Which Countries Might Prosper In Weak Global Economy?

The global economy faces numerous challenges that will create difficulties for most countries and opportunities for a few other countries.  Dani Rodrik describes three factors that will determine the countries that best satisfy the three criteria.  Unfortunately, few countries satisfy all three.

Countries that have reasonable public and private debt burdens will do better than heavily indebted nations.  Most of the developed world, and most developing countries, face problems that result from excessive public and private debt.  Both forms of excessive debt are bad because they interact with each other.  Large private debt burdens lead to public debt problems (Spain, Ireland), and excessive public debt limits the ability of governments to respond to economic problems.  It also leads to fights over tax policy and redistribution policies, and it limits investment in needed structural changes.  It also leads to the kinds of political polarization that we see in most of world.

Countries that are not reliant on the world economy will have a better chance for success.  Countries that have current account imbalances will have more problems.  For example, Turkey, which has a current account deficit, will have more difficulty tapping into the global financial market for capital.  Countries like China, which have current account surpluses, will receive pressures to limit mercantilistic practices.

Countries that have a middle class and a large domestic market will do better than countries that depend upon exports for growth.  These countries usually benefit as well from a democratic system that is needed for making better decisions and resolving conflict between interest groups.  China and Russia, for example, are limited by two of these problems.  Argentina and Turkey are limited by reliance on authoritative regimes.

Only a handful of countries satisfy each of these criteria.  They include, India, Brazil and South Korea.