Raghuram Rajan: How emerging economies can prosper in a protectionist world
Live MintAs apprehensions grow in China, Europe and Japan about a possible trade war triggered by the incoming Trump administration, one should also spare a thought for developing countries. In the past, poor countries developed through manufacturing exports because foreign demand allowed their producers to achieve scale, and because abysmal agricultural productivity meant that low-skilled workers could be attracted to factory jobs even with low wages. Taken together, these trends—automation, continued competition from established players like China, renewed protectionism—have already made it harder for poor countries in South Asia, Africa and Latin America to pursue export-led manufacturing growth. Every developing country has a small but highly skilled elite who can profitably export skilled services, given the high wage differentials vis-à-vis developed countries. Workers who know English may be particularly advantaged, and even if only a few have these capabilities, such jobs add much more domestic value than low-skilled manufacturing assembly, thus contributing enormously to a country’s foreign-exchange earnings.
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