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The Political Economy of the BRICS Countries


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blocks are normally the outcome of certain historical and political process.1 One can discern the birth of G7 in the pre-Cold War days when France, Italy, Japan, the UK, the US, and West Germany formed the Group of Six in 1975 and Canada joined the following year. Effectively, it emerged as a forum for the non-Communist powers to address pressing economic concerns such as inflation and the recession sparked by the OPEC oil crisis and dominated by Cold War politics. Or take the case of the euro area, which was born in the aftermath of the Cold War perhaps motivated by a search to question the hegemony of the US dollar. From that standpoint the genesis of the BRIC block, having emanated from the research report of a global investment bank, was indeed unique.

      Initially the focus of the analysis was confined to four economies, viz., Brazil, Russia, India, and China — thus giving birth to the acronym of ‘BRIC’ economies. In projecting future GDP trends in BRIC economies, the Goldman Sachs 2001 report considered a number of scenarios.2 The report arrived at a startling result: “Over the next 10 years, the weight of the BRICs and especially China in world GDP will grow, raising important issues about the global economic impact of fiscal and monetary policy in the BRICs” (Goldman Sachs, 2001). In particular, in all four scenarios, the relative weight of the BRICs rises from 8.0% at present (in current USD) to 14.2%, or from 23.3% to 27.0%, converting at purchasing power parity (PPP). Subsequently, in a sequel to the original report, Goldman Sachs argued: “If things go right, the BRICs could become a very important source of new global spending in the not too distant future. … India’s economy, for instance, could be larger than Japan’s by 2032, and China’s larger than the US by 2041 (and larger than everyone else as early as 2016). The BRICs economies taken together could be larger than the G6 by 2039” (Goldman Sachs, 2003). Such discussion has been the subject of a number of academic studies as well.3

      More recently, following the report from the Finance Ministers at the fifth BRICS summit in Durban (2013), the BRICS leaders signed the Agreement establishing the New Development Bank (NDB) (formerly referred to as the BRICS Development Bank) which is expected to, ‘strengthen cooperation among BRICS and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to collective commitments for achieving the goal of strong, sustainable and balanced growth’.

      Are all these developments pointers toward the emergence of BRICS as a new kid on the global economic power block? Are these five countries going to pose a threat to G7 economies in the years to come? This chapter argues that there are ample dampeners in the way of this expectation turning out to be true. While such a possible outcome could be reasoned out using differing viewpoints, viz., economic, social, or political, my focus here is somewhat limited. In particular, I will argue that the differences in macroeconomic structure and economic policies could make the BRICS block (and not necessarily individual countries) fragile with little cohesion.

      The rest of the chapter is organized as follows. First, I look into select metrics of economic importance of BRICS economies. This is followed by a discussion of three aspects of macroeconomic policies, viz., monetary, fiscal, and exchange rate. The trade pattern of the BRICS block is discussed next. Before I conclude, the case and future of economic cooperation between these countries is explored.

      Size of the BRICS Economies and Their Growth Trajectory

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      Figure 1:Share of the BRICS economies and G7 block in global GDP (at PPP).

      Source: Calculated from World Economic Outlook Database, April 2018, IMF.

      Of course, this does not mean that the extent of well-being across these economies is so different. Differing population size is the key to understand trends in per capita GDP. After all, in 2017 in terms of population, China (1.4 billion) and India (1.3 billion) were far above Brazil (207 million), Russia (144 million), and South Africa (57 million). Thus, effectively, the economic sizes of the BRICS countries are at variance with average well-being (Figure 2). Illustratively, in 2017, in terms of per capita GDP, Russia at nearly US $28,000 was way above Brazil (US $15,600) or China (US $16,660), while India’s per capita GDP at nearly US $7,000 was the lowest.

      The growth performance of the BRICS countries also differed considerably. Notwithstanding recent deceleration, China grew at about 10% for nearly 25 years. Indian growth too has registered a steady acceleration since the initiation of its reform program in the early 1990s. After tumbling in the 1990s, Russian growth experienced a roller roaster movement in sync with petroleum prices. Brazil and South Africa too experienced lower growth rates in comparison with China and India (Table 1).

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      Figure 2:Per capita GDP of the BRICS economies