Economics Index and Qualifications
By Richard Bruce BA, MA, and PhC in Economics
Former Instructor St. John's University, New York City

Why the 3rd World Economies Will Continue to Grow Rapidly

More and more economies are moving up to the World Bank's high income, or developed category. This is a trend that I predict will continue. A larger and larger portion of the World's population will soon live in developed countries. A baby born in one of the poorest countries today has a good chance of dying in a high income country. This essay will explain why the prospects look so bright.

A key element is the rapid growth of China. China only has to double its per capita income to become a developed nation. This could happen in less than a decade at the rates China has achieved up until recently.

There are also a number of other countries like Brazil, Mexico, Turkey, and Argentina that are so close they could achieve high income/developed status even before China. The combination of their ascent and China's to developed status will mean a massive expansion of the population living in developed countries.

Furthermore, China's rapid growth means rising Chinese wages which are rapidly pricing China's labor out of many of the low level industries like apparel. These industries have been key to the rapid growth of China and other countries. So China's growth is showering light industries on poorer countries, and those light industries are the magic ingredient that has allowed many countries including China, Japan, and Korea to grow in the past, and will allow those poor nations that are now taking over those industries to grow rapidly in the future.

Before proceeding to a more detailed analysis let me provide some definitions. High income countries have gross national incomes per person, or as economists say per capita, of 12,615 US dollars a year in 2012. High income countries are considered developed by the World Bank. Low and middle income countries are considered developing.

Gross national incomes are calculated through the Atlas method which uses actual exchange rates averaged over three years. It is a little more complicated than this here is the link for more details.

Returning to our topic. Let us split the world's economies into several categories to examine the prospects of each. First, the developed nations. Most of the developed nations are industrial exporters. Industrial exporters can see minor decreases in their per person output, but unless they are right on the threshold between developed and developing this is not enough to threaten their status as developed economies. For those industrial exporting countries right on the threshold the decline is usually very temporary. Hungary which was a developed nation temporarily slipped back into the developing category, but as one would expect it rapidly rejoined the developed world.

Oil and other natural resource exporters that can not maintain their status as high income or developed without their oil exports can and do loose their developed status. But this is a small portion of the world's population. In 2012 there were just over 1.3 billion people living in high income countries, about 18.4% of the world's population, and the vast majority of those live in nations where the majority of the exports are industrial.

China's population is slightly larger than the combined total of the high income nations. The Chinese economy has been growing until recently at close to ten percent a year per capita. Currently it seems to be slowing to something closer to seven percent per capita. Even a slower growth rate of seven percent a year means that they will double per person output in a decade if they can maintain that growth rate. They might grow either faster or perhaps they will slow, but with less than one doubling China will reach the high income category.

China's population was just over 1.35 billion, about 19.2% of the world's population in 2012. If we add the combined population of the high income nations to China's that would be about 37.7% of the world's population. Of course the population growth of both the high income countries and China are below the average population growth of the rest of the world. So even if China makes it to high income status in the next ten years the combination of present high income countries and China would be a little less than 37.7%.

Furthermore, there are perhaps a half billion people living in upper middle income countries, at least half again as rich as China. Many of these might make it into the high income category before China. So we are likely to see near 40% of the world's population in high income developed economies within fifteen years.

But somewhere around half the world's population lives in countries poorer than China, what of them. As China moves up it is shedding and will continue to shed its less sophisticated labor intensive export industries. As Chinese wages rise poorer nations are taking Chinese markets in apparel and similar labor intensive, low skill, low capital, low tech industries. These industries have been key to the rapid growth of China, Japan, South Korea, Taiwan, and other nations that have succeeded in growing rapidly. We can reasonably hope that they will foster the rapid growth of the poorer nations that are absorbing these industries.

Currently Bangladesh, Vietnam, India, Indonesia, Pakistan, and other low and lower middle income countries are taking over China's export markets in apparel. So more and more the clothes that would have been produced in China and sent to America, Japan, and Europe are produced in these other, poorer developing countries. If you need confirmation check the labels, particularly at the cheaper stores.

Furthermore, as China grows even richer it may begin to import the clothes the Chinese wear. As most of Chinese clothing production today is for the domestic market this means that vast opportunities might open up for the poorer nations. Even today countries like Bangladesh and Cambodia struggle to keep up with demand. Soon the market maybe even move lush and the growth maybe even faster.

In addition to the demand from China, the poorer nations can hope for new markets in the other nations like Brazil, Russia, Mexico, Turkey, and Argentina that will soon be moving to developed status.

Basically the more countries that are richer than you the more opportunities you have to export light industrial goods, natural resources, and Internet outsourcing too. Furthermore, there are more countries to immigrate to either permanently, or as a guest worker. Better still, the more countries that are above you the less competition you have in seizing these opportunities. The huge number of poor people relative to the small number of rich people made it difficult for the developing countries in the past, but now things are rapidly shifting, so there are lots of rich people and fewer poor people. This creates a positive or virtuous cycle. Few poor people means each of them has more opportunity to succeed, and the success of some increases the opportunities for the others.

We can see this in the American immigration situation. Many Brazilians have headed home, they lost interest in coming to America many years ago. But more recently those who had adapted to America and even had a right to stay are leaving. There maybe a net flow of people back to Mexico. South America is largely too rich to be interested, and nations like Paraguay and Bolivia that are still poor are probably sending most of their people to the richer nations like Brazil, Argentina, and Chile. The United States is now receiving people from Central America and the Caribbean, but the combined population of these area is less than Mexico's, and only a little more than a quarter of America's population. So the old situation of only a few receiving countries and a mass of sending countries is in the process of reversing.

A similar argument can be made for Internet outsourcing, natural resources etc. Even foreign aid can be more generous as more and more countries move out of the recipient class into the donor class.

As the percentage of the world living in high income, developed countries increases, the prices of those goods produced by the 3rd World will increase and those produced by the 1st World will decrease. In the past exporting underwear could save you from starvation, and foster rapid growth. However, the making of simple low level apparel was not enough to carry you into the middle income category. Today, simple apparel may be enough to carry you into the lower middle income category. As the lower middle income empties, and wages continue to rise, the simple apparel industry may carry countries into the upper middle income, and eventually the high income category. So for the last countries that industrialize simply moving up to what was previously the first stage in industrialization will be sufficient to carry them into the developed world. They will not have to produce jet airplanes, cars, or perhaps even toasters to become developed nations.

It will still take time, decades, and the poor will still suffer. However, we can be generous and reduce that suffering secure in the knowledge that we are dealing with a temporary problem, not increasing an unending problem.

How will the 3rd world develop? This popular web page lays out the growth path.

Here is an index to my other pages on economics, and a short review of my qualifications in this field.

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Last updated March 18, 2015