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Globalization’s Next Wave

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December 13, 2006—Think ahead 25 years.

Imagine a world where developing countries are the key drivers behind global economic growth.

Imagine too a world where about half or more of the purchasing power of the global economy stems from the developing world, which would  also be home to an estimated 1.2 billion “middle class”.

And also imagine a world where the number of people living on less than $1 a day has fallen from 1.1 billion now to 550 million in 2030.

The scenarios are all laid out in a new World Bank report, Global Economic Prospects 2007: Managing the Next Wave of Globalization.

Rise of Developing Countries

According to the report’s lead author and Economic Advisor in the Trade Department, Richard Newfarmer, this transformed world reflects the continuation of recent trends. Developing country growth has accelerated over the past decade and is expected to remain strong both over the medium and longer terms.

“We expect that growth rates for developing countries this year will be 7 percent and exceed 6 percent in 2007 and 2008, more than twice as fast as high-income countries, which are expected to grow about 2.6 percent.”  says Hans Timmer, the manager of the Bank’s forecasting team.

“This marks the third year of very strong growth and a continuation of a rising trend in developing country growth mainly due to improved performance by many rather than very fast growth by a few,” Timmer says.

Progress in reducing poverty

Newfarmer says developing economies will become a major locomotive of the global economy.

“We expect developing economies’ share in world trade to rise to almost 50 percent by 2030,” he says. “That’s a substantial increase from where we are today at about 30 percent. Moreover, their share in world GDP could reach 60 percent in purchasing power parity terms.”

The report says benefits of that growth will be widespread, with the incidence of dire poverty falling from around 25 percent today to less than eight percent.

Uncertain Future for Unskilled Workers

However the report also says some groups may be left behind, with unskilled workers especially vulnerable.

“Unskilled workers will find themselves under increased pressure both for jobs and for wage increases” says Uri Dadush, Director of the Bank’s Development Prospects Group and International Trade Department.

“While globally inequality will narrow as most developing countries continue to catch-up, within countries it may widen. That means there’ll be greater need for government to find ways to facilitate adjustment and help those workers left behind.”

Africa at Risk

The report says ensuring Sub-Saharan Africa benefits from globalization’s next wave will be particularly challenging.  While the region has done better in recent years, growing by 5.3 percent in 2006, and the incidence of poverty is expected to decline, overall progress remains too slow.

It says rapid population growth and a bulge in the number of young people means the absolute number of people in Africa living in dire poverty may remain broadly constant.

As a result, poverty will become even more a Sub-Saharan Africa issue than it is now, with the proportion of the world’s poorest residing in Sub-Saharan Africa projected to double by 2030.

However, the report says Sub-Saharan Africa could also potentially gain the most from integration, since it could take advantage of technology and wage gaps to propel higher sustained growth.  But to do so, it says reforms to strengthen the investment climate as well as increased aid for infrastructure are necessary.

More Multilateral Collaboration
The report also starkly warns the gains from growth and globalization could be undermined by a failure properly manage environmental issues at a global level.

It singles out three areas – mitigating climate change, containing infectious diseases and preserving marine fisheries – where governments need to work together to develop policies to protect these “global goods.”

“Any country acting on its own can have only a marginal impact on the control of carbon emissions; the sustainability of the world’s fisheries; or preventing the global spread of infectious diseases” Dadush says. 

“All of these are critical issues in which all of the world’s citizens have a stake and which require coordination for success. Without coordination, we will not be able to move forward.”

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