Demand in the developing world, stimulated by Western investment, is creating new markets for our goods, even if most of the population remains poor. There is a rapidly growing middle class in India and China. Labour costs are low in developing countries because productivity is low. Although competitive wages are always important, firms in developed economies do not have to match wages in such economies. They need to have higher labour productivity.
Developed economies import no more from low-cost economies now than a decade ago.
For the OECD as a whole, imports from developing economies currently account for around 4 per cent of GDP, compared with 5 per cent in the early 1980s. At about 15 per cent, the proportion of UK imports from countries with wages 25 per cent or more below UK rates is the same as 20 years ago. Although skill levels are rising rapidly in some developing countries, developed nations have a considerable lead. Nearly half the people in developing countries have no formal education and the average number of years of schooling of the adult population in the OECD is nearly three times higher than in developing countries. New technology, particularly information technology, is much further advanced in developed economies.