The rise of Asia and the new world order

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The rise of Asia and the new world order

The global economy is undergoing a fundamental change. Despite concerns over slowing growth in the People’s Republic of China, India, and Japan, and the possible dissolution of the eurozone, global economic growth is accelerating.

How can this paradox be explained? If the global economy is shifting toward the more rapidly growing economies, then the world’s growth rate would shift toward the growth rates of the more rapidly growing economies. Thus, even if the growth rates of the PRC and India were to slow, global growth, which is considerably lower than that of both countries, would accelerate.

The growth acceleration will lead to a new world economic order, associated with more rapidly growing countries such as the PRC and India, which are going to have a larger share of the global economy.

The PRC overtook Japan as the world’s second-largest economy in 2010. But, the World Bank noted that this milestone had been reached in 2005 in current purchasing price parity (PPP). In terms of PPP, the PRC will overtake the United States (US) in 2017, according to the International Monetary Fund and India will overtake Japan in PPP in 2012. The US has been the world’s leading economy for more than a century.

The new world order will look very different in 2020. Asia will boast three of the four biggest economies in the world. As Figure 1 shows, the largest economies in descending order would be the PRC, the US, India, Japan, Russia, Germany, Brazil, and the United Kingdom, based on shares of world GDP expressed in current PPP (the methodology and an earlier data set can be found in Jorgenson and Vu 2011).

Figure 1: New Economic Order 2020
Shares of World GDP (%)


Sources of economic growth

The sources of economic growth are capital input, labor input, and productivity. Everything depends on technology and demography because labor input is essentially driven on the supply side by demography; productivity is driven by technology; and capital input is determined by the growth of the economy.

Sources of economic growth can be classified between the replication of existing technologies and innovation (i.e., production processes and products). Replication entails increasing labor and capital inputs, and output increases in proportion to the rise in input, so there is no contribution to productivity growth. In contrast, innovation entails changes in technology, whereby increases in output exceed the growth of inputs.

Evidence shows that global growth is mostly from replication and not innovation, since productivity explains only a modest proportion of growth, even for rapidly growing countries like China and India.

Projecting world economic growth

Projections show that the world economy will accelerate, with 3.6% growth in 2010–2020, versus 3.3% in 1990–2010, notwithstanding negative demographic trends due to an ageing population and a declining workforce. Labor productivity growth, capital and labor quality, and closing the gap between output and capital will be major sources of the acceleration.

The G8 and G20 countries will continue to grow in 2010–2020, but the BRICS countries (Brazil, Russia, India, PRC) will grow even faster.

Japan’s base case projection for the period of 2010–2020 in labor productivity growth is 1.8%, which is similar to the period of 1990–2010. However, labor force growth is unfavorable. Because of its aging population Japan’s annual average growth shrank for 1990–2010, and is expected to slow even further in 2010–2020. After combining labor productivity and labor force growth, the base case GDP projection of annual growth rate is 0.7%. This figure is lower than Japan’s official growth target for GDP, which is 2% in real and 3% in nominal terms. This projection does not take into account possible policy changes such as increasing immigration and boosting workforce participation of women and the elderly.

The PRC’s growth is expected to slow on negative demography and labor productivity trends. However, its growth rate will remain above 7%. India will grow at 6.5%, a slightly faster rate than in the 1990–2010 period.

Growth will slow for Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Singapore; and Taipei,China, but Asian and global economic expansion as a whole will accelerate, driven by the PRC and India.

The emergence of Asia from the underdevelopment that persisted until the middle of the last century is the great economic achievement of our time. This has created a new model for economic growth built on globalization and the patient accumulation of human and nonhuman capital over decades. The new growth paradigm places a premium on skillful management by public and private authorities. The performance of the leading countries in developing this paradigm – Japan, then the Asian Tigers, and now China and India – has changed the course of economic development in Asia and around the world.

References:

Dale W. Jorgenson and Khuong M. Vu. The rise of developing Asia and the new economic order. Journal of Policy Modelling. Volume 33. Issue 5. September/October 2011.

About Dale Jorgenson
Dale Jorgenson is the Samuel W. Morris University Professor at Harvard University. He was awarded the prestigious John Bates Clark Medal by the American Economic Association in 1971. He is a Past President of the Association (2001) and the Econometric Society (1987). Jorgenson has been honored with membership in the Americal Philosophical Society (1998), the Royal Swedish Academy of Sciences (1989), the U.S. National Academy of Sciences (1978), and the American Academy of Arts and Sciences (1969).

http://www.asiapathways-adbi.org/2012/12/the-rise-of-asia-and-the-new-world-order/

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Global Trends 2030: “Technological Center Of Gravity” To Shift To Asia

By Juliana Chan | Editorials
December 14, 2012

A new report by the U.S. National Intelligence Council projects a shift in the ‘technological center of gravity’ to Asia by 2030.

