Unit 4 Macro: Global Economic Power Shift Continues
There are several research organisations out there producing regularly updated forecasts on what is likely to happen to the relative shares of global GDP and income per capita over the long run. Typically the forecast stretches out to 2050 and necessarily involves plenty of uncertainty. But these over the horizon studies are quite interesting in their own right because they remind us of the changing drivers of growth in the world economy.
Here is one of these reports - World in 2050 The BRICs and beyond: prospects, challenges and opportunities - produced by economists at PriceWaterhouseCoopers
- The world economy is projected to grow at an average rate of just over 3% per annum from 2011 to 2050, doubling in size by 2032 and nearly doubling again by 2050.
- China is projected to overtake the US as the largest economy by 2017 in purchasing power parity (PPP) terms and by 2027 in market exchange rate terms. India should become the third ‘global economic giant’ by 2050, a long way ahead of Brazil, which we expect to move up to 4th place ahead of Japan.
- Russia could overtake Germany to become the largest European economy before 2020 in PPP terms and by around 2035 at market exchange rates. Emerging economies such as Mexico and Indonesia could be larger than the UK and France by 2050, and Turkey larger than Italy.
- Outside the G20, Vietnam, Malaysia and Nigeria all have strong long-term growth potential, while Poland should comfortably outpace the large Western European economies for the next couple of decades.
- In 2013, emerging economies will produce the majority of the world's goods and services, the first time since the UK's industrial revolution
One interesting part of their analysis concerns the factors that they take into account when estimating the trend rate of growth of potential output for each country. These factors are listed below. Think about their relevance when you are studying supply-side economic policies in AS macro and also determinants of growth and competitiveness as part of your A2 macro course:
Trend growth determined by:
- Growth in the population of working age (based on the latest UN population projections).
- Increases in human capital, proxied here by average education levels across the adult population.
- Growth in the physical capital stock, which is driven by capital investment net of depreciation.
- Total factor productivity growth, which is driven by technological progress and catching up by lower income countries with richer ones by making use of the latter’s technologies and processes