Growth, Convergence and Think Income Distribution: Tank 20 The Road from the Brisbane G-20 Summit Montek Ahluwalia Ali Al-Sadiq Haroon Bhorat Jean Boivin Kemal Derviş Sergey Drobyshevsky Peter Drysdale Claudio Frischtak Hafez Ghanem Robert Gordon Daniel Gros Paolo Guerrieri Alan Hirsch Muneesh Kapur Homi Kharas Miguel Kiguel Wonhyuk Lim Tiff Macklem Jacques Mistral Rakesh Mohan Yoshio Okubo Guillermo Ortiz Galip Kemal Ozhan Danny Quah Amadou Sy Ernesto Talvi Maria Monica Wihardja Guntram Wolff Yang Yao November 2014 CONTENTS Introduction: Growth, Convergence and Income Distribution . 1 Kemal Derviş Vice President, Global Economy and Development, The Brookings Institution; Former Executive Head of the United Nations Development Program; Former Secretary of Treasury and Economy Minister, The Republic of Turkey; Advisor, Istanbul Policy Center Homi Kharas Senior Fellow and Deputy Director, Global Economy and Development, The Brookings Institution; Former Chief Economist, East Asia, The World Bank REGIONAL PERSPECTIVES AFRICA Is Africa at a Historical Crossroads to Convergence? . 11 Amadou Sy Senior Fellow, Global Economy and Development, Africa Growth Initiative, The Brookings Institution ASIA Economic Growth in Asia: Performance and Prospects . 22 Montek Ahluwalia Former Deputy Chairman of the Planning Commission of India LATIN AMERICA Latin America’s Decade of Development-less Growth . 33 Ernesto Talvi Nonresident Senior Fellow and Director, Brookings Global-CERES Economic & Social Policy in Latin America Initiative, The Brookings Institution MIDDLE EAST Growth and Convergence in the Arab Region . 44 Hafez Ghanem Senior Fellow, Global Economy and Development, The Brookings Institution COUNTRY CONTRIBUTIONS ARGENTINA A Case of “Reverse Convergence” . 51 Miguel Kiguel Former Under Secretary of Finance and Chief Advisor to the Minister of the Economy, Argentina; Former President, Banco Hipotecario; Director, Econviews; Professor, Universidad Torcuato Di Tella AUSTRALIA Australia, Emerging Asia And Global Cooperation . 54 Peter Drysdale Emeritus Professor of Economics, Crawford School of Public Policy, Head of the East Asian Bureau of Economic Research and Co-Editor East Asian Forum, Australian National University THINK TANK 20: Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit i BRAZIL Demography, Technology, and All Other Things Considered . 58 Claudio Frischtak President, Inter.B Consulting CANADA Secular Stagnation is Not Destiny: Faster Growth is Achievable with Better Policy . 64 Jean Boivin Deputy Chief Investment Officer, Blackrock Investment Institute; Former G-20 Finance Deputy, Canada; Former G-7 Finance Deputy, Canada Tiff Macklem Dean, Rotman School of Management, University of Toronto; Former Senior Deputy Governor, Bank of Canada CHINA A New Normal, but with Robust Growth: China’s Growth Prospects . 71 in the Next 10 Years Yang Yao Dean, National School of Development, Peking University EUROPEAN UNION How Can Europe Avoid Secular Stagnation? . 77 Guntram Wolff Director, Bruegel FRANCE Growth, Convergence and Social Conditions: Where is Europe Headed? . 81 Jacques Mistral Nonresident Senior Fellow, The Brookings Institution; Special Advisor, Institut Français des Relations Internationales; Former Economic Advisor to the French Prime Minister GERMANY Quantitative Easing and Deflation in a Creditor Economy . 87 Daniel Gros Director, Centre for European Policy Studies INDIA Secular Stagnation: Can India Buck the Trend? . 92 Rakesh Mohan Executive Director, International Monetary Fund Muneesh Kapur Adviser to Executive Director, International Monetary Fund INDONESIA Growth, Convergence and Income Distribution: A View from Indonesia . 99 Maria Monica Wihardja Economist, World Bank Office Jakarta THINK TANK 20: Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit ii ITALY Sluggish Growth in the Eurozone: The Long Journey Ahead . .107 Paolo Guerrieri Professor of Economics, University of Rome, Sapienza; College of Europe, Bruges JAPAN Defining Exit from Deflation . 116 Yoshio Okubo Vice-Chairman, Japan Securities Dealers Association (JSDA) KOREA From Rapid, Shared Growth to Slow, Unshared Growth? . 124 Wonhyuk Lim Director and Vice President, Department of Competition Policy, Korea Development Institute (KDI) MEXICO The Challenges to Achieving Sustainable Growth in Latin America . 129 Guillermo Ortiz Chairman, Grupo Financiero Banorte; Former Governor, Bank of Mexico; Former Secretary of Finance and Public Credit, Mexico; Former Chairman of the Board of the Bank for International Settlements RUSSIA Russia: Prospects for Growth and Convergence . 138 Sergey Drobyshevsky Scientific Director, Gaidar Institute for Economic Policy; Managing Director, Russia’s G-20 Expert Council SAUDI ARABIA Economic Convergence in Saudi Arabia . 