Much of the excitement that investors have for emerging markets is anchored in the idea that developing countries grow faster than the sclerotic rich countries of the West and that this growth brings opportunities for extraordinary portfolio returns. Unfortunately, this is largely wishful thinking, as the evidence shows that countries in the developing world have experienced mediocre growth. Nevertheless, there have been important exceptions. A select group of countries have achieved periods of “miracle growth,” allowing them to significantly reduce the income gap with rich countries.
Developing countries, including many key emerging markets, have grown at a slower rate than the bellwether economy of the United States since 1980. This period includes the entire modern era of emerging market institutional investing, which can be considered to have started in the mid-1980s with the launch of the IFC and MSCI indices. It covers the entire era of the “Washington Consensus” for free trade and capital movements, which theoretically should have favored developing countries, and also coincides with a significant decline in the rate of growth of the American economy. The data from the World Bank on GDP per capita growth in dollar terms from 1980-2023 is shown below. About two-thirds of countries have grown at a slower rate than the United States. In emerging markets, these laggards include most of Latin America and Africa—countries which, with the exception of Mexico, failed to participate in the globalization trend. On the other hand, the “convergers,” with the exception of India and Egypt, are all countries that deeply benefited from expanding global trade.
Of the convergers listed above, few achieved impressive growth levels; Turkey, Bangladesh, Egypt, Chile, Indonesia, Malaysia, and India all grew GDP per capita by less than 3% per year. Very few countries are achieving the kind of “miraculous” growth that can be transformational over a generation.
The chart below highlights the few countries that have aspired to “miracle” growth status. True economic “miracle” growth stories have been exceptionally rare in the past 60 years. Only five countries—Singapore, Taiwan, South Korea, and China—have achieved the high GDP growth over extended periods necessary to make giant leaps in the rankings of the wealth of nations. This group of countries, the so-called Asian Tigers, all pursued similar export-oriented mercantilist policies based on the repression of domestic wages and benefited greatly from U.S.-sponsored trade liberalism.
Several countries once labeled “miracles” have been unable to sustain growth. These countries have seen their miracle growth aborted for a variety of reasons related to poor governance and weak institutions. Latin American economies once considered to be on the “miracle” path, such as Brazil and Chile, have fallen into “middle-income traps” characterized by low growth and political and social instability. Brazil, in particular, rejected the globalization trend, doubling down on its reliance on commodity exports. Botswana, once considered the stellar success of Africa, has also slowed.
The integration of Eastern Europe into the rich economies of Western Europe has been an outstanding success, allowing countries like Poland to make significant strides toward convergence, which appears to be sustainable. Poland and other countries of Eastern Europe have benefited from exceptional financial assistance from Western governments and abundant access to private capital made possible by geopolitical and historical considerations.
Most of the miracle economies of the past decades have exhausted the high-growth phase and are now expected to experience mundane to low growth. The chart below shows the IMF’s GDP growth expectations for the remainder of the decade. The new growth hopefuls—Bangladesh, India, Vietnam, and the Philippines—will face more difficult conditions than in the past, as the U.S.-imposed “Washington Consensus” has been replaced by deglobalization and geopolitical conflict.
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