India and the Philippines will be the top drivers of global economic growth over the next decade, beating China.
That’s according to an Oxford Economics study published earlier this year, which ranks the top ten emerging market economies to dominate the global economy over the next ten years. In terms of economic growth, that is.
China is ranking fourth on that list, behind Indonesia.
One of the reasons behind India’s and the Philippine’s lead on this list is a numbers game according to Louis Kuijs, author of the study.
“Basically, the story is the same for these two countries. They are both still relatively poor, meaning there is a lot of potential for catch up,” says Kuijs.
Indeed, India’s per capita GDP is close to one-fourth that of China’s, while the Philippines’ per capita GDP is close to one-third of China’s—see table.
|Per Capita GDP
Source: Tradingeconomics.com 8/30/19
Meanwhile, the two countries have yet to face “middle income trap” — a situation where economic growth slows down as an emerging market economy reaches middle income — and The Lewis point, a situation where an emerging market economy runs out of cheap labor. China is already past the two points.
But the conclusion is based on what are the right economic conditions, too.
“In many countries that potential remains untapped, because of bad policies or political instability,” says Kuijs. “However, both countries have been able in recent decades to put in place the minimum set of fundamentals in terms of economic setting to foster (i) decent saving, to finance investment (in the Philippines this is in part from remittances, but that helps a lot); (ii) respectable (total factor) productivity growth, achieved via urbanization and urban job creation, in part from growth of manufacturing.”
Remittances have been a major source of foreign currency savings for the Philippines, averaging$1.01 billion from 1989 until 2019, reaching an all-time high of $2.84. billion in December of 2018 and a record low of 0.646 billion in February of 1989, according to Tradingeconomics.com.
The Oxford Study’s top ranking of India and the Philippines is consistent with the McKinsey Global Institute (MGI) study published late last year, which identifies both India and the Philippines among the few emerging market economies that are well-prepared to achieve sustained growth over the next decade– provided that corruption, inflation, and revolution don’t stand in the way, it should be added.
Achieving sustained growth over a couple of decades or longer is among the top challenges for emerging economies. Only 18 countries out of the 71 emerging economies studied by the MGI achieved certain growth benchmarks. Like more than 3.5% per capita GDP growth over 50 years or 5% growth over 20 years, lifting millions of people out of poverty.
China, Malaysia, India, Vietnam, Ethiopia and Uzbekistan are among the countries that made the list. But not the Philippines. Its high growth rates of the 1960s were interrupted by the familiar villains: corruption, inflation, and revolution.
India had its own setbacks in the past, too.
Still, Kuijs is optimistic this time around. “While both still face domestic challenges, and the global setting may be less favorable in the coming 10 years than in the previous 10 years, continued solid saving and productivity growth should allow them to grow relatively rapidly in the coming decade,” he says.
Panos Mourdoukoutas is Professor and Chair of the Department of Economics at LIU Post in New York. He also teaches at Columbia University.