Interdependence, Cooperation and the Emergence of a Global Economy - Augusto Lopez Claros


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Director, Global Indicators and Analysis - World Bank Group

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Interdependence, Cooperation and the Emergence of a Global Economy - Augusto Lopez Claros

  1. 1. May, 2013INTERDEPENDENCE,COOPERATION AND THEEMERGENCE OF A GLOBALECONOMYAugusto Lopez ClarosDirectorGlobal Indicators and AnalysisWorld Bank Group
  2. 2. Number of Poor by Region (millions) at $1.25 Poverty Line2* 2010 data for China are from 2009** 1981 data for India are from 1983Source: World Development Indicators 20138354162051,938157400 4141,27405001,0001,5002,000China* India** Sub-Saharan Africa World (developing)**19812010
  3. 3. Number of Poor by Region (millions) at $2.00 Poverty Line3* 1981 data for India are from 1983Source: World Development Indicators 20139726362882,5853958425622,47205001,0001,5002,0002,5003,000China India* Sub-Saharan Africa World19812008
  4. 4. World Inequality4• Some countries vastly richer than others. Some level of integration in someplaces (EU, USA/CAN/MEX) but still very far from operating as anintegrated global economyCountry/Region GDP (2011, USD Billions) Population (2011, millions)Sub Saharan Africa 1287 853.9Switzerland 666 7.8Sweden 572 9.4Spain 1536 46.117.2 (2.0% of 853.9)5.4% of 853.9
  5. 5. World Inequality in Historical PerspectiveGini coefficient5Source: Branko Milanovic
  6. 6. Among the Rich Countries: Massive Convergence6• There has been a pronounced reduction in the income gap among the richercountries. By 2000, Ginis were approximately half of their values in 19501870 GDP per capita in 1985 PPP $Japan UK Australia622 2,740 3,192• 100 years later  gap is gone• Countries at the center of global capitalism did the most to open theireconomies to international trade and investment
  7. 7. Divergence Between Rich and Poor Countries7Year GDP per Capita ratio:richest to poorest1820* 31992* 722008** 146• Angus Madison (2008): Since 1820 income per capita in Europe, US,Canada, Japan, Australia and New Zealand increased 19 times versus agrowth of 5 times in the rest of the world• 70% of the world’s population receives less than 15 percent of the world PPPdollar income, while the top 10% of the population receive close to 58% oftotal world income.• Comparing incomes at actual market exchange rates, the top 10% receivean even larger share of world dollar income* In PPP 1990 USD. Source: Madison (1995).** Ratio of the top 5 richest to the 5 poorest, PPP 2011 USD Source: IMF WEO
  8. 8. Income Gap – High income vs. Low income8Starting point: 2011 High income Average GDP per Capita : USD 41,062 Low income Average GDP per Capita : USD 5831: Average annual rate of economic growth of high-income countries during the period 1991-2010HighIncome LTGrowth1LowIncome LTGrowthGapWidensuntil:Gap Peak(GDP percapita,USD)Year ofConvergenceScenario I 1.8% 4% 2173 404,160 2210Scenario II 1.8% 6% 2087 110,506 2116Scenario III 1.8% 8% 2058 73,256 2083“ The dirty little secret of development economics”(Thomas Homer-Dixon, ‘The Upside of Down’, 2006)
  9. 9. Income Gap – High income vs. Low income9-1,000-800-600-400-20002004002011 2061 2111 2161 2211GDPperCapita(Thousands)Income Gap - High vs Low Income4% LT Growth 6% LT Growth 8% LT Growth-400-20002004006002011 2031 2051 2071 2091GDPperCapita(Thousands)Scenario III - 8% Low Income Long TermGrowthHigh Income Gap Low income-1,000-50005001,0001,5002,0002,5002011 2061 2111 2161 2211GDPperCapita(Thousands)Scenario I - 4% Low Income Long TermGrowthHigh Income Gap Low income-20002004006002011 2031 2051 2071 2091 2111GDPperCapita(Thousands)Scenario II - 6% Low Income Long TermGrowthHigh Income Gap Low income
  10. 10. Energy Subsidies including Taxes & Externalities10Totalsubsidy,billionsUSD• Total post-tax subsidies for the world are equal to 1.90 trillion USDSource: Arze del Granado and others, 2012 and Energy Subsidy reform: Lessons and Implications, IMF
  11. 11. Energy Subsidies including Taxes & Externalities11PercentofGDPPercentofgovernmentrevenue• Post-tax subsidies are equal to 4% of global GDP and more than 8% ofglobal government revenueSource: Arze del Granado and others, 2012 and Energy Subsidy reform: Lessons and Implications, IMF
