The Rise of Middle Kingdoms: Emerging Economies in Global Trade

I n the recent global fi nancial crisis, there was a sharp divide in the economic performance of high-income and emerging-market nations. The United States, the countries of the European Union, and Japan suffered most. They have been slow to recover, with heavy debt burdens and enfeebled banks promising continued sluggishness. Many emerging economies, in contrast, hardly paused during 2008 and 2009. Led by China and India, their robust growth is now fueling the recovery of the global economy. The shift in economic power is palpable. Brazilian, Chinese, and Indian multinational fi rms are eagerly acquiring assets abroad; U.S. and European leadership in the World Trade Organization, once unassailable, has failed to consummate the Doha round of global trade negotiations; and the IMF has been spending more time worrying about the balance sheets of high-income nations than of lower-income ones. Although events since 2007 have brought these changes in the world economy into sharp focus, the rise of lowand middle-income countries in global trade has been decades in the making. China’s economic transition, which accelerated in the 1990s, allowed the country to realize a latent comparative advantage in labor-intensive products (Amiti and Freund 2010; Harrigan and Deng 2010). India’s surge of growth, which began even before the reforms it initiated in 1991 (Rodrik and Subramanian 2004), was, like China’s, aided by industries beginning far inside the technology frontier (Hsieh and Klenow 2009). The result of China’s The Rise of Middle Kingdoms: Emerging Economies in Global Trade