AsianScientist (Dec. 14, 2012) – A new U.S. report projects a shift in the “technological center of gravity” to Asia by 2030, as Chinese and Indian companies become competitive internationally.

The National Intelligence Council (NIC) of the Office of the Director of National Intelligence (ODNI) report, “Global Trends 2030: Alternative Worlds,” describes a world that will be radically transformed from what we know today.

The quadrennial report, in its fifth edition so far, is put out by the U.S. intelligence community to provide a framework for thinking about possible futures over the next 15 to 20 years.

Written for a general audience, the 160-page report says Asia will surpass North America and Europe combined in indices of overall power, namely GDP, population size, military spending, and technological investment.

It predicts a diffusion of power across the world, as U.S., European, and Japanese share of global income is projected to fall from 56 percent today to well under half by 2030. It says China will have the lion’s share of the global economy, surpassing that of the United States a few years before 2030.


‘Black swan’ events

Readers may find interesting the discussion on “black swans,” which are rare and unpredictable events that have the potential for a major impact on the world.

A severe pandemic, for example, could start with an easily transmissible novel respiratory pathogen that kills or incapacitates more than one percent of its victims. Such an outbreak could result in millions of people suffering and dying in every corner of the world in less than six months, says the report.

Much more rapid climate change could also shatter previous predictions and lead to catastrophic results.

“Rapid changes in precipitation patterns – such as monsoons in India and the rest of Asia – could sharply disrupt that region’s ability to feed its population,” says the intelligence report.

Even more dramatic possibilities are solar geomagnetic storms that could “knock out satellites, the electric grid, and many sensitive electronic devices.” Crippling solar geomagnetic storms occur at intervals that are less than a century, and pose a substantial threat because of the world’s dependence on electricity, the report cautions.


The rise of the robots

Futuristic robots are also discussed extensively in the report. It heralds advancements in robotics that could lead to remote and autonomous vehicles and additive manufacturing (also known as 3D printing).

While these technologies have the potential to improve productivity, they also come with a catch: robots could end up making low- and semi-skilled manufacturing workers redundant, which would exacerbate domestic labor problems.

Total automation may be even more cost effective than outsourcing manufacturing to developing economies, which would change the manufacturing dynamics observed today.

Although more R&D is required to improve robots’ cognitive abilities, many of the building blocks could be in place by 2030, blurring the boundary between industrial and nonindustrial robots.

In the military, next generation robots may reduce human exposure in high-risk situations and environments as well as the number of troops necessary for certain operations, says the report.

‘Smart’ health-care and elder-care robots could interact with humans, provide surgical support, and assist with daily living, it says.

And these robots could be immensely important in a rapidly aging world, a “megatrend” that was predicted in 2030.

“Robotics addresses some of the impacts of an aging society, but in the next 20 years the effect is likely to be most pronounced in specific countries like Japan and South Korea,” says the report.

Whereas in 2012 only Japan and Germany have matured beyond a median age of 45 years, most European countries, South Korea, and Taiwan will join them by 2030, says the report.


A world with 8.3 billion people

In 2030, the world is projected to have a growing global population of close to 8.3 billion people, up from 7.1 billion in 2012. Growing demands on resources such as food and water might lead to scarcities, says the report.

Demand for food is expected to rise at least 35 percent by 2030 while demand for water is expected to rise by 40 percent. Nearly half of the world’s population will live in areas experiencing severe water stress, with China and India particularly vulnerable due to their large populations, it says.

Climate change will worsen the outlook for critical food and water resources, says the report. As the severity of existing weather patterns intensify, wet areas will get wetter and dry and arid areas will get drier.

“Much of the decline in precipitation will occur in the Middle East and northern Africa as well as western Central Asia, southern Europe, southern Africa, and the U.S. Southwest,” the report says.

Healthcare advancements

Continued progress in healthcare is expected in 2030. There will be better quality of life for those aging, while non-communicable diseases such as diabetes and obesity will contribute increasingly to the global disease burden.
“Even in the face of the HIV/AIDS epidemic, the global disease burden has been shifting rapidly for several decades from communicable to noncommunicable diseases,” says the report.

In the absence of a pandemic “black swan” scenario, global deaths from all communicable diseases – including AIDS, diarrhea, malaria, and respiratory infections – are projected to decline by nearly 30 percent by 2030, according to modeling studies.

AIDS appears to have hit its global peak at around two million deaths per year in 2004. Although great strides have been made toward wiping out malaria, donor fatigue and growing resistance to malarial treatments may curtail progress, the report cautions.

The NIC publishes a new edition of Global Trends every four years, in a presidential election year, to assist the next – in this case the returning – administration in its strategic review.