
  9. Sam Gardner wrote:

    William,

    I am personally more inclined to go for a satisfied, fulfilled life. I don’t care for this kind of power neither. However, it is not because some academics and house-fathers have low testosterone levels, we should expect the same from our leaders.

    The leaders, elected and non-elected have a tendency to care about power in international relations, and not always about providing a contented life for their own citizenry. International relations are often seen as a soccer game. While development, industry and trade should be win-win games, power games are all too often zero -sum.

    Ignoring this reality is not going to help us shape the world. Of course, we could propose all the men (and women) with a testosterone problem to take medication? very much like ADHD which might be a rather good evolutionary adaptation for the hunter gatherer is now medicated.

    Posted March 23, 2011 at 2:24 am | Permalink
  10. Sam Gardner wrote:

    Or of course, on second thought, organise more sports events to strengthen the 3rd option William mentions: create rituals to project power and prestige.

    Posted March 23, 2011 at 2:33 am | Permalink
  11. Seth Brooks wrote:

    I agree with the statement that if the poorer countries of the East are catching up with the richer countries of the West, we should be heading to the goal we are seeking. This way we have more countries to trade and do business with and this only helps to lead the way to globalization. My question is, what if the East countries soon rise above the countries in the West now?? Does this not lead to the predominant West countries taking a back seat to these new rising countries?? Without the West these East countries would not be on such a rise thanks to such things as aid, loans, development projects, and the outsourcing of jobs from West areas to places in the East where goods can be made at a more cost efficient rate by a cheaper work source. If it’s globalization that is the ultimate goal, I think this is a step in the right direction. The only issue is that everyone from these West countries has some sort of Imperialistic feeling grounded somewhere in them (that’s why we’ll never have “world peace”) and if these West countries start playing second fiddle to the rising East countries, who knows what will happen?

    Posted March 23, 2011 at 11:48 am | Permalink
  12. Jacob AG wrote:

    Cool post. What I’d like to know is, where would the black dot be if everyone had the same per capita GDP, given everyone’s population now, and in the future?

    Also, shouldn’t this be posted in Maps?

    Posted March 28, 2011 at 3:37 am | Permalink
  13. Nils wrote:

    I tend to agree with Jerome Turner, with the energy constraints of today (or in a very near future), I believe that the growth of the global economy is some what restricted. But in theory you’re right.

    Posted March 28, 2011 at 3:43 am | Permalink
  14. Nicole A. Mathys wrote:

    For another projection of the WECG see also:
    http://works.bepress.com/nicole_mathys/3

    and for an application to CO2 emissions see:
    http://works.bepress.com/nicole_mathys/8

    Posted April 2, 2011 at 3:50 pm | Permalink
  15. Cameron wrote:

    I think that predicting the way Western economies will respond to the East gaining power, is the most important factor in determining how the West and East will interact in years to come. For hundreds of years now, the West has been the richest, but it will not always be. Any part of the world that was once poor and then gets rich will benefit the entire global economy, but only to a certain degree. The richest Western countries, specifically the United States, will benefit from the East becoming more developed. However, if one day the East as a whole could have a greater influence on the global economy than the US, it could change everything we know about how politics, development, and the world as a whole work.

    Posted April 4, 2011 at 4:07 am | Permalink

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    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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