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Developing Countries and Deflation
Pages 10 (2510 words)
In October of 2002, one of Morgan Stanley's chief economists, Stephen Roach, wrote and published "The Factor of China", a report documenting China's alleged transfer of deflation to the world through the export of its commodities. The report argued that coinciding with China's rapid growth was a significant decrease in local consumption causing deflation but with its continuous export of cheap commodities to the world's markets, it has rendered the countries producing the same commodities weaker in their production capacity.
A year after Roach's controversial report, Goldman and Sachs published a Global Economics paper entitled "Dreaming with BRICs: The Path to 2050". In this report, the authors surmised that given the 'right' growth conditions and a lot of luck, four of the biggest developing countries namely Brazil, Russia, India and China (thus forming the BRIC acronym) could become the largest economic force in the world in 50 years possibly even surpassing the G6 economies (US, Japan, UK, France, Italy and Germany). Like China, the economies of Brazil, Russia and India have influenced the decline of consumer prices in the world. If there is any empirical basis on the notion of China's alleged spread of deflation, would it not be reasonable to suggest that the rest of the BRICs could have the same effect on the world's economy This paper aims to examine if such generalization regarding deflation shifting could indeed be applied to all of the BRICs as the world's largest developing countries. ...
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