Last June, Stephen King of HSBC Global Research published a lively report called \”The Southern Silk Road: Turbocharging \’South-South\’ economic growth.\” Here, I\’ll mention a few points that especially jumped out at me, but the report is full of useful examples, background, and analysis.
1) Start with a quick reminder for readers who last course in world history is lost in the mists of time. What was the Silk Road?
\”The original Silk Road initially developed under the Han Dynasty in China, which ruled from 206BCE to 220CE. For the next 1000 years or so, the Road (or, more accurately, the various routes) linked China with India, Central Asia, Rome (for a while) and, eventually, the Arab Caliphate involving trade in everything from
spices and silk through to precious stones, ponies and slaves. The great Eurasian empires that developed during this period became mutually dependent. It all went wrong when the Mongols, under Genghis and Kublai Khan, managed to spread not just total brutality but also bubonic plague across the Eurasian land mass. Connections were severed and the various routes fell into disuse. Later, as the European nations
developed their ocean-going fleets, the case for expensive land-based trade across Asia economically collapsed. Unlike the original, the Southern Silk Road won’t only be confined to Asia and Europe. It stems
from connections over land, across the sea, through the air and within the electronic ether. And because the costs of transportation and communication have collapsed in recent decades, it is much more geographically diverse, offering the potential to create hitherto-unimaginable linkages between Asia, the Middle East, Africa
and Latin America. If it is able to advance, the Southern Silk Road will radically alter the dynamics of the global economy in the years ahead. The economic centre of gravity is about to undergo a major shift.\”
2) On a timeline of U.S. per capita economic growth, China, Mexico and Brazil have about the per capita GDP that the U.S. had in 1940. India has about the per capita GDP that the U.S. had in 1882.
Here\’s the figure. (On the vertical axis, GK$ refers to Geary-Khamis dollars, which is a purchasing power parity exchange rate.) However, in the last 10 years, India has caught up with 30 years of U.S. per capita growth, and China has caught up with 50 years of U.S. per capital growth.
3) Foreign direct investment has exploded in size, and the top recipients of inflows of foreign direct investment have changed substantially.
Using the standard UNCTAD data on foreign direct investment, the U.S. economy had the highest inflows in 1980, 1990, 2000, and 2009. But from 1980 to 2000, the level of those FDI inflows to the U.S. economy rose by a multiple of 18–before sagging back in the economic turmoil of 2009. But perhaps more interesting is that if one looks at the top 10 recipients of FDI inflows, one China and Hong Kong don\’t appear in 1980 or 1990. By 2000, China is 9th in FDI inflows and Hong Kong is 7th. By 2009, China is 2nd in FDI inflows and Hong Kong is 4th–and together, they would exceed total FDI inflows to the U.S. economy. Also by 2009, the Russian Federation, Saudi Arabia, and India are all in the top 10 for FDI inflows. Here\’s the table:
4) Predictions for continued long-run growth in China, India, Brazil, and elsewhere have a buried assumption that their growth will become far less dependent on the buying power of high-income countries, and instead far more dependent on growth generated internally or by trading with each other.
King writes: \”Excluding the possibility of trading with Mars or Venus, there are two primary options: either more of each emerging nation’s growth comes from internal sources or more comes from the emerging nations connecting economically with each other. The developed world simply won’t be big enough to accommodate the emerging world’s ambitions and expectations.\”