Income levels in most developing and emerging countries will not catch up with advanced economies for many decades without efforts to boost productivity, according to a new report by the OECD Development Centre.
Perspectives on Global Development 2014 shows that while China, Kazakhstan and Panama are on track to reach OECD levels of average income by 2050, a number of middle-income countries - including Brazil, Colombia, Hungary, Mexico and South Africa - will take much longer at current growth rates.
Labour productivity in most developing and emerging countries is well below half the level of OECD countries, the report shows. Diversification into higher value-added areas in agriculture, manufacturing and services along with economic reforms and a greater focus on innovation could help remedy this.
“Many of the upper middle-income countries we expected would be catching up with advanced economies by the middle of the century will not do so at today’s growth rates,” said OECD Secretary-General Angel Gurría, launching the report at the Organisation’s 6th Global Forum on Development. “Boosting productivity would help enhance growth and narrow the gap in living standards relative to the advanced economies more quickly.”
The slow pace of economic convergence comes despite high growth rates in developing and emerging countries in recent years that have increased the weight of non-OECD countries in the world economy. Non-OECD countries' share of global economic output overtook that of the OECD countries in 2010.
The report notes that the service sector can be a key driver of value-added growth in emerging countries. For example, developing high-end services for a growing middle class and value-added services for both domestic and foreign businesses, such as consulting, engineering services or medical analysis, would create jobs with higher returns per worker.
Achieving this kind of diversification will require equipping workers with better education and skills and encouraging innovation. The report recommends countries work to develop new products and processes domestically that would offer a competitive advantage but also that they import the best ideas from other countries.
The report examines overall productivity in more than 40 countries as well as looking more closely at up to 18 manufacturing and 16 service sectors using industry-level data.