Saturday, April 23, 2011

The 3G economies

Citi economists William Buiter and Ebrahim Rahbari investigated the likely future sources of global economic growth between 2010 and 2050 and have come up with 11 global growth generators. The 11 3Gs are Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka, and Vietnam.

Their analysis
(full report here) is based on country forecasts of macroeconomic data, historical data for the past 10 years, and research data on the drivers of long-term economic growth. They constructed a 3G index that aggregates some key growth drivers - gross fixed domestic capital formation (as a share of GDP), gross domestic saving (as a share of GDP), a measure of human capital, itself aggregating demographic, health and educational achievement indices, a measure of institutional quality, a measure of trade openness, and the initial level of per capita income.

Interestingly, three of the eleven are from South Asia and two are from Africa. Does this signal that the next half-century could belong to South Asia just as the previous half belonged to East Asia? It forecasts India to overtake China and become the world's largest economy by 2050, with India's economic growth to peak in the 2030-50 period. Further, the presence of two African countries lend credence to the growing belief that Africa is one the take-off path.

Developing Asia will contribute more than half the global economic growth over the next forty years, with Africa following behind. The combined shares of North America and Europe will be slightly more than 10%.

A reflection of Asia's pre-eminence as the engine of global economic growth is the eastward shift in the global economic center of gravity.

India is set to emerge as the largest economy by 2050

However, despite the spectacular and sustained growth, the per capita GDPs of most of these economies will remain less than half of the US per capita GDP even by 2050. This also means that the room available for convergence or catch-up growth with the technology frontier (say, the US) will be considerable, thereby boosting the economic prospects of these economies in the next half century.

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