Many are pinning their hopes on the emerging and developing economies, but their growth will most likely remain episodic and too weak to propel the world economy, says Dani Rodrik in an op-ed piece in The Financial Times on August 23, 2011.

Optimism abounds, notes Rodrik, professor of international political economy at Harvard's Kennedy School of Government, as Citigroup predicts real gross domestic product will grow more than 9 percent a year in Nigeria and India, and more than 7 percent in Bangladesh, Indonesia and Egypt over the next two decades. And in a new Peterson Institute for International Economics study, aggregate output of developing and emerging economies will expand at an annual rate of 5.6 per cent over the same horizon.

If they prove right, says Rodrik, developing countries will make a substantial contribution to aggregate demand in the struggling rich countries and ensure the world economy's steady growth. We shall also witness the most impressive closing of the gap between rich and poor in history.

But these predictions overlook serious structural constraints, believes Rodrik, which will hamper sustainable growth of developing countries. China's problems are already well recognized, he notes, as its growth fuelled over the past decade by an ever-growing trade surplus that has reached unsustainable levels. China must "refocus its economy away from export-oriented manufacturing and towards domestic sources of demand, while managing the job losses and social unrest this restructuring is likely to generate".

According to Rodrick, sustained growth requires not only "conventional macroeconomic and openness policies", but also "active policies to promote economic diversification and foster structural change from low-productivity activities (such as traditional agriculture and informality) to mostly tradable higher-productivity activities".

Few countries have managed such industrial policies well, concludes Rodrick, as the structural transformation is typically "the result of messy and unconventional interventions that range from public investment to subsidized credit, from domestic-content requirements to undervalued currencies", instead of "the product of unassisted market forces".