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Re: [India_Vision_2020] The world in 2050

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  • Anupam Shriavastava
    Hi Karthik, Thanks for sharing this with us. This is a very nice article. Well researched and comprehensive. A must read for all. Regards, Anupam Shrivastava
    Message 1 of 4 , Dec 1, 2006

      Hi Karthik,


      Thanks for sharing this with us.

      This is a very nice article. Well researched and comprehensive. A must read for all.

      Anupam Shrivastava 
      ----- Original Message ----
      From: Karthik Swaminathan <KSN2K@...>
      To: India_Vision_2020@yahoogroups.com
      Sent: Friday, December 1, 2006 8:28:01 AM
      Subject: [India_Vision_2020] The world in 2050

      Hi Everybody,

      Take a look at the "The world in 2050" Survey by Price Water Coopers. There are some interesting conclusions ....

      http://www.pwc. com/extweb/ pwcpublications. nsf/docid/ 56DD37D0C399661D 852571410060FF8B

      Note: I am not well versed in Economics, So somebody who knew more on economics please explain.

      1. The first important conclusion from this research is that there is no single right way to measure the relative size of emerging economies such as China and India as compared to the established OECD economies. Depending on the purpose of the exercise, GDP at either market exchange rates or PPP rates may be most appropriate measure. In general, GDP at PPPs is a better indicator of average living standards or volumes of outputs or inputs, while GDP at current market exchange rates is a better measure of the size of markets for OECD exporters and investors operating in dollars, euros, yen or pounds. For long-term investments, however, it is important to take into account the likely rise in real market exchange rates in emerging economies towards their PPP rates in the long run, although our modelling results suggest that, for countries such as China and India, this exchange rate adjustment may still not be fully complete even by 2050.
      2. The second conclusion is that, in our base case projections, the leading emerging economies, which we refer to as the ‘E7’ (i.e. China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will by 2050 be around 25% larger than the current G7 (US, Japan, Germany, UK, France, Italy and Canada) measured in dollar terms at market exchange rates, or around 75% larger in PPP terms. In contrast, the E7 is currently only around 20% of the size of the G7 at market exchange rates and around 75% of the size in PPP terms.
      3. Third, however, there are likely to be notable shifts in relative growth rates within the E7, driven by divergent demographic trends. In particular, both China and Russia are expected to experience significant declines in their working age populations between 2005 and 2050, in contrast to relatively younger countries such as India, Indonesia, Brazil, Turkey and Mexico, whose working age populations should on average show positive growth over this period, although they too will have begun to see the effects of ageing by the middle of the century.
      4. Fourth, taking account of these demographic trends, our base case projections suggest that India has the potential to be the fastest growing large economy in the world over the period to 2050, with a projected GDP at the end of this period of close to 60% of that of the US at market exchange rates, or of similar size to the US in PPP terms. China, despite its projected marked growth slowdown, is projected to be around 95% the size of the US at market exchange rates by 2050 or around 40% larger in PPP terms. These base case projections also suggest that:
        • the Brazilian economy would be of similar size to that of Japan by 2050 at market exchange rates and slightly larger in PPP terms, but still only around 20-25% of the size of the US economy;
        • Indonesia and Mexico would also grow relatively rapidly, being larger than either Germany or the UK by 2050 (even at market exchange rates);
        • Russia would grow significantly more slowly due to its projected sharply declining working age population, but would still be of similar size to France by 2050 at either market exchange rates or PPPs; and
        • Turkey would grow more strongly due to its younger population, being of similar size to Italy by 2050 at both market exchange rates and in PPP terms.
        PricewaterhouseCoop ers – March 2006 40
      5. Fifth, these long-term projections are, of course, subject to significant uncertainties, which our model allows us to explore. Our sensitivity analysis suggests that long-term relative E7 GDP projections are particularly sensitive to assumptions on trends in education levels, net investment rates and catch-up speeds, which in turn depend on a broad range of policy and institutional factors. In PPP terms, our analysis suggests that it would certainly not be implausible for the relative size of the E7 compared to the G7 to be around 30% higher or lower than in our base case projections. Adding in real exchange rate uncertainty would make this ‘funnel of uncertainty’ even larger for GDP at market exchange rates in 2050. But we consider these uncertainties to be broadly symmetric around our base case assumptions, so this analysis does not alter our conclusion that the overwhelming likelihood is that there will be a significant shift in world GDP shares from the G7 to the E7 by the middle of the century.
      6. Sixth, while the G7 and other established OECD countries will almost inevitably see their relative GDP shares decline (although their average per capita incomes will remain well above those in emerging markets), the rise of the E7 economies should boost average OECD income levels in absolute terms through creating major new market opportunities. This larger global market should allow OECD companies to specialise more closely in their areas of comparative advantage, both at home and overseas, while OECD consumers continue to benefit from low cost imports from the E7 and other emerging economies. Trade between the E7 and the G7 should therefore be seen as a mutually beneficial process, not a zero sum competitive game.
        Seventh, however, while the net effect of the rise of the E7 should be beneficial for the OECD economies overall, there will be significant numbers of losers at both corporate and individual level. These losers may not outnumber the winners but could be more politically vocal in their opposition to globalisation. Mass market manufacturers will suffer, both in low tech and increasingly in hi-tech sectors, and economies like China and India will also become increasingly competitive in tradable services sectors such as banking and other wholesale financial services. There may also be a tendency for income inequalities to increase within the OECD economies, with global star performers doing well, but low and medium-skilled workers facing an increasing squeeze from lower cost workers in the emerging economies in internationally tradable sectors, as well as migrant workers in non-tradable service sectors. This competition will also increasingly affect highly skilled professionals below the ‘global star’ level, who may find their ability to attract premium income levels constrained by lower cost but equally qualified graduates on the end of an internet connection in Beijing or Chennai.
      7. Finally, we explored the important public policy challenges posed by these developments. The main roads to avoid are a relapse into protectionism, subsidies for declining sectors (except possibly through strictly time-limited assistance to smooth the adjustment process), or attempts to pick winners through industrial policy. Instead the focus should be on boosting general education levels, facilitating retraining and business start-ups in areas adversely affected by global competition, and developing active labour market programmes based on conditional benefit regimes, childcare support and in-work tax credits. But the optimal policy response and the extent to which OECD governments should ‘lean against the wind’ of increasing income inequality through more progressive tax regimes will be a matter for local democratic
        decisions reflecting local circumstances. This will involve hard choices, but national governments will retain significant discretion to set overall tax and spending levels.
      Thanks & Regards
      Karthik Swaminathan

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