Emerg­ing Mar­kets vis-à-vis Shift of Eco­nomic Cen­ter of Grav­ity

“Eco­nomic Cen­ter of Grav­ity is cal­cu­lated by weigh­ing lo­ca­tions by GDP in three di­men­sions and pro­ject­ing the cen­ter to the near­est point on the earth’s sur­face”

Bhutan Times - - Editorial - A. K. Mishra Man­ag­ing Di­rec­tor Mangdechhu Hy­dro­elec­tric Pro­ject Au­thor­ity, Bhutan

From the year 1 to 1500, the World’s Cen­ter of Eco­nomic Grav­ity which is a mea­sure of Eco­nomic Power by Ge­og­ra­phy i.e. strad­dled the bor­der be­tween In­dia and China, the coun­tries with the globe’s largest pop­u­la­tions. The ur­ban­iza­tion and the In­dus­trial Rev­o­lu­tions started in Bri­tain and then swept across con­ti­nen­tal Europe and the US.

In the con­text re­ferred above, the Cen­ter of Grav­ity moved to the North and West i.e. first to Europe and then to­wards North Amer­ica. Soon af­ter the World War II and there­after in the sec­ond half of 20th Cen­tury, the eco­nomic pen­du­lum grad­u­ally be­gan to swing back to the East. Start­ing in the year 1950, Europe started re­cov­er­ing, Ja­pan also started em­bark­ing upon a re­mark­able re­cov­ery in re­build­ing its In­dus­trial In­fra­struc­ture and grew to be­come a sec­ond largest econ­omy in the world by the year late 1980s. There­after, Ja­pan was quickly joined by South Korea. The process got ac­cel­er­ated when Asia’s slum­ber­ing giants be­gan to stir. Fi­nally, eco­nomic re­form took hold in the World’s two most pop­u­lous na­tions i.e. In­dia and China.

China be­gan to lib­er­al­ize its econ­omy in the year 1978 and grown for three decades around @ 10-9% per an­num. While In­dia started lit­tle late in the year 1990 by rapidly ris­ing in the in­for­ma­tion tech­nol­ogy sec­tor. By the year 2000, the US with 4% of world’s pop­u­la­tions ac­counted for 1/3 of eco­nomic ac­tiv­ity and 50% of world’s global mar­ket cap­i­tal­iza­tion.

Then came the year 2008 fi­nan­cial cri­sis in US (also known as sub­prime cri­sis) re­sulted into global re­ces­sion. In the year 2013, out of $1.8 tril­lion of global eco­nomic ac­tiv­ity, China alone ac­counted for $ 1 tril­lion or 60%.

Now the re­ces­sion has gripped the Chi­nese econ­omy (YUAN de­val­ued) emerg­ing economies such as In­dia, In­done­sia, Rus­sia and Brazil are tak­ing over as ma­jor forces in global man­u­fac­tur­ing. Present Prime Min­is­ter of In­dia Shri Naren­dra Modi who has al­ready in­vited the lead­ing man­u­fac­tur­ers to in­vest in In­dia for “Make in In­dia”, has al­ready started show­ing the re­sults. In fact, around the globe, man­u­fac­tur­ing value ad­di­tion in the global econ­omy has dou­bled since year 1990 from $ 5 tril­lion to $10 tril­lion to­day and the share in that value ad­di­tion is gen­er­ated by the above re­ferred Emerg­ing Economies i.e. from 21% to 39% over a past one decade.

The share of global For­eign Di­rect In­vest­ment (FDI) go­ing to emerg­ing economies rose from 34% in the year 2007 to 50% in the year 2010 and over 60% in the year 2013. The an­nual con­sump­tion in emerg­ing economies shall be reach­ing $ 30 tril­lion by the year 2025. There­fore, by the year 2025, the eco­nomic cen­ter of grav­ity is ex­pected to be back to Cen­tral Asia, just North of where it was in the year 1.

UK took 154 years to dou­ble eco­nomic out­put per per­son and it did so with the pop­u­la­tion of 9 mil­lion peo­ple (in the be­gin­ning). US achieved the same feat in 53 years with 10 mil­lion peo­ple (in the be­gin­ning). In­dia and China have done it only in 16 and 12 years re­spec­tively with about 100 times as many peo­ple. In other words, the eco­nomic ac­cel­er­a­tion is roughly 10 times faster than the one trig­gered by UK’s In­dus­trial Revo­lu­tion and is 300 times of the scale i.e. an eco­nomic force 3000 times large.

Imag­ine at what pace In­dia and other Emerg­ing Mar­kets are go­ing to cap­ture the fu­ture mar­kets.

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