Economic growth in the time of disruption

Developing countries are facing major obstacles - many of which they have little to no control over - to achieving sustained high growth. Beyond the headwinds generated by slow growth of advanced economies and abnormal post-crisis monetary and financial conditions, there are the disruptive impacts of digital technology, which are set to erode developing economies' comparative advantage in labor-intensive manufacturing. With the reversal of these trends out of the question, adaptation is the only option.

Robotics has already made significant inroads in electronics assembly, with sewing trades, traditionally many countries' first entry point to the global trading system, likely to come next. As this trend continues, the imperative to build supply chains based on the location of relatively immobile and cost-effective labor will wane, with production moving closer to the final market. Adidas, for example, is already building a factory in Germany, where robots will produce athletic shoes, and is planning a second one in the US.

Given these facts, developing economies need to act now. First, the problems in advanced economies are likely to persist, reducing potential growth everywhere for an extended period. So developing countries must not try to boost demand through unsustainable means, such as the accumulation of excess debt. Instead, they, especially those in the earlier stages of economic development, must find new external markets for their goods, by maximizing trade opportunities with their counterparts in the developing world, many of which have considerable purchasing power.