China + India = Great Future

[indrajit_v5]

It’s the new big revolution. And unlike the Industrial Revolution this one covers most of the globe. Consequently, the economic gains — as well as the adjustment pains — will be far bigger. China, India and other developing countries are set to give the world economy its biggest boost in the whole of history, says Pam Woodall in The Economist.
What will that mean for today’s rich countries? Last year, the combined output of emerging economies accounted for more than half of total world GDP (measured at purchasingpower parity). This means the rich countries no longer dominate the global economy.
Besides driving global growth, emerging economies are also having a big impact on developed countries’ inflation, interest rates, wages and profits as these newcomers become more integrated into the global economy and their incomes catch up with the rich countries.
Emerging countries are looming larger in the world economy by a wide range of measures: their share of world exports has jumped to 43% from 20% in 1970. They consume over half of the world’s energy and accounted for four-fifths of the growth in oil demand in the past five years. They also hold 70% of the world's foreign-exchange reserves.
The IMF forecasts that in the next five years emerging economies will grow at an average of 6.8% a year, while developed economies will grow at only 2.7%—in 20 years, emerging economies would account for twothirds of global output (at purchasing-power parity).
Faster growth spreading more widely across the globe makes a huge difference to global growth rates. Since 2000, world GDP per head has grown by an average of 3.2% a year, thanks to the acceleration in emerging economies. That would beat the 2.9% annual growth during the golden age of 1950-73 (when Europe and Japan were rebuilding their economies after the war) and growth during the Industrial Revolution. This means that the first decade of the 21st century could see the fastest growth in average world income in the whole of history.
On balance, rich countries should gain from poorer ones getting richer. The success of the emerging economies will boost both global demand and supply. Rising exports give developing countries more money to spend on imports from richer ones. And although their average incomes are still low their middle classes are expanding fast, creating a vast new market. Over the next decade, almost a billion new consumers will enter the global marketplace as household incomes rise above the threshold at which people generally begin to spend on non-essential goods. Emerging economies have already become important markets for richworld firms: over half of the combined exports of America, the euro area and Japan go to these poorer economies. The rich economies’ trade with developing countries is growing twice as fast as their trade with one another.
The future boost to demand will be large. But more important in the long term will be the stimulus to the world economy from what economists call a “positive supply shock”. As China, India and the former Soviet Union have embraced market capitalism, the global labour force has, in effect, doubled. The world’s potential output is also being lifted by rapid productivity gains in developingcountries as they try to catch up with the West.
This increased vitality in emerging economies is raising global growth, not substituting for output elsewhere. The newcomers boost real incomes in the rich world by supplying cheaper goods, such as microwave ovens and computers, by allowing multinational firms to reap bigger economies of scale, and by spurring productivity growth through increased competition. They will thus help to lift growth in world GDP just when the rich world’s greying populations would otherwise cause it to slow.

[MP-ROBOT]

Originally Posted by indrajit_v5

It’s the new big revolution. And unlike the Industrial Revolution this one covers most of the globe. Consequently, the economic gains — as well as the adjustment pains — will be far bigger. China, India and other developing countries are set to give the world economy its biggest boost in the whole of history, says Pam Woodall in The Economist.
What will that mean for today’s rich countries? Last year, the combined output of emerging economies accounted for more than half of total world GDP (measured at purchasingpower parity). This means the rich countries no longer dominate the global economy.
Besides driving global growth, emerging economies are also having a big impact on developed countries’ inflation, interest rates, wages and profits as these newcomers become more integrated into the global economy and their incomes catch up with the rich countries.
Emerging countries are looming larger in the world economy by a wide range of measures: their share of world exports has jumped to 43% from 20% in 1970. They consume over half of the world’s energy and accounted for four-fifths of the growth in oil demand in the past five years. They also hold 70% of the world's foreign-exchange reserves.
The IMF forecasts that in the next five years emerging economies will grow at an average of 6.8% a year, while developed economies will grow at only 2.7%—in 20 years, emerging economies would account for twothirds of global output (at purchasing-power parity).
Faster growth spreading more widely across the globe makes a huge difference to global growth rates. Since 2000, world GDP per head has grown by an average of 3.2% a year, thanks to the acceleration in emerging economies. That would beat the 2.9% annual growth during the golden age of 1950-73 (when Europe and Japan were rebuilding their economies after the war) and growth during the Industrial Revolution. This means that the first decade of the 21st century could see the fastest growth in average world income in the whole of history.
On balance, rich countries should gain from poorer ones getting richer. The success of the emerging economies will boost both global demand and supply. Rising exports give developing countries more money to spend on imports from richer ones. And although their average incomes are still low their middle classes are expanding fast, creating a vast new market. Over the next decade, almost a billion new consumers will enter the global marketplace as household incomes rise above the threshold at which people generally begin to spend on non-essential goods. Emerging economies have already become important markets for richworld firms: over half of the combined exports of America, the euro area and Japan go to these poorer economies. The rich economies’ trade with developing countries is growing twice as fast as their trade with one another.
The future boost to demand will be large. But more important in the long term will be the stimulus to the world economy from what economists call a “positive supply shock”. As China, India and the former Soviet Union have embraced market capitalism, the global labour force has, in effect, doubled. The world’s potential output is also being lifted by rapid productivity gains in developingcountries as they try to catch up with the West.
This increased vitality in emerging economies is raising global growth, not substituting for output elsewhere. The newcomers boost real incomes in the rich world by supplying cheaper goods, such as microwave ovens and computers, by allowing multinational firms to reap bigger economies of scale, and by spurring productivity growth through increased competition. They will thus help to lift growth in world GDP just when the rich world’s greying populations would otherwise cause it to slow.

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