New Growth Drivers for Low-Income Countries: The Role of BRICs
New Growth Drivers for Low-Income Countries: The Role of BRICs
Prepared by: Strategy, Policy, and Review Department (in collaboration with the African Department)
Approved by: Reza Moghadam
Publisher: International Monetary Fund (IMF)
Publication Year: January 12, 2011
About the Book
New Growth Drivers for Low-Income Countries: The Role of BRICs is a comprehensive policy-oriented study prepared by a team at the International Monetary Fund, led by Yongzheng Yang, under the direction of Catherine Pattillo, Dominique Desruelle, and Hugh Bredenkamp. The report examines the rapidly evolving economic relationships between the BRIC countries—Brazil, Russia, India, and China—and low-income countries (LICs). It aims to assess how these emerging economic powers are reshaping global growth dynamics, trade flows, investment patterns, and development financing.
The publication provides an analytical framework for understanding the multifaceted channels through which BRIC economies influence LICs—through trade, foreign direct investment (FDI), development finance, and growth spillovers. It underscores that while advanced economies remain key development partners, BRICs have become increasingly important growth engines for low-income countries over the past two decades.
The report opens with an Executive Summary that sets out the central argument: the rise of BRICs has created both opportunities and challenges for LICs. On the one hand, growing trade and investment ties have contributed to higher growth rates and resilience against global economic shocks. On the other hand, the structure of these ties—dominated by commodities and resource extraction—raises concerns about long-term diversification and sustainable growth.
In the Trade Linkages section, the study details how bilateral trade between BRICs and LICs expanded exponentially during the 2000s. LIC exports to BRICs, especially of primary commodities, have significantly improved their terms of trade, but the report warns that without diversification, many countries risk being trapped in a commodity-dependent growth pattern.
The Foreign Direct Investment section explores how BRIC FDI—driven initially by state-owned enterprises—has begun to spread into manufacturing, agriculture, and services. The authors note the increasing role of private firms and small and medium-sized enterprises from BRIC countries investing in LICs, particularly in Africa, and emphasize policy priorities such as strengthening local linkages, promoting skills development, and maintaining a transparent and stable investment climate.
In Development Financing, the report highlights that BRICs are emerging as important financiers of infrastructure in LICs—especially in energy, transportation, and telecommunications—complementing traditional OECD donors. The study calls for careful assessment of debt sustainability and for maximizing the development impact of such financing through better project selection, transparency, and coordination.
The Growth Spillovers analysis uses econometric modeling to quantify how BRIC growth translates into higher GDP growth in LICs. The findings reveal strong and persistent spillover effects, especially via trade channels. The study concludes that BRIC-led global demand helped many LICs weather the 2008–2009 financial crisis.
The final section, Turning to the Future, projects that BRIC structural transformation—especially China’s shift toward higher value-added industries—could open new opportunities for LICs in labor-intensive manufacturing and global value chains. The authors emphasize the need for LICs to improve infrastructure, investment climates, and human capital to seize these future prospects.
This report stands out for its empirical rigor and policy relevance. It highlights the asymmetric but mutually beneficial relationship between BRICs and LICs, framing it as a pivotal element in the restructuring of global economic governance. The publication offers actionable policy insights for both LIC governments and international institutions seeking to leverage South–South cooperation for sustainable growth.
Contents
- Executive Summary
- I. Introduction
- II. Trade Linkages
- A. Evolving Patterns of LIC Trade
- B. Policy Implications
- III. Foreign Direct Investment
- A. BRIC FDI in LICs
- B. Chinese FDI Flows to LICs and Sub-Saharan Africa
- C. The Impact of BRIC FDI
- IV. Development Financing
- A. Stylized Facts on BRIC Development Financing
- B. The Impact of BRIC Financing
- V. Growth Spillovers
- VI. Turning to the Future
- A. Global Rebalancing: How Could It Affect LICs?
- B. A Long-Run Perspective
- VII. Conclusions
- References
- Appendices
- I. Constant Market Share Analysis of LIC Exports
- II. Gravity Model Analysis of LIC-BRIC Trade
- III. Data on Development Financing
- IV. Dynamic Panel Analysis of Determinants of Development Financing
- V. A Global VAR Analysis of BRIC-to-LIC Spillover
- VI. Modeling Global Rebalancing Using the GTAP Model
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