Economic Growth and Changes to the Relative Economic Power: 2000-2014

The period 2000-2014 can be divided into two phases, at least for the world of international relations and the global flows of goods, services, and capital. The first phase was the period 2000-2008, which saw sharp economic expansion on the part of the oil-producing nations, high growth rates for the countries in transition as a consequence of financial and trade liberalization, and particularly steep growth in lending by internationally active banks (the global megabanks), accompanied by an even more spectacular increase in turnover on the financial derivatives market. According to data from the Bank for International Settlements, between 2002 and 2008 lending by internationally active banks grew at twice the rate it had between 1985 and 2002.5

The second phase followed the major financial shock that began in the United States in August 2007 but worsened progressively through 2008, before spilling over to Europe and other parts of the world in the final quarter of that year and the first quarter of 2009. This period from 2008 to 2014 was marked primarily by major changes in how the most-developed countries, and in particular the United States, United Kingdom, Japan, and the countries of the Eurozone, conduct their economic policy (monetary and fiscal policy in the first place). A highly expansionary monetary and fiscal policy marked a return to the Keynes’s recipe book for conducting economic policy during periods of significant downturn in the business cycle, with sharp falls in the volume of international trade in goods and services and major falls in the prices of financial assets on the leading world stock exchanges. Nor were the developing countries spared the impact of these financial and economic shocks, which spilled over first from the United States to Western Europe and Japan, and then from the countries of Western Europe and Japan to other parts of the world.

In contrast to the final decade of the twentieth century, during this period, it was now the transition and developing countries that made up the largest sub-category within the group of 20 fastest-growing economies. In comparing the economic results achieved during these two periods, we must always keep in mind that the transition countries had come into being as a category because of the collapse of the former USSR, due to which they had experienced major falls in GDP per capita. This was why they accounted for eight of the ten countries with the greatest falls in their Cg during that period. Of those eight, four were later members of the group of the fastest-growing economies in the world in the subsequent period: Azerbaijan (the fastest-growing economy), Tajikistan, Georgia, and Turkmenistan.

As the fastest-growing economy in the world during the first fourteen years of this century, Azerbaijan managed to increase GDP per capita by a factor of 3.75. Its main export was oil, the rising price of which played a

Table 3.3 Twenty fastest-growing economies in the world: 2000-2014

Country

Percentage change in Cg - 2014/2000

Azerbaijan

212.0

China

185.4

Macao, SAR China

178.3

Turkmenistan

129.7

Armenia

121.4

Equatorial Guinea

117.7

Mongolia

105.8

Kazakhstan

98.1

Belarus

97.9

Ethiopia

91.3

Cambodia

88.2

Angola

85.5

Georgia

84.2

India

81.8

Uzbekistan

79.2

Chad

78.6

Tajikistan

77.8

Lao PDR

76.2

Bhutan

73.3

Latvia

72.3

Source: Calculated by the author using World Bank data.

leading role in the growth of the Azerbaijani economy. During the same period, China saw GDP per capita rise by a factor of 3.43. Even with such growth, Chinese GDP per capita was still approximately half of world average GDP in 2014 (as indicated by China’s Cg of 0.484 for that year). As Table 3.3 makes clear, if one excludes Macao, as a small and highly specific economy whose core revenues come from tourism and games of fortune, 18 of the remaining 19 fastest-growing economies during these fourteen years come from the group of developing or low- income countries (Latvia being the exception). In 2014, the average Cg of these 19 (again excluding Macao) was 0.395. At the beginning of the century, it had been 0.194. In other words, they had narrowed the gap between the world average GDP and their average GDP per capita from around 5.2:1 to 2.5:1.

In the final decade of the last century the group of 20 fastest-growing economies had included as many as ten developed or middle-income developing countries. During the first fourteen years of this century, it included only two: namely Macao, a high-income country, and Latvia, a country in transition that only graduated to the group of advanced countries in 2014. Even though Equatorial Guinea enjoyed a higher Cg than Latvia in 2014, it was not included amongst the group of advanced countries, because its HDI (Human Development Index) was 39.5% lower than Latvia’s.

The United Arab Emirates was one of the ten countries to see the greatest fall in their Cg in 2014 against 2000. In fact, it was the greatest fall in the Cg of all, down by 53.3%. While it still belongs to the group of advanced countries, this fall in the Cg was primarily due to population growth, which has been faster than anywhere else in the world: its population more than tripled in just fourteen years (from 3.1 to 9.4 million).6 As a consequence of the greatest economic crisis in the developed world in seventy years and of poor economic policy (and policy more generally), Italy also found itself one of the ten countries with the greatest falls in their Cg (and so GDP per capita). Italy’s GDP per capita (which is a member of the G-7) was down 8.05% (measured in 2005 constant US$), while its Cg declined by 23.4%. Other countries that experienced major falls in their Cg included Greece and Cyprus, with drops of 18.5% and 17.1%, respectively.

The global financial crisis of 2008 and the Great Recession resulted in falling Cg in most of the advanced countries. The group of 20 worst performers in the world included developed or high-income countries like Italy, Portugal, Cyprus, Greece, and the United Arab Emirates. One important reason for this was the recession in Western Europe, the United States, and the other advanced economies. Certain countries of the EU had seen recession not just in 2009, but also in 2012 and 2013 (mainly in the southern part of Eurozone). Every single country from the EU-15 group recorded negative rates of change in the Cg: Sweden (-0.5), Germany (-2.1), United Kingdom (-3.8), Austria (-5.2), Ireland (-5.8), Finland (-7.0), Belgium (-9.0), the Netherlands (-9.8), France (-10.9), Luxembourg (-11.3), Spain (-12.3), Denmark (-14.6), Portugal (-17.0), Greece (-18.5), and Italy (-23.4).7 The average rate at which the Cg fell for the EU-15 countries was 10.1%, with a standard deviation of 6.44. The countries that suffered the largest relative falls were Italy (by almost a quarter of its standing in 2000), Greece, and Portugal. These countries also saw falls in GDP per capita (and therefore not only a relative but also an absolute fall in growth). By contrast, a group of countries starting with Sweden and ending with Denmark actually experienced a rise in GDP per capita. This was a smaller rise in percentage terms than the increase in world GDP per capita, so that even these countries were falling behind the average level of growth in the world economy.

The EU-13 saw an average rate of Cg growth between 2000 and 2014 of 25.9%, with a standard deviation of 27.8. This clearly indicates the major differences in actual rates of Cg growth in these countries, which is to say the very uneven change in relative economic standing. Ignoring for the moment Malta and Cyprus, the only two countries of the EU-13 group to have experienced significant deterioration of their relative economic standing during the period in question, the average rate of Cg growth in the other ten non-core EU countries was 33.5%, with a standard deviation of 23.3. Given the range in population size in the various EU-13 countries, it is worth pointing out that the most populous economy in the group, Poland, actually recorded very significant progress. The fastest- growing countries in this group, expressed in percentage increase in the Cg, were: Latvia (72.3), Romania (55.1), Bulgaria (47.2), Estonia (44.7), Slovak Republic (43.9), Poland (36.9), followed by Czech Republic (13.7), Hungary (11.0), Croatia (6.8), and Slovenia (3.9).

 
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