Is Poland the next Spain? Is China the next Spain?

In the 1970s and early 1980s, income level in southern European countries such as Spain rapidly converged to the rest of the Western Europe. As central and eastern European countries are joining the common market, it is natural to ask “is Poland the next Spain?” Will they catch up with their western neighbors? And how long will it take?

Professors Francesco Caselli and Silvana Tenreyro analyze the case and bring one piece of bad news and one piece of good news.

The bad news is: as the income gap between agriculture and industry is quite small in Eastern Europe, it is unlikely that they could raise income dramatically by massive reallocation of labor from agriculture to manufacturing and services (which was what happened in Spain in 1970s). The only option for Eastern European countries is to increase productivity in manufacturing as the productivity gaps in this sector compared to Western European countries are still enormous. This is more complicated a task and will take a long time.

The good news is: Eastern Europe already has levels of human capital similar to those of advanced Western Europe. Human capital gaps have proved very difficult to overcome in the experiences of Southern European countries such as Spain. Eastern European countries however start out without the handicap, and they may catch up even faster because higher human capital enables them to emulate their western neighbors’ frontier technologies and best practices without inventing the wheel.

New questions: Is China the next Spain? Is India the next Poland?

In China, increase of per capita income is evidently achieved through mass reallocation of labor from unproductive agriculture sector into urban manufacturing sector.This happend in Spain too. In India, the higher education system produces higher quality graduates as competitive as their Eastern European counterparts.........

What are missing for both China and India, however,  are geographic neighbors that are as rich and as responsible as Western European countries. I don't see Japan can play such a role in the near term. Rich EU countries have a well-designed package of programs to help their Eastern neighbors to harmonize their system and converge to Western standards.This isn't ready for Asia yet; the income and institutional gaps are too big in Asia!

References:
Is Poland the next Spain? (PDF file)
Professor Jeffrey A. Frankel wrote an interesting piece of  comment titled “Is Slovakia the next Portugal?” (PDF file)

Comments

[Scott Peterson]

With respect to Japan as a potential agent of assistance to China, there is still a lot of animosity and political issues with respect to WW II that probably would hinder Japan from playing the Europe-like role toward China.