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Let’s not overstate the achievements of China and India – here are the real growth stars

David McKenzie's picture

When we talk about growth, we typically focus on growth rates, and so if we were to look at which countries had the greatest percentage increase in GDP per capita over the last decade (at constant international prices according to the World Development Indicators), we would get a table like this:

Of course in all these exercises where you choose the start and end year can matter a lot – 2010 being a particularly bad time to end these comparisons for many countries with the global crisis (see a 2002-2012 list with IMF data and forecasts here). Nonetheless, we see that amongst the oil- and energy-led growth of some countries the impressive growth rates of countries like Myanmar, China, India and Ethiopia, while developed countries like Germany and the U.S. look like they are getting left behind.

However, Berk’s post on Mark Rosenzweig’s review of Poor Economics, in which Mark makes the point that large percentage changes on a small base can mask pretty small absolute changes inspired me to look at which countries have seen the greatest absolute growth (as measured by the change in levels of GDP per capita) over the past decade. This list looks quite a lot different:

Looking at percentage growth rates are relevant when we are thinking of “exits” from poverty, since small absolute changes may be enough to get people from below the magical $1.25 line to just above it. But they are still poor by global standards. Diminishing marginal utility of income is presumably also a reason to think the same level increase matters less if you start at a higher point. But for a number of questions (e.g. thinking about which countries are producing more stuff for their people and moving the global production frontier, which countries a potential migrant might want to go to,  which countries are going to have most potential to buy exports and supply tourists, etc.) looking at levels is perhaps more appropriate than growth rates.

For these questions, the impressive growth rates of some of the countries that we typically think of as growth stars look much less impressive when we consider the results in levels. Ethiopia’s 123% growth over the 2000s only added $574 to per-capita GDP, which would rank it 154th in the world. India’s much vaunted growth only increased per capita income by less than 1/5 of the increase in the U.S. and Germany, and even China only achieved half the U.S. and German gains.

Moreover, a fixation with growth rates perhaps causes us to underappreciate the truly impressive growth of more developed countries. When countries have pursued bad policies for years, and then start doing things a little bit less bad or even a little bit right, it should be no surprise that we see growth from income levels well below what should be steady-state. But generating large level increases in growth in countries which are much closer to the world production frontier is much more impressive – and so perhaps, if we want to learn the secrets of sustained and large growth, we should be paying more attention to the Singapores and Hong Kongs of today than to their experiences 30 or 40 years ago or to what’s going on in poor countries that are growing fast on a low base.

Oh, and if you really want to know the secret of level growth, it is opening up lots of casinos next to China!

 

Comments

Submitted by Anonymous on
there are 3 kinds of lies: lies, damned lies and statistics. by merely taking everything in % u have managed to hide facts. If u convert the % growth of India and China of 127% in $ dollar value, it will out weigh guinea and azerbijan. Furthermore, china and india bigger economy, with far bigger set up to manage and more international problems and power. Gini index also needs to be shown. Dont misguide.

This is precisely the point - that different ways of measuring growth lead to very different rankings. Your suggestion of ranking in terms of growth in total dollars, rather than in total dollars per capita as I have done, would also be a useful approach for looking at particular questions.

Submitted by Subra on
This is akin to comparing apples and oranges. Well at the basic level they are fruits. So this is comparing fruit juice to anabolic juice. Comparing China and India to Equatorial Guinea is just that. What does growth rate tell us? Nothing, if I may. As you had mentioned you chose randomly last 10 years. How did last 20 years look like in case of China? But most importantly, how would next 20 years look like for both China and Indi. Let’s take the list of Top 10 in growth rates. Can you name a country (from your list) that could sustain such a high growth for next 10 or 20 years? Would they even survive if not for natural resources? Russia has leveraged so much that a small change in oil/gas demand will bankrupt the country. But China will do well so is India. According to IMF data (that you rely on), Sierra Leone is projected grow at 51% in 2012 and Equatorial Guinea at 4%. But in 2010, Sierra Leone grew by 5% and Equatorial Guinea contacted by -.4%. So does your analysis make sense? Not really. Why? Mean and Median. Because you chose the numbers to show what you had already decided, that is to say that the growth of China and India is not a big deal. "Which countries have added most to per-capita GDP?" China is 2nd largest economy but the population is 1.3+ billion and is number 63 and Equatorial Guinea is number 3. Now is life better in Equatorial Guinea or in China or in India? You could find many things to say about China but where would you likely to get better basic education? Where would you likely to succeed in about 10 years? Where would you likely to live longer? Life expectancy at birth in Equatorial Guinea is ~51 years, Sierra Leone 41 years and for China ~70+ and India ~65+. Notwithstanding, billion+, life is better in China and India. “Oh, and if you really want to know the secret of level growth, it is opening up lots of casinos next to China!” Why not near Guinea or Azerbaijan or Turkmenistan? They seem to do better than China as you highlighted. You contradicted yourself.

I agree that there are cases where the high percentage or high level growth has been very unevenly distributed within the population, so it would be good to look similarly at growth in the median income. But even then the same general point will hold - that countries with low base rates will have exagerated percentage changes in median incomes compared to the absolute changes.

Submitted by Anonymous on
David: Your answer is counter to what your blog title is.."Let’s not overstate the achievements of China and India." The problem with this blog is that you are understating achievements of China and India in comparing with small niche economies, Macao, Luxembourg, etc and some banana republic (Equatorial Guinea). I agree with "Anonymous on Mon, 2012-06-11 13:35." comment.

