Challenges of Deglobalisation

Deglobalisation is prompting developing economies to reassess growth strategies. The traditional model of export-oriented, unskilled labour-intensive manufacturing, once successful for countries like South Korea, Taiwan, and China, is becoming less feasible for South Asia and Sub-Saharan Africa.

Traditional Development Model

• Export Reliance: Enabled countries to tap into unlimited global demand beyond domestic markets.
• Productivity Gains: Aligned with labour resources through learning-by-doing, leading to sectoral efficiency and gradual ascension up the value chain.
• Inclusive Growth: Rapid and sustainable development by shifting from low-productivity to skill-intensive exports.

Emerging Alternatives

Skill-Intensive Exportable Services

• Proposed by: Rohit Lamba and Raghuram G Rajan.
• Advantages: Retains global demand and efficiency promotion.
• Drawbacks: Limited workforce benefit; in India, less than 2.5% employed in skill-intensive, tradable sectors in 2024.

Productivity in Non-Tradable Services

• Proposed by: Dani Rodrik and Rohan Sandhu.
• Challenges: AI and automation threaten job creation in manufacturing and non-tradable services.
• Skill Disparity: High-skilled sectors like telecommunications and finance contrast with low-skilled, less productive sectors like retail and caregiving (Baumol effect).

Opportunities for Poor Countries

• Potential in Manufacturing: While not as effective as before, manufacturing-led strategies remain viable if middle-income countries vacate export spaces.
• Market Dynamics: Countries like Brazil, China, and Mexico dominate low and mid-skilled manufacturing exports.
• Future Shifts: Rising wages and geopolitical changes may push these countries up the value chain, creating opportunities for low-income countries.
• Economic Impact: Capturing vacated export markets and China's domestic demand could double exports to $2-2.5 trillion, creating 50-60 million new jobs.

Strategic Adaptation

• Diversification of Trade: Poor countries must diversify trade relationships beyond traditional partners like the US.
• Engagement with Middle-Income Economies: Encourage these economies to vacate markets accessible to low-income countries.

Conclusion

A nuanced assessment suggests trade-offs between high-skilled services offering dynamism and non-tradable services providing inclusivity. Despite challenges, focusing on unskilled, labour-intensive manufacturing exports may still be the best path to shared prosperity in poorer regions.