Growing Economic Power of Developing Countries

The developing countries, which number about 165, inhabited by about 80% of the world population , account for only about one-fifth of the world income and less than a quarter of the world trade.

The share of the South (i.e. the developing countries) in the world exports declined during the 1980s and many poor economies particularly the Sub Saharan African and the least develop countries were marginalized in the world trading system.

However, the 1990s witnessed a rejuvenation of the exports of the developing countries and they are expected to very significantly improve their economic performance in future.

Their global economic share will increase and they will play an increasingly important role in international business. In fact, their GDP and exports have grown faster than those of the developed countries for some time now. Developing country firms are making inroads into developed country markets and a number of developing economies have trade surplus with developed countries. It is even felt that in future China’s trade surplus with the USA could exceed that of Japan’s. Several developing countries are now among the major exporters of the world.

According to a World Bank Staff Report Global Economic Prospects and Developing Countries, 1995, during 1995-2004, the real GDP of the world will grow at an average annual rate of 3.3% which will be composed of an average annual growth rate of 2.8% for high income economies and 4.9% for developing economies.

This does not mean that all the developing countries will grow at high rates. While the estimated average annual rate for the developing countries is nearly 5%, East Asia and South Asia in the developing world would grow at an annual rate of 7.7 % and 5.4% respectively, but the performance of Sub Saharan Africa, the Middle East, North Africa and several countries of the former Soviet Union may be very poor.

The developing countries; share of the world output is estimated to increase from 21% in 1994 to 27% in 2010. Developing countries’ share of the world output growth during the 1980s was about 22%. This is estimated to rise to 38% during 1995-2010.

To make the comparisons more realistic we should consider the GDP in purchasing power parity terms. This is because when the GDP of a nation is estimated in terms of the national currency and converted into dollar value, it will show a lower figure than the real if the national currency has depreciated against the dollar. Further, purchasing power is also affected by the price differences of goods and services between countries.

In 1998 India’s per capita income in purchasing power parity terms was $1,700 compared to $430 in nominal dollar terms. The respective figures for few other countries were: China $3,220 ($750) Switzerland $26,620 ($40,080) and USA $29,340 ($29,340)

In purchasing power parity terms developing countries would produce more than half of the world output in the next decade compared to 44% now. By 2010 they would also account for 56% of global capital formation.

World merchandise trade is projected to grow at about 6% annually. Supported by a shift toward outward oriented policies that are increasing their integration in the world economy (in the seven years since the launching of the Uruguay Round in 1986, developing countries were responsible for 58 of the 72 autonomous liberalizations reported to the GATT) trade growth in developing countries is expected to exceed that of industrial countries by 1 to 1.5% points. International trade in goods and non-factor services (exports plus imports) as a proportion of their GDP has risen from 33 to 43%.

All these indicate the growing importance of the developing countries in the globalizing world economy. No wonder, they are receiving increasing attention by MNCs investment inflows to them have been surging.

One of the prime reasons for developing nations growing faster is not the capital or MNC investment, but it is the Human resource talent, ability to work hard, Government liberalization policies and last but not the least the zeal of people to contribute, perform thereby deriving job satisfaction and in turn improving the standard of their life style. Now there is not much of a difference in a professional’s earning capacity (purchasing power parity) between US and India including other South Eastern Asian countries.