Submitted by Anonymous on
This blogpost is trying so hard to be smart that it fails to create any real dialogue on the issues that matter. It's not even informative because I don't know what I just read. Unnecessarily complicated and therefore annoying.

Submitted by John Gibson on
Hi David Your second last paragraph reminded me of a great post from Bill Easterly on the sadly-departed Aidwatch. I hope I'm not violating any copyright by posting a full block of what he said but it nicely makes the points that growth rates can be a poor guide to telling us what has been happening to levels of human welfare: So another way of stating China’s rapid growth recipe would be something like the following: Have a succession of crazy autocrats, political chaos, and war savagely repress one of history’s most inventive peoples, along with not allowing one of the most successful trading diasporas in history to operate in China proper. Then have things calm down a bit and have somewhat less crazy rulers allow more of the people’s energy and creativity to burst out. Presto, the change from EXTREME NEGATIVE to LESS NEGATIVE is called a “growth rate,” and it will be high. Now accept worship from around the world. http://aidwatchers.com/2010/10/our-china-who-art-in-heaven-hallowed-be-thy-growth-rate/

Submitted by Anonymous on
The initial reply by Misguided, (Submitted by Anonymous on Mon, 2012-06-11 09:56.), is very perceptive. The post by John Gibson is as misguided as David’s post. Choosing selective facts to put forward selective argument. Why choose only the second last paragraph? Lets us see: “I(i)f we want to learn the secrets of sustained and large growth, we should be paying more attention to the Singapores and Hong Kongs of today than to their experiences 30 or 40 years ago or to what’s going on in poor countries that are growing fast on a low base.” If that is what David wants to highlight, why does he need a chart on growth stars? He wants to show China/India story is oversold/overstated. Let’s take the second chart, of course China/India will be way down. Wait just a min. hmm…I forgot that they have a population of 1 billion plus. But see….Switzerland, Singapore, Luxemburg, Norway and Hong Kong. Isn't wonderful. If China’s record on human right is savage in the last 70 years so, why not extend that 100-150 years ago. US was diligently committing genocide of Native Americans and building the country on the back of so-called “Negros.” Enslaved them until 1960s…just 50 years ago. Apartheid by any definition. Here is the discussion killer…we elected Obama. Shouldn’t we discount US economic growth? Or emulate it? It fares much worse…China was/is run by autocrats…US democratically (I forgot….there was this test for Blacks to vote) elected governments did just what China did. But by many magnitudes. Now that you made a case that China’s economic growth and model doesn’t matter. Where India fits in? Paying more attention to “Singpores and Hong Kongs….” Let’s take Nigeria with a population of 150+ million…are you suggesting that they pay attention to Singapore rather than China/India? Just follow (drink their recipe) Switzerland, Singapore (you have nothing…open your market or perish), Luxemburg, Norway, Hong Kong….Presto…you will be like them. God forbid….Pay no attention to countries with 1 billion+ population.

Submitted by Anonymous on
Is there some sort of governance or peer-review with World Bank blogs? Maybe the author wants to ruffle and shuffle to get some traffic? At least, this blog-site has some life compared to other World Bank blogs.

Our blog posts do not go through any formal review process. Sometimes we send them around to the other Development Impact bloggers for any comments before posting, but ultimate responsibility for what we posts lies with us. This post tried to make a pretty simple point that base rates matter when thinking about growth, which is a different point than what many of the commentators want to make I think.

Submitted by Anonymous on
when most people (economists, investors etc) talk about impressive growth and performance, they are talking about the economies from which they could benefit. and when the investment is on a global scale, an economy(country, free trade zone, you name it) has to be large enough so that people would give a rat's ass. suppose there is a country that has grown 10-fold to an annual GDP of 10 bln in one decade, then it would easily top on the blogger's list, but so what? the size of that economy means no one would really care about it, because there is no room for any serious investment. if you are an investor with 100 bln fund, which one would attract your attention, the tiny economy that can only absorb 1 bln overall investment, or some other country that can double or triple your 100 bln in a decade? and guess what, most investors with a normal iq had already made the same choice as you just did.

Important message. Every attempt to find one measurement that explains every aspect of progress is obviously bound to fail. And rather stupid. Only focusing on Growth rates won't give you the whole picture, only focusing on real per capita growth won't either. You need to look at both, (and then another 50 indicators). The message of this post is extremely important, especially in a time where growth rates is king. Even more true is it when looking at the growth rates in Sub-Saharan Africa. "Several of the fastest growing countries are in Africa" - is a constantly repeated fact, but for almost all of them the growth starts at a very low position. So the real per capita growth is still very small, (however not unimportant), but in any case not a great measurement on where the situation is improving the most. On my blog (http://bit.ly/I6G6vw in Swedish though) I compared Tanzania's impressive growth rate of 4,5% per year over the last ten years which is equivalent to $50 a year (ppp) while Sweden's lower growth rate of 1,6% means almost $500 increase a year. If the rates are constant it would take 90 years until the gap is even starting to close.

Thanks for this example, This is exactly the point - I am sure most people would rather be in a country where their incomes are growing $500 per year than $50 a year, even if the growth rate in percentage terms is lower.