Emerging markets not catching up with living standards of advanced economies: IMF

Doaa A.Moneim , Wednesday 16 Oct 2019

File Photo: International Monetary Fund (IMF) logo (Photo: Reuters)

Emerging markets and developing economies have enjoyed good growth over the past two decades, but many countries are still not catching up with the living standards of advanced economies, according to research conducted by the International Monetary Fund (IMF).

According the IMF report, at current growth rates it would take more than 50 years for a typical emerging market economy to close half of its current income gap in living standards, and 90 years for a typical developing economy.

Implementing major reforms in six key areas at the same time, including domestic finance, external finance, trade, labour markets, product markets, and governance, can double the speed of income convergence of the average emerging market and developing economy to the living standards of advanced economies, and could raise output levels by more than 7 percent over a six-year period.

Based on an empirical research of reforms in 48 current and former emerging markets and 20 developing economies, the IMF found that reforms can yield sizable payoffs.

"But these gains take time to materialise and vary across different types of regulations. For example, a domestic finance reform of the size that took place in Egypt in 1992 leads to an increase in output of about 2 percent, on average, six years after implementation. We get a similar result for anti-corruption measures, whose effects are sizable in the short run and stabilize at around 2 percent in the medium term. In the other four reforms areas—external finance, trade, product markets, and labour markets—the gains are about 1 percent six years after the reform," the research noted.

The research also proposed that to fulfil their promise of improving living standards, reforms must be supported by redistributive policies that spread the gains widely across the population, such as strong social safety nets and programs that help workers move across jobs. For reforms to be sustainable and therefore effective, they need to benefit not just some, but all. 

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