China’s growth: When something seems too good to be true, it usually is

Consensus forecasts for the global economy over the medium and long term predict the world’s economic gravity will substantially shift towards Asia and especially towards the Asian Giants, China and India. While such forecasts may pan out, there are substantial reasons that China and India may grow much less rapidly than is currently anticipated.

Most importantly, history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth.

…Furthermore, statistical analysis of growth reveals that in developing countries, episodes of rapid growth are frequently punctuated by discontinuous drop-offs in growth. Such discontinuities account for a large fraction of the variation in growth rates.

We suggest that salient characteristics of China—high levels of state control and corruption along with high measures of authoritarian rule—make a discontinuous decline in growth even more likely than general experience would suggest.

…our analysis suggests that forecasters and planners looking at China would do well to contemplate a much wider range of outcomes than are typically considered.

That is Lant Pritchett and Larry Summers in a new NBER paper. This appears to be an older ungated copy.

Without ever having actually analyzed any data, my hunch is that an awful lot of growth halts in authoritarian countries comes from badly managed transitions of power. Whether this is true, and what makes transitions more or less stable, is not something I’ve seen a lot of work on.

My second hunch is that institutionalized rather than personalized systems of rule are one reason for stable transitions. You could say the strength of the party over any one person in China is a reassuring sign. You even see the same in places like Ethiopia. There are not many African countries where the autocrat dies suddenly and the world barely notices because the country keeps chugging along.

Even so, I agree with the basic point: things could turn upside down in China and the world is not really prepared for what follows.

I would be grateful for pointers to any work on my political transitions hunches.