Abstract

In their influential paper, Pritchett and Summers(2014) raised a $42 trillion mega question, which is about the difference between the size of China's GDP plus that of India under the Asiaphoria scenario and that under the scenario of regression to the mean in 2033. They refereed the optimistic forecast that China and India will maintain their current growth in the coming two decades as Asiaphoria, a term they coined by substituting Asia for the letters "eu" in the word "euphoria." Contrary to Asiaphoria, they concluded from their econometric exercises that “regression to the mean is perhaps the single most robust and empirical relevant fact about cross-national growth rates.” They thought the growth of China and India in the coming two decades would be governed by the rule of regression to the mean instead of Asiaphoria, which means that the growth rate of these two big economies would be very likely to go down dramatically, and that the $42 trillion question looked like nothing more than an imagined bubble.[ In his newspaper columns and interviews Summers repeatedly stressed a point that “Confidence is the cheapest form of stimulus.” Symmetrically, one can infer from the point that depressed confidence will be the cheapest form of depressing an economy.]

In this paper, I will argue that the logic behind the regression to the mean of growth proposed by Pritchett and Summers is not consistent, although I will not argue for the Asiaphoia. I would like to restate the point that developing countries, if adopting suitable strategy and policy, and tapping the potential of technologically backward position, can sustain a higher economic growth rate than the average level of industrial countries for certain period of time(Geshenklong, 1962; Lin, Cai and Li, 1995). 

This paper will be arranged as following. Next section will introduce the criterion that Pritchett and Summers employed to measure the persistence of an individual economy. Then I will show how that criterion has very little to do with the question being discussed, although it can be employed to measure the persistence of growth rate differences across economies. The following section will explain why some developing countries can persist a high growth rate for a certain period of time, and why Pritchett and Summers’ econometric exercise failed to figure out this persistence. In the section of “the potential of the periphery”, I will address the issue whether or not all the developing countries can expect to be as wealthy as the industrialized countries in future, that is the meaning of perisperity. The conclusion section will discuss policy implications.