become wealthier and technologically more sophisticated, they will gradually lose the advantages of starting from behind. even with continued strong policies, their growth will slow as returns to capital investments diminish and the most profitable opportunities are exploited. 18 for example, over time, rising wages in manufacturing should make production and investment in china and see oster and millet ( 2011 ). rodrik ( 2010 ), for example, discusses china ’ s case. after 1989, ethanol subsidies in brazil were removed, but other forms of indirect government support were maintained. recent research by eichengreen and others ( 2011 ) draws on cross - country evidence to show that the pace of a country ’ s economic growth tends to slow once its level of real per capita income crosses a certain threshold. bis central bankers ’ speeches other east asian nations less attractive. also, technological progress will slow as the process of importing foreign technologies reaches its limits, forcing greater reliance on innovation in emerging countries themselves. resource and environmental constraints, as well as aging populations, should also slow economic growth. but in many ways, such a slowdown in growth will be the inevitable result of progress – the culmination of a successful catching up process – and in that respect should be viewed as a consequence of success, not of failure. many emerging markets also will be challenged by their reliance on trade to drive growth. as i have discussed, international trade has many benefits. however, generating trade surpluses by suppressing domestic demand defeats the ultimate purpose of economic growth – improving the lot of the country ’ s own citizens. large and persistent imbalances in trade are also inconsistent, in the long run, with global economic and financial stability. of course, the advanced economies, like the united states, need to do their part as well in reducing global imbalances, as i have noted on numerous occasions before. in fact, with the emerging market economies accounting for a large and growing share of global activity, many of them can no longer view themselves as small, open economies whose actions have little effect on their neighbors. with increasing size and influence comes greater responsibility. in response to this new reality, many of our international institutions have been restructured in recent years to give an increased voice to the emerging market economies. for example, the group of twenty ( which has significant emerging market representation ) has largely supplanted the group of seven as the premier global forum for economic and financial policy matters, and emerging market economies have been given

by their successful application by a number of countries. however, the experience of the past two decades also suggests some lessons that augment or modify what we thought we knew about economic development in 1990. i will highlight three specific lessons. first, the implementation of the washington consensus recommendations is important and not so straightforward in practice. in particular, as i alluded to earlier, the sequencing of reforms matters. for example, some developing countries, following the principles of liberalization and deregulation, removed controls on the inflows of foreign capital, and foreign investors responded by pouring in funds. however, the banking systems and the associated regulatory and supervisory agencies in these countries were not always well prepared to manage these capital inflows. consequently, some of the foreign capital was badly invested, which in turn contributed to emerging - market financial crises, like those in mexico and emerging asia in the 1990s. this experience suggests that measures to strengthen banks and bank regulation should be put in place before the domestic market is opened to capital flows from abroad. similarly, dismantling controls on the domestic financial industry has proven counterproductive when important complementary factors – such as effective bank supervision, the availability of bank managers trained in market - based lending, or consumer familiarity with financial products such as credit cards – were absent. for example, korea experienced a mini financial crisis in early 2003, resulting from a massive run - up in household debt. in the wake of policy changes to liberalize and increase competition in domestic financial markets, credit card debt in korea as a share of its gross domestic product more than tripled between 1999 and 2002, as the average number of credit cards for every adult in the country rose from 1 to 3. korea ’ s consumers, lenders, and regulators had little experience with credit cards, and institutional arrangements for sharing data on consumer credit, including credit reports, were inadequate. not surprisingly, at least in retrospect, delinquency rates soared, putting the solvency of a number of the country ’ s major financial institutions at risk. the broader lesson is that institutional arrangements, ranging from accounting rules to regulatory frameworks to tax - compliance tools, must be sufficiently developed to ensure that reforms are successful. fortunately, even in the absence of a clear consensus on how best to sequence and implement reforms, many countries have successfully promoted growth through a slow and pragmatic but continuing process of liberalization. burki and perry ( 1998 ) and rodrik ( 2006 ) are among those