An Acronym No More

Brazil, Russia, India, and China—otherwise known as the BRIC nations—are enjoying a new and, in ways, unprecedented role on the international stage. The four emerging markets maintained an average growth rate of 10.7 percent from 2006 to 2008, according to the International Monetary Fund. With this outstanding performance, they are creating a new economic miracle.

In an article recently published in the Beijing-based newspaper Guangming Daily, experts in a research team of the Hunan Provincial Planning Office of Philosophy and Social Science pointed to a trend known as the “big country effect” as a determining factor in their rapid, sustainable growth.

Excerpts from this article follow:

The “big country effect” has given rise to an inherently strengthened market potential, coupled with copious resource abundance as well as economic diversity and stability—the true reason for the rise of the BRIC countries

Some scholars say the rapid economic growth of the BRIC countries stemmed from their wise choices in comparative advantage strategies—which have allowed them considerable room to maneuver with regards to their resources.

Others say their brilliant performance emanated from their advantages in terms of being latecomers. In other words, having been so economically dormant for so long, the BRIC countries have enjoyed advances in development via technological improvements, human resource development, as well as economic restructuring.

None of these arguments are fully convincing.

As the BRIC countries are all emerging powers, they share significant commonalities: They are large in both area and population, with great quantities of resources and huge market potential. These, naturally, create favorable conditions for economic growth.

The numbers tell the story. For example, the geographic areas of Russia, China, Brazil and India rank first, fourth, fifth and seventh worldwide, respectively, while in terms of population, China and India rank first and second. Meanwhile, Brazil ranks number five and Russia, number seven.

In terms of the overall scale of natural resources, China ranks number three, India number eight, Russia number two and Brazil number nine. In terms of market scale, China comes in at number eight, India number 12, Russia number 16 and Brazil number seven.

These economic characteristics have formed the so-called “big country effect.” It is this effect that has given rise to an inherently strengthened market potential, coupled with copious resource abundance—two factors that boost diversity and economic stability. This is the true reason for the rise of the BRIC countries.

Features of ‘big country effect’

—Huge domestic demand has boosted economic growth in the BRIC nations. The BRIC nations originally stemmed from a proposal by the international investment and securities firm Goldman Sachs seeking strategic counterbalances against the United States in the future market. What Goldman Sachs valued is the four countries’ significant status in the world market. In terms of household consumption expenditures, Brazil, China, India and Russia are all world leaders. Their massive market potential forms an important advantage for economic development.

—Large quantities of resources have helped the BRIC economies rev up. Natural resources, of course, can be fundamental agents of economic growth. The BRIC countries are all positively endowed in this respect—something that portends for rapid, and sustainable economic expansion.

According to the World Bank, the gross reserves of mineral resources of India, China and Brazil now stand at $3.57 trillion, $3.18 trillion and $1.11 trillion respectively—far more than the $290 billion of Britain and Japan, and the $340 billion of Germany.

BRIC countries enjoy the benefits of large-scale industries thanks to their vast resource reserves. China and India, for instance, have become the world’s top textile producers owing to their abundant textile raw materials. Russia, in turn, has ascended as an energy power thanks to its rich energy resources, including vast amounts of oil.

—The large size of their economies has enabled the BRIC nations to develop a reasonable division of labor. The BRIC countries’ huge markets and resource reserves have ensured that all these countries boast considerably large economies.

Indeed, the sheer size of their economies has led to improvements in the context of their divisions of labor. Meanwhile, they have also contributed to industrial agglomeration within these countries, thus creating a strong environment for their economic takeoff. Just as the World Bank’s 2009 World Development Report pointed out, developing nations are fast entering a new realm of “agglomeration economies.”

—The BRIC nations’ diversified products have helped strengthen their comparative advantages in foreign trade. For these countries, dualistic or pluralistic economic structures, regional and industrial differences, as well as product diversity, have proven a boon with respect to their trade with other countries.

