WORLD GROWTH AND INTERNATIONAL CAPITAL FLOWS IN THE XXI st CENTURY

Transcription

1 CEPREMAP WORLD GROWTH AND INTERNATIONAL CAPITAL FLOWS IN THE XXI s CENTURY A prospecive analysis wih he INGENUE 2 model by he INGENUE TEAM Michel AGLIETTA and Vladimir BORGY (Cepii), Jean CHATEAU (Ocde), Michel JUILLARD (Cepremap), Jacques LE CACHEUX, Gilles LE GARREC, Vincen TOUZÉ (Ofce) For he Tokyo Club Conference The fuure srucure of inernaional capial flows

2 OUTLINE The paradox of world saving in he early years of he XXI h cenury The conjecure of a world growh regime: demographic rends and echnological caching-up The baseline scenario: he paern of ne financial flows and asses A faser caching-up in China and India How o ge from here o here?

3 THE PARADOX OF WORLD SAVING Emerging marke economies and Japan finance he deb-induced consumer spree in he US (Ne financial saving in % of GDP) Counries or regions Average Average Advanced Economies: Unied Saes Euro Zone Japan Emerging Economies: China Oher Asia Lain America Ceecs

4 THE PARADOX OF WORLD SAVING A massive misallocaion of world saving unsusainable in he long run The so-called saving glu reveals weak producive invesmen as an afermah of he Asian and subsequen crises: breakdown in domesic demand rends, huge real depreciaion of exchange raes, chronic over capaciies of supply. The prolonged balance shee recession in Japan has come o a near end wihou reviving domesic demand ye. And unprecedened slump in US household saving is generaing he deb counerpar of a $3.2 rillion reserve accumulaion.

5 THE CONJECTURE OF A WORLD GROWTH REGIME A world growh regime ransferring resources beween regions: Ageing rich regions echnology capial Growing working age pop regions Households in rich regions have incenives o expor heir saving o faser growh regions wih higher capial yields

6 DEMOGRAPHIC TRENDS Working age populaion is spli beween growing and declining regions Working age populaion annual growh rae ,0 3,0 2,0 1,0 0,0-1,0-2, N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

7 DEMOGRAPHIC TRENDS High savers raios reach heir op in sequenial waves 40 High Savers Raio (age group yrs in percenage of oal populaion) N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

8 Producion secors Producion of he world good : Producion of he regional inermediae good : Producion of he regional final good Uiliaion of he regional final good I C YF + = ), ( M B G AF YF = ) ( 1, N K F AI YI = * * ) ( ) ( = µ µ µ µ µ γ X A Y POTENTIAL FOR CATCHING UP The growh process in Ingenue 2

9 POTENTIAL FOR CATCHING UP A Schumpeerian Paradigm There is a global echnology fronier which shifs ouwards wih he incremens in knowledge due o leading-edge innovaions in fronier counries (namely Norh America). The counries behind he fronier implemen echnologies already developed elsewhere. Par of he inpus of echnological diffusion are brough via foreign rade. The furher a counry is behind he global echnology fronier, he faser i can grow. As emphasied by Gerschenkron, backwardness can be an advanage for growh provided appropriae insiuions are developed wihin he counry

10 POTENTIAL FOR CATCHING UP Crucial Hypoheses of World growh The caching-up in oal facor produciviy: mechanics of echnological diffusion A A [ ] A1, A1, 1 + λ µ + ( µ ) i, = 1 i 1 i i, 1 A1, 1 Ai, 1 λ Is an acceleraion coefficien of he growh rae of TFP in he leading region µ is a brake facor capuring social impedimens o he speedy diffusion which depends on he disance beween he level of TFP relaive o ha of he leader

11 POTENTIAL FOR CATCHING UP The paern of TFP Growh in he baseline Scenario Norh America keeps leading Three caching-up regions: China, India, Easern Europe Toal Facor Produciviy : (percenage of "Norh America" level) 1,0 0,8 0,6 0,4 0,2 0, N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

12 BASELINE SCENARIO Japan, Europe and Russia have he lowes growh raes America slows down fas, hen recovers In China he speed of caching-up parly offses he demographic decline 6 GDP Growh rae ( ) N. America W. Europe Japan S. America Medierranean

13 BASELINE SCENARIO Real exchange raes appreciae in he fases-ageing regions (Europe, Japan, Russia) agains Norh America. They remain relaively sable in oher regions 2,5 Evoluion of Real Exchange Rae ( ) 2,0 1,5 1,0 0,5 0, N. America W. Europe Japan S. America Medierranean

