Old obstacles to growth persist despite the new economic upturn

Over the past two years, the world economy has experienced a substantial upswing, and baseline growth is expected to be robust in 2018–2019. The short-term outlook remains promising, as major economies continue to expand despite growing international trade tensions.

The positive overall picture, however, masks some worrisome long-term trends in the pattern of economic growth. While average growth in developing and transition economies has strengthened since 2016, a significant number of countries are not sharing in the global improvement and are falling further behind.

In 2016, GDP per capita declined in a staggering 49 countries, the highest number since 2009. In 2017–2018, a total of 48 developing and transition economies—home to 15% of the global population—are projected to see less than 1 per cent growth in GDP per capita.

What characterizes the 48 developing and transition countries that are facing weak growth in 2017-2018?

Many of them are highly dependent on commodities – in particular – oil. In 27 of these countries, commodities constitute over 80 per cent of total merchandise exports. In several cases, the commodity price collapse of 2014–2016 revealed massive macroeconomic imbalances and triggered deep and prolonged crises.

Of the 48 countries, 17 are classified as least developed countries (LDCs). A very low development base and limited resources impede crucial investment in areas such as infrastructure, healthcare and social programmes. As a result, low incomes often tend to be sticky, making it even harder for LDCs to expand the economy and make productive headway.

A significant number of these countries also suffer from deeply rooted armed conflicts or face civil unrest and instability. Conflict poses an immense obstacle to development progress, as the loss of human lives and forced displacement of the population are compounded by extensive damage to physical and human capital and an inhospitable environment for investors.

While geographical barriers and exposure to weather-related shocks act as a restraint on growth prospects in many cases, among the 32 landlocked developing countries (LLDC), only 7 are part of the 48 countries identified as growth laggards. However, all the commodity-dependent LLDCs recorded a severe slowdown in GDP per capita growth following the collapse of commodity prices in 2014–2016.

There is no single factor that explains why some countries continue to fall further behind. The experiences of China and several other East and South Asian economies, which managed to achieve high and relatively stable growth in GDP per capita over the past four decades suggest that there are no ultimate traps to development. Nonetheless, well-known barriers to growth remain the same in 2018 as in the past – conflict and a lack of economic diversification. While we continue to confront these persistent obstacles, a daunting threat for some countries still lurks in the background – more hostile climatic conditions in the face of rising global temperatures.

Learn more in the latest World Economic Situation and Prospects Monthly Briefing

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