Bigger countries have larger areas and relatively complete industrial systems. They thus often have a diversified structure of export commodities. Currently, China’s export commodities mainly consist of food products, textiles, chemical products and machinery and electronic products. India mainly exports software products and textiles. Brazil principally exports agricultural products, minerals and aerospace products. Russia exports minerals, energy products and aerospace products.

Recently, foreign trade structures across the world have become increasingly specialized, although characteristics of diversification remain. On a positive note, this sort of structure has its advantages. For instance, it can help a country make better use of its natural, human and technological resources.

Against this backdrop, a single-export commodity structure is preferable for a small country. But for a big country, such as a BRIC nation, a diversified export commodity structure is appropriate as well. Indeed, the economic aggregates of big countries can be so overwhelming that the overall dimensions of a single industry can exceed those of all the industries of a smaller nation. That’s why big countries are able to gain a competitive edge in the international market even if they have a diversified export mix.

—Regional differences have contributed to the rapid economic growth of BRIC countries as well. Covering vast areas, the BRIC countries present strong regional differences within their borders in terms of natural resources, human resources, capital accumulation and economic development. Such differences can help energize rapid and balanced economic development.

On the one hand, regional disparities can serve as a driving force behind economic development. Different regions seek development in competition, which in turn speeds up overall expansion. On the other hand, regional differences can complement each other, thus promoting balanced growth among regions.

In BRIC countries, various regions can adopt different strategies for economic development based on their comparative advantages. Regions rich in labor resources, for example, can give priority to laborintensive industries. Those with abundant capital, meanwhile, tend to develop capital-intensive industries. Those with technological prowess, alternately, will prioritize technology-intensive industries. It is in these ways that industries in all regions pursue competitiveness while engaging in cooperation.

—Comprehensive economic systems have helped ensure stable growth for the BRIC countries’ national economies. The BRIC nations have established complete and independent industrial systems, thus gaining a strong capacity for self-regulation, in addition to a capacity with which to fend off external risks.

In the face of the global financial crisis, each of the BRIC nations demonstrated great resilience. Their strength in this regard was buttressed by development based on continued domestic economic consumption.

Greater responsibilities

As geographically big countries, the BRIC nations are expected to bear greater responsibilities as they enjoy economic growth. In fact, they have been advocating for the interests of other emerging markets and developing countries. They must now play a leading role in helping shape a new global financial order and promoting the sustainable development of the world economy.

They will have their work cut out for them.

But they have numbers on their side. According to a recent Goldman Sachs report, China will resume its long-term trend rate of growth by 2010. India and Brazil will resume their trend rates of growth by 2011. And Russia will resume its trend rate of growth by 2012. By all accounts, the four countries will be among the first to emerge from the financial crisis.

Meanwhile, they have engaged in proactive efforts with which to re-energize the world economy. For instance, they have adopted economic stimulus policies—not limited to a positive fiscal policy and an appropriately accommodative monetary policy.

In addition, the BRIC nations have expanded domestic demand to promote their own economic recovery—as well as that of the world beyond their borders. In the next few years, the robust increase in the domestic demand of the four countries will become a driving force behind the exportled recovery of developed economies.

Beyond that, the BRIC countries have an obligation to promote the reform of the international financial system. A just, equitable, inclusive and orderly new international financial order serves the fundamental interests of emerging market countries and developing countries.

In dealing with the international financial crisis, the BRIC countries have another common task—that is, to set up an example of sustainable development for developing countries. To achieve this task, thus far they have combined increasing domestic demand and economic restructuring together while trying to adjust their economic growth mode.

However, it should be remembered that the BRIC countries are in transition. Despite the powerful improvements, they continue to face problems in terms of their economic structure, growth mode and the quality of their development. Effective policies are thus needed to resolve these challenges.

For instance, they should pay more attention to hi-tech, modern service and environmental protection industries. They should also focus on developing a lowcarbon economy, while underscoring the principles of “reduce, reuse and recycle.”

In these and other dimensions, these new actors on the global stage may provide a telling example—one that can be fully embraced by emerging market countries and developing countries worldwide.