142 Ali Al-Sadiq Economist, International Monetary Fund SOUTH AFRICA South Africa: Perspectives on Divergence and Convergence . 149 Haroon Bhorat Professor, Development Policy Research Unit, School of Economics, University of Cape Town Alan Hirsch Professor and Director, Graduate School of Development Policy and Practice, University of Cape Town TURKEY The Growth Debate Redux . 157 Galip Kemal Ozhan Henry T. Buechel Fellow, Department of Economics, University of Washington THINK TANK 20: Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit iii UNITED KINGDOM Convergence Determines Governance — Within and Without . 167 Danny Quah Professor of Economics and International Development, London School of Economics; Director Saw Swee Hock Southeast Asia Centre, London School of Economics UNITED STATES US Economic Growth is Over: The Short Run Meets the Long Run . 173 Robert Gordon Stanley G. Harris Professor in the Social Sciences, Northwestern University; NBER THINK TANK 20: Growth, Convergence and Income Distribution: The Road from the Brisbane G-20 Summit iv Growth, Convergence and Income Distribution: An Introduction Vice President, Global Economy and Development, The Brookings Institution; Former Executive Kemal Derviş Head of the United Nations Development Program; Former Secretary of Treasury and Economy Minister, The Republic of Turkey; Advisor, Istanbul Policy Center Homi Kharas Senior Fellow and Deputy Director, Global Economy and Development, The Brookings Institution; Former Chief Economist, East Asia, The World Bank In cooperation with Edith Joachimpillai and Karim Foda With world leaders gathering for the G-20 sum- in 1776, per capita income in the world’s richest mit in Brisbane, three big debates will impact country—probably the Netherlands—was about their ability to plot the right course to achieving four times that of the poorest countries. Two cen- inclusive, sustainable growth . turies later, the Netherlands was 40 times rich- er than China, 24 times richer than India and 10 Introduction times richer than Thailand.”3 In 2014 the finance ministers of the G-20 set them- In the aggregate, this divergence slowed markedly selves an objective of increasing world GDP by 2 in the 1950s, with average incomes in all rich econ- percentage points—or about $1.5 trillion—over the omies growing in per capita terms and no longer next five years, over and above the current “business widening the divergence significantly, as the av- as usual” trend. The Brisbane leaders summit is to erage income in all the EMDEVs (emerging and endorse that objective and perhaps elaborate on it. developing economies) picked up pace, of course This has inspired the authors contributing to this with a lot of variation by country, region and spe- collection to comment on the ongoing debates about cific time period. Then, starting in the late 1980s, growth, convergence and income distribution. for the first time in two centuries, a process of con- vergence seems to have taken hold, with average There are new dimensions in the debate on growth. income in the EMDEVs taken as a whole growing Some eminent economists are arguing that an era faster, in fact much faster, than income in the rich of “secular stagnation” may lie ahead unless vigor- countries, for about two and a half decades now ous policy actions are implemented, while others, (1989-2014). Coming back to Hausmann’s exam- a minority among economists, argue that ongoing ple, today the Netherlands is only five times richer and pending technological change is likely to lead than China and Thailand and 11 times richer than to an acceleration of growth. This “secular stagna- India (although he refers to individual countries, tion” debate is sometimes conducted purely in the not aggregates). Is this convergence going to last, context of the U.S. economy, sometimes in the con- or was rapid aggregate convergence a temporary text of advanced economies as a whole, and some- phenomenon? This question is at the center of a times in terms of the world economy. Some authors “second growth debate,” which also includes ob- shift back and forth between these three contexts.1 servations beyond the averages, looking at partic- ular countries and regions. There is a second debate on “convergence” between average incomes in the lower- and middle-income Finally, there is the increasingly intense debate emerging economies, and average income in the about income distribution, with the latest bestseller 4 rich, advanced economies. Until the post-World by Thomas Piketty having added more data, more War II period, there is no doubt that the industri- passion and more controversy to a topic that was