James W. Harpel Professor of Capital Formation and Growth
Two big questions look somewhat different than they did 10 or 20 years ago. First: would the long-term trend of globalization continue? Contrary to all predictions, trade growth has slowed markedly since the Global Financial Crisis of 2008-09. But the feared increase in protectionism did not materialize, so one must look elsewhere for explanations. Two likely factors behind the slowdown in trade are a maturing of global supply chains and a slowdown in trade-intensive physical investment.
Second, would the rapid growth of emerging market economies (EMEs) continue, and which ones? Most EMEs recovered strongly in 2010-11, but now seem to be slowing down in a more long-lasting way.
For both these issues the role of China is crucial, since it now carries so much weight in the global economy. Breathless reports in 2014 that the Chinese economy had overtaken the US economy as the world’s largest (measured by Purchasing Power Parity) were followed rapidly in 2015 by breathless reports that its economy was failing. That China has slowed down from past growth rates of 10% to a more moderate rate of 7% or lower should not have come as a surprise. It is part of a natural process of long-term convergence and involves a “rebalancing” of the economy from manufacturing into services that is desirable, even if it means a loss of export markets for some others. The open question is whether the Chinese transition to a more moderate and sustainable growth path will take the form of a hard landing or a soft landing.
Frankel, Jeffrey A. "Globalization and Chinese Growth: Ends of Trends?" HKS Faculty Research Working Paper Series RWP16-029, July 2016.