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Wednesday 23 Aug 2017 | 03:06 | SYDNEY

Tracking the great convergence

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COMMENTS

14 November 2007 16:20

In my previous post I argued that the idea of The Great Convergence was a useful way of thinking about many of the developments in today’s international economy, and so provided a helpful story within which to fit some of the themes of the Lowy Institute's International Economy Program.  In this post I want to sketch out a few of the ways in which the Program has attempted to map both the convergence story itself, and some of the consequences for the world economy.

An obvious place to start is with the two key players in the story, China and India.  The prospect of a sustained improvement in India’s economic performance was the subject of India: The Next Economic Giant, which was the first Lowy Institute Paper we published.  The analysis in this report was later updated in Roaring Tiger or Lumbering Elephant? Several shorter papers and presentations have similarly looked at the international implications of China’s economic rise.

To date, the most important way in which the impact of The Great Convergence is making itself felt in the world economy is through international trade in goods, services and financial assets.  While my Lowy Institute Paper The New Terms of Trade covers a whole series of issues that it argues are contributing to a fundamental change in the international trading system, the strains created by the arrival of major new trading powers is treated as a key part of the story.  Similarly, in Is Globalisation History? I took a look at the lessons from an earlier episode of the economic integration of major new power – the United States in the late nineteenth and early twentieth centuries – for today’s international trading system.

The Great Convergence involves the industrialisation and urbanisation of the world’s two most populous countries.  Inevitably, this has profound implications for resource security and the environment.  In a paper written with Anthony Bubalo I looked at how the need to power the rise of China and India could contribute to a bout of energy insecurity for the world economy.  On the environmental consequences of the great convergence, Warwick McKibbin has written on Climate Change Policy for India and The Environmental Consequences of Rising Energy Use in China as well as more generally on the need for a sensible climate policy.

The shift in the geography of economic power that is at the heart of this story also has important implications for the international economic architecture.  In particular, it calls into question the credibility of many of the existing structures with their bias towards the old Atlantic-centred economy, and suggests instead the need for more representative institutions.  One body that could fill this role rather nicely is the G-20, an informal grouping that brings together finance ministers and central bank governors from the most systemically important developed and developing economies.  Here at the Lowy Institute we are big fans of the G-20.  Together with Malcolm Cook, I made the case for the G-20 in a policy brief released in 2006, the year in which Australia hosted the meetings, and I also wrote another piece later that year with Anthony Bubalo, suggesting that the G-20 could contribute to reducing energy insecurity by helping to write some new rules for the new ‘Great game’ that was starting to engage the world’s leading economies. Stephen Grenville continues to call for a greater role for the G-20 in dealing with contemporary economic policy challenges.

 

Finally, I have started to track the way in which the stresses and strains triggered by the conversion process are now in the process of triggering some adverse reaction in the developed world, including by prompting some second thoughts about the claimed benefits of globalisation.

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