Report: BRIC Countries Face 'Crucial Challenges' to Sustained Growth

Over the past decade, the exceptional growth of the four largest emerging market economies – Brazil, Russia, India, and China (the BRICs) – has reshaped the global economic landscape. Combined, the BRICs contributed 36 percent of the world gross domestic product (GDP) growth in purchasing power parity (PPP) terms in 2010, and their share of global output has increased from 16 percent in 2000 to approximately 25 percent by 2010, according to An Anatomy of the Growth in BRICs: Past Trends and Future Prospects, a new report from the Manufacturers Alliance/MAPI report.

The report notes that while this trend is expected by many to continue and, in fact, become more pronounced in the next decade, some researchers are more skeptical, arguing that each BRIC country still has crucial challenges ahead to achieve sustained growth.

Yingying Xu, Ph.D., MAPI economist and report author, places primary focus on the factors affecting the growth accounting framework, a widely used economic model that separates GDP growth into employment growth and labor productivity growth. It shows that in China and Russia, more than 90 percent of the output expansion can be attributed to labor productivity over the past decade. In Brazil, an increasing portion has come from employment improvement, and in India, the relative importance of employment and labor productivity growth has remained stable.

"Among the BRICs, India faces the most promising prospects for employment growth, thanks to its solid population growth and the low urbanization rate," Xu said. "Brazil will benefit from the double-digit expansion of its working-age population in the next 20 years, although there is little room left for urbanization. The labor market conditions in China and Russia will be less robust, but the relatively low urbanization rate in China can at least partially offset the negative impacts of its aging population on economic growth."

Total factor productivity (TFP) growth, the portion of output that cannot be explained by the amount of inputs used in production and the level of which is determined by how efficiently and intensively the inputs are utilized in the production process, is responsible for the bulk of the economic growth in the BRICs in the last decade.

The report argues, however, that the BRICs face significant challenges because TFP growth is significantly influenced by factors such as institutional quality, infrastructure, financial development, and regulations.

In addition, the contribution to labor productivity from labor quality, which is measured by the changes in the composition of education levels in the labor force, has been very limited during the past 20 years.

"Labor quality is directly related to education in all BRIC countries," Xu said, "and all have different challenges in that perspective."