The Future of Global Economic Power
The global economy’s enormous region-specific demographic, technological, and fiscal changes raise five major questions. First, which regions will come to dominate the world economy? Second, will regional levels of per capita GDP converge? Third, will high saving rates in fast growing regions lead to a global capital glut? Fourth, does aging augur far higher tax rates in particular regions? Fifth, will automation materially influence development? This paper develops the Global Gaidar Model, a 17-region, 2-skills, 100-period, OLG model, to address these questions. The model is carefully calibrated to 2017 UN demographic and IMF fiscal data. Productivity growth and its interaction with demographic change are the main drivers of future economic power. Fiscal conditions and automation matter are secondary factors. Our baseline simulation, which sets future productivity based on each region’s long-term record, predicts China and India becoming the world’s top two economies with 27.0 percent and 16.2 percent of 2100 world GDP, respectively. The respective US and Western Europe shares are just 12.3 percent and 11.9 percent. Our baseline also features an evolving global savings glut, major reductions in the world interest rate, substantial aging-related increases in tax rates, and permanent differences in regional living standards. Automation makes little difference to these results. But assumed assumed productivity growth does. If recent productivity continues and demographic projections prove accurate, India will account for one third of world output in 2100 and China for over one fifth. The US output share will grow slightly while other developed countries shrink dramatically. Under more sophisticated, if seemingly less plausible projections, productivity growth in China and India dramatically slows leaving China’s plus India’s 2100 output share at only 16 percent, but, remarkably, Africa’s at an astounding 17 percent.
We thank the Gaidar Institute and Boston University for research support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research or the Inter-American Development Bank.
The views expressed herein are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank.Andrey Zubarev
Andrey Zubarev’s sole source of funding for this research is research support from the Gaidar Institute and the Russian Presidential Academy of National Economy and Public Administration.