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| Long Term Growth Prospects |
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January-March 2007 |
Although very difficult, projecting world GDP for industrial as well as developing countries in the long run is a useful exercise. For instance, policies related to infrastructure, education, pensions or climate change are based on such long-run projections, and multinational firms also need to have an insight of the distribution of future growth across the world.
Using an augmented Solow growth model, Poncet (2006) recently released a set of long-run projections for 170 countries at the 2050 horizon. In this framework, growth stems from three driving sources: labor force, capital accumulation and total factor productivity (TFP). Labor force growth is subject to the latest demographic projections from the United Nations and the assumption of stable unemployment rates and constant hours worked per employee. In turn, capital accumulation is measured using projected values of investment rates based on domestic savings behavior estimated econometrically. Finally, projections of TFP growth rely on a recent generalization of the Nelson-Phelps catch-up model of technology diffusion. These projections of GDP in volume are supplemented with projections of real exchange rates based on a simple Balassa-Samuelson effect, where catching-up countries are supposed to experience an exchange-rate appreciation in real terms.
Results suggest that China’s GDP in 2050 could represent 22% of world GDP (accounting for the projected real appreciation of the renminbi). Indeed, between 2005 and 2050, China and India could experience a 13-fold and a 10-fold increase in GDP respectively. Over the same period, GDP for developed countries would almost double (Germany, France and Japan) and, for some, triple (US). We expect the list of the world’s ten largest economies to be quite different in 2050 than in 2005. However, over the next 50 years, the United States will unlikely lose the first rank in the world GDP hierarchy.
Based on these GDP forecasts the MIRAGE model has been simulated to provide projections of world trade. MIRAGE is the multi-region, multi-sector computable general equilibrium model developed jointly by CEPII and INRA to analyze trade policies. In the model, total factor productivity is computed endogenously in a first simulation to fit the macroeconomic projections in each country or region. MIRAGE results show a threefold increase of China and India's exports between 2001 and 2030, while it would be a twofold increase for developed countries.
These trade projections, together with the long-run projections of GDP, have been used by Bénassy-Quéré et al. (2007) to shed some light on the implications of various IMF quota formulas for the quota shares of 49 countries or zones up to year 2030. On September 18, 2006, the Board of Governors of the International Monetary Fund adopted a resolution requesting an agreement on a new quota formulas by the 2007 Annual meeting or no later than the 2008 Spring meeting. The new formula should be simpler, more transparent, and should allow for a better representation of developing and emerging countries. However, the different formulas envisaged do not bear the same implications in the long run, especially for large, fast-growing countries such as China, but also for the position of the European Union compared to the United States. For instance, with the so-called “Japanese” formula (50% GDP, 50% current openness), the share of the Eurozone drops by over six percentage points from 2001 (base year) to 2030, whereas the share of the United States stays constant and that of China more than doubles. In this formula, removing intra-Eurozone flows, as it has sometimes been suggested, is equivalent to a four percentage point drop in the Eurozone share. Finally, it is shown that the only way to efficiently increase the share of Sub-Saharian African countries is to include population rather than GDP in the formula. Such solution would be simpler and more transparent than currently discussed ones of including GDP in purchasing power parity. |
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Bchir, M. H., Decreux, Y., Guérin, J.-L. & Jean, S., MIRAGE, un modèle d'équilibre général calculable pour l'évaluation des politiques commerciales. Économie Internationale 89-90, pp 109-153, 2002.
Nelson, R. & Phelps, E., Investment in Humans, Technological Diffusion, and Economic Growth, American Economic Review, 56, pp 69-75, 1966.
Poncet, S., The Long Term Growth Prospects of the World Economy: Horizon 2050, CEPII Working Paper 2006-16.
Bénassy-Quéré, A., Béreau ,S. , Decreux, Y., Gouel, C. & Poncet, S., IMF Quotas at Year 2030, mimeo, 2007. |
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