China’s size, measured by land area, natural resources, and population, makes it a dominant global player. Its growth over the past five years accounts for more than a third of the growth of the world economy. And on several occasions, China has proven that it can rebound rapidly from a crisis. In China’s case, size seems to matter. But does this also justify the conclusion that large(r) emerging economies are more resilient and better able to absorb shocks than smaller emerging countries?
Traditionally, large economies, because of their systemic importance, have more influence in international fora. The largest emerging markets, Brazil, Russia, India and China (BRICs) are part of the G-20, the main forum for global and economic cooperation. Additionally, these same four economies are among the ten largest shareholders in the IMF and World Bank. Voting power in multilateral financial organisations is determined by quotas, also linked largely to a country’s GDP. But at times, the search for global leadership can be costly for large countries. The largest emerging economies pay a high political and economic price in cementing their global leadership, in the areas of defense, trade and technology.
Surprisingly though, there seems to be little evidence pointing to the benefits of large country size when bouncing out of a crisis. Country size, measured by population, GDP and arable land, shows that scale does not per se guarantee resilience, or the adaptability needed after a crisis to rebound and transform a country to the benefit of its population. Strong institutions and good governance are only some examples that, more than size, enable this adaptability. And other studies show that population-size alone has no relationship with well-being, while other factors including economic openness fare better. These results at a first glance seem counterintuitive if we consider the benefits of economies of scale and a large internal market, which should favour competition and specialisation.
Even in advanced economies managing large-scale countries and populations is challenging and costly. The heterogeneity in preferences and cultures make it often difficult to build consensus and muddling through is often the only option. In emerging markets, reaching the most underserved segments of the population requires strong governance and systems, as well as well-developed internal connectivity. India in the most recent pandemic wave is showing how difficult it is to manage a health crisis when safety nets and connectivity are limited. And with consumption and private investment taking time to recover, India’s growth onus has been mostly falling on exports. Other large countries, including Indonesia and South Africa are having difficulty in shifting towards a sustainable recovery. Both countries are still leading the top ranks of COVID deaths and contagion and here, too, the contribution of exports has proven essential to avoid a deeper contraction in 2020.
Population size stands out as one of the most important factors explaining the varying outcomes when dealing with the pandemic. Countries with fewer than ten million people consistently outperformed countries with larger populations. Mexico, another large country, is booking a faster economic rebound. But poverty levels have increased substantially during the pandemic. The question is whether the comeback in Mexico’s domestic demand and a recovery of the US, will be reallocated to support the most affected sectors and segments of the population.
Turning back to China. Its domestic market although enormous, remains substantially less massive than comparable rich countries. China has for a long part of its development process relied on exports of manufactured goods. It has only recently ceded some market participation in labour-intensive manufacturing industries to countries like Vietnam. At the same time, China has been for long focused on infrastructure and more recently mobilising resources to eradicate extreme poverty. Eradication in rural areas has been successful so far, as was officially announced in the midst of the pandemic in July 2020. Hopefully it will be sustainable.
So, what do resilient economies have in common that makes them a success? Not necessarily size. Smaller emerging economies, including Uruguay and Botswana, have proven to be persistently resilient after crisis episodes. What makes them exceptional is that they have capitalised the gains from trade by favouring social protection and internal integration, while their institutional quality is high. But success is not permanent. If these countries lower their guard, their success could easily evaporate and eventually even revert.
Read Maritza's previous column 'More investments with a gender lens'