India is Catching Up? China too? Don't count on it...

Regularly we see articles in the media stating that China will be the largest economy in the world by 2050, or that India will soon overtake Britain (see this story- thanks to Olly for the pointer). "Within 15 years Indians should, on average, be four times richer than today," the article states. Frankly, I'm skeptical. Yes, it may happen, but there are many reasons why that day may not arrive nearly as soon as the article argues.

Lets consider an analogy. Woman sprinters are getting faster every year. So are men. But woman are getting faster at a faster rate. Ergo one day woman sprinters will be faster than men- by 2156 according to this story. The academic study behind this story was even published in Nature, one of the top science journals, so it might be correct, right? Not so fast.....

So what's wrong with it? Well, everything, really. Let's take the recent past, project it forward linearly, and see where we end up in the distant future. Do we live in a linear world? No. Do we expect to live in a linear world in the future? No. Would any rational person expect growth rates to continue at current rates? No. Do these long-term linear projections do anything more than create headlines to help journalists sell newspapers? No.

Consider the following graph of real GDP for India. I've taken logs, so constant growth would result in a linear relationship. And in recent years, growth has been approximately linear. Chinese data results in a similar graph.

But will growth continue to be linear? See the next post for more....