14 BASELINE SCENARIO The redeploymen of capial flows o he world regions wih he bes growh poenial Evoluion of Curren Accoun Balance (percenage of World GDP) : Ownership Raio 0,6 0,5 0,4 0,3 0,2 0,1 0,0-0,1-0,2-0,3-0, N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe 1,20 1,15 1,10 1,05 1,00 0,95 0,90 0,85 0,80 0,75 0, N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

15 BASELINE SCENARIO Main feaures for Europe The demographic profile and he weak cachingup in TFP will make Europe a slow growh region. Europe will be a pervasive world credior wih an appreciaing real exchange rae European households will benefi from globalisaion via capial income drawn from heir credior posiion and gains in purchasing power on impored goods

16 FASTER CATCHING-UP IN CHINA AND INDIA Main Hypoheses Supply-side facor: an enhanced echnological diffusion more pronounced in China han in India in he firs half cenury Toal Facor Produciviy (annual growh) : 2,4 2,2 2,0 1,8 1,6 1,4 1,2 1, Norh America Chinese World - Fas caching-up process Indian World - Fas caching-up process Chinese World - Baseline Indian World - Baseline

17 FASTER CATCHING-UP IN CHINA AND INDIA Main Hypoheses Demand-side facor: exension in coverage of public pension sysems. Convergence of he paricipaion raes for age group (60-69) oward he level of Norh America INGENUE 2 : Age-linked rae of employmen coverging o Norh America : 1,00 0,90 Source : ILO 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0, Norh America China India Share of pensions in GDP In % (baseline) 2050 (expanded public pension) China World

18 FASTER CATCHING-UP IN CHINA AND INDIA Boos in Produciviy and Real Income The faser echnological diffusion acceleraes growh and lowers he propensiy o save in a firs sage. Then growh slows down genly and saving recovers wih higher income GDP Growh rae (difference from baseline scenario) Evoluion of he Ne Saving (in percenage of GNP) (difference from baseline scenario) 0,50,55,45 0,00,35-0,50,25-1,00,15,05-1,50,05-2, N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

19 FASTER CATCHING-UP IN CHINA AND INDIA Transiion Cos o Beer Social Welfare The improved social welfare is cosly while he reform is under way: The paricipaion of older workers is reduced The higher dependency raio mus be financed via higher axes and saving Privae consumpion per capia (level) (Percenage poin difference from baseline scenario) GDP per capia level ( ) (Percenage poin difference from baseline scenario) % 0,5% % 0,0% % -0,5% % -1,0% % -1,5% % -2,0% % -2,5% % -3,0% % -3,5% % -4,0% N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe N. America W. Europe Japan S. America Medierranean Africa Russia China India E. Europe

20 COMBINED SCENARIO OF HIGHER GROWTH IN TFP AND IMPROVED SOCIAL WELFARE The growh-enhancing facor dominaes on GDP and privae consumpion The effecs on saving are in opposie direcions so ha hey cancel ou on ne capial flows and inernaional financial posiions GDP Growh in Asian regions : Ownership raio in Asian regions : 0,98 0,93 0,88 0, , China - Alernaive scenarios India - Alernaive scenarios China - Alernaive scenarios India - Alernaive scenarios China - Baseline scenario India - Baseline Scenario China - Baseline scenario India - Baseline Scenario The inernaional impac of a change o a more inward-looking growh regime in Asia is hus mued

21 HOW TO GET FROM HERE TO THERE? 1. The baseline scenario poins ou o he need of resoring a susainable saving/invesmen balance in he US A subsanial real depreciaion of he dollar: will boos ne privae saving in slowing down domesic demand will change he srucure of demand in favor of nonraded goods, hus miigaing he negaive impac on employmen A reducion in he budge defici is he sures way o improve naional saving (weak Ricardian equivalence in he US)

22 HOW TO GET FROM HERE TO THERE? 2. The baseline scenario depics Europe as a low growh region on persising in inefficien policies Europe has a declining working-age populaion and is relaively close o he echnology fronier. The only source of poenial growh will sem from boosing innovaion Overcoming Europe s shorcomings requires: more public spending on higher educaion and R&D beer links beween public and privae research Long-run growh is enhanced by counercyclical economic policy (Aghion and Howi). In a siuaion of high profis and low producive invesmens, domesic demand should be raised o induce firms o spend insead of buying back heir equiy capial

23 HOW TO GET FROM HERE TO THERE? 3. The baseline scenario shows ha he world growh regime in he XXI h cenury will have is engine in regions wih a huge labor force and fas caching-up Overhauling he growh regime in Asia owards domesic demand is a op prioriy. I involves: Promoing financial reforms o se up smooh wellregulaed credi sysems for he privae secor, including consumer credi. Invesing in infrasrucure and mass educaion o lower he barriers o echnological diffusion Iniiaing long-sanding social policies o vasly improve social welfare sysems and above all exend heir coverage