  12. 12. Distribution of Petroleum Product Subsidies by IncomeGroups(% of total product subsidies)12Source: Arze del Granado and others, 2012 and Energy Subsidy reform: Lessons and Implications, IMF
  13. 13. 13General Government Gross Debt2007-11 Forecasts 2012-15 (% of GDP)02040608010012014016018020007 08 09 10 11 12 13 14 15 16 17Southern Europe and IrelandGreece Italy Portugal Spain Ireland02040608010012007 08 09 10 11 12 13 14 15 16 17Selected AdvancedEconomiesUnited States Germany FranceUK SwedenSource: IMF Fiscal Monitor October 2012
  14. 14. Distribution of Population by Age Groups1950 – 205014Source: UN World Population Ageing Report (2009)
  15. 15. Environmental Challenges15• Energy needs will grow by morethan one third by 2035.• 60% of this rise in China, India,MENA• Oil/gas investment required $15trillion• Fossil fuel subsidies were $523billion in 2011 (six times renewables)• CO2 emissions will raise globaltemperature by 3.6°Source: IEA World Energy Outlook 2012
  16. 16. Environmental Challenges16• Carbon emissions from fossil fuel combustion andcement production were 8.7 Gt (gigatons) in 2008, 41%higher than 1990• Developing countries now emitting more fossil fuel CO2(55%) than industrialized countries.• Tropical deforestation 1.5 Gt/year, 15% of totalanthropogenic emissions• Fossil fuel emissions expected to rise to 12-18 Gt/yr by2050 (2-3 times level in 2000)• 2°C is the accepted limit for global warming withoutsignificant damage to the planet• The estimated remaining capacity of the atmosphere toabsorb carbon without going past this limit is 565gigatons of CO2, which may be reached in 16 years• According to Sir John Beddington, Chief ScientificAdvisor to the UK, the world faces a “perfect storm” ofproblems in 2030 as food, energy and water shortagesinteract with climate change.CO2 Emissions by fuel (GtCO2)Top 10 emitting countries in 2010 (GtCO2)Source: IEA World Energy Outlook 2012
  17. 17. Opportunities17• Key challenge: to identify areas of economic activity that are likely to retrench, andothers that are full of potential. The challenge, of course, when the former may bemore profitable in the short term and out-compete emerging but immature newtechnologies, is knowing when to switch, as timing is all-important.• One line of thought: The fossil fuel industry and associated technologies willeventually go the way of the horse-drawn carriage, telegram, telex and slide rule, butwhen their rising costs will overwhelm their profitability is still a complex question withmany variables (subsidies, inertia, price of carbon, politics, etc.).• Given the long life of investments in energy infrastructure, renewables are clearly thetechnologies of the future. New alternative technologies for transport will also grow insignificance. There is great potential for investments in energy efficiency.• Prices for food and natural resources will continue to rise as demand exceeds supply,so investments in restoring the sustainable productive capacity of soils, forests andfisheries, and developing better-adapted varieties, should generate good returns in thelong-term.
  18. 18. Opportunities18• There will be a continuing demand for turning waste streams intoresources, recycling scarce metals/minerals, closing product life cycles, andstrengthening industrial ecology by grouping complementary industrial activities.• Rising costs of transport may work against some parts of global trade, with newopportunities in more restricted geographic scales of production andconsumption, with associated systems of distribution and marketing.• With the increase in climate variability and associated natural disasters, therewill be new needs for insurance coverage, and the activities involved inrebuilding and relocation, with some combination of public assistance and for-profit insurance.• On the social side, the excess wealth creation capacity represented by risingunemployment begs for innovative solutions to put that capacity to work. Weneed forms of wealth creation other than material consumption, possiblythrough an expansion of education, culture and social services which should beable to generate both employment and returns on investment.