Europe's position in the emerging new global economy · Three pillars sustain convergence (today?)...
Transcript of Europe's position in the emerging new global economy · Three pillars sustain convergence (today?)...
"Europe's position in the emerging new global
economy”
ISEO Summer school
Daniel Gros
• 2030 horizon forward, 1960s (where
possible) backwards.
• Main global trends, growth model
• Drivers of (Hyper-)globalisation and
welfare analysis.
• Implications for Europe
Scope of talk
• Slowdown in population growth could
result in stabilization by 2030
= > perspective of demographic challenge
and resource scarcity changes
• Catch up of emerging economies is a
robust trend
= > only speed and quality are uncertain
Two major trends
Population: The changing perspective
of the demographic challenge Bias in past projections means that population may stop growing by 2030
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UN Population forecast
Medium fertility
Low fertility
Past
High fertility
8.5 billion under
the medium variant
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2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100
High population growth Low population growth
Global resource use:
stabilization in sight?
Per capita resource use with the current growth rate (approximately), thereafter constant
resource use, combined with UN population forecasts
1. As resource use stabilization gets at least in sight Malthusian view less dominant.
2. Some resources might be too abundant known reserves of (hydro)carbon >> amount that can be burned while keeping global climate in check.
Natural resources: too tight or
too abundant?
• Reserves are stock, emissions flow. But still:
• Assume want to stick to less than 2°C warming (80% probability).
global carbon budget for 2000-2050 is 900 GtCO2, minus emissions until now => budget 2015 to 2050 = 500 GtCO2.
But known reserves = 3 000 GtCO2
(ca. 600 oil, 450 gas, rest coal).
=> Must leave most of coal and substantial part of oil and gas underground (until 2050).
A longer-term perspective
on convergence/catch up
What drives economic growth?
AK model: Y = A Kα L(1-α)
With A = technology, know how
• K = capital,
• α = share of capital in income
• L = effective labor = lh, with l raw labor and h human capital.
• N.b. Y/l = A (K/L)α h(1-α) = A (k)α h(1-α)
Three pillars sustain convergence (today?)
1. Openness / FDI (convergence in A)
2. High savings (increase in k)
3. Human capital (increase in h)
Will concentrate later on 1
Catch up of emerging economies: Recent,
but this time is really different
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Relative US real GDP per capita, chained PPP
IND/USA CHN/USA
The spread of education:
basic skill assured everywhere
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Share of population with at least secondary
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USA
China
India
Innovation capacity: some uncertainty (quantity and quality)
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Graduates population, East and West compared
West: US, Europe and Japan
East: China and India
Capital stocks ($ billion, 2005 dollars) Capital Intensity (thousands of
2005 US dollars per capita)
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US CHN IND
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US CHN IND
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Capital accumulation around the world
• Rapidly increasing level of education
facilitates further convergence in A
(TFP) + capacity for autonomous
advance, national and global (ideas
non rival).
• Role of quality of education plus social
environment crucial for growth, but
difficult to measure.
Technology & innovation
Who will be driving global
growth? 2000-2010 2010-2020 2020-2030
PPP Current
USD
PPP Current
USD
PPP Current
USD
CHN 29% 20% 33% 33% 34% 39%
IND 10% 5% 12% 6% 13% 8%
JPN 2% -1% 2% 7% 2% 7%
USA 11% 11% 9% 8% 7% 7%
EU 10% 23% 8% 11% 7% 9%
SSA 3% 3% 4% 3% 5% 3%
ROW 35% 38% 33% 32% 32% 28%
Smaller EU: Bilateral trade flows and
GDP share of the power triangle
Based on MIRAGE, MaGE and IMF
2030
EU
15.5
%
USA
14.3%
CHN
25.1%
GDP
world
shares
Trade flow
892bn€
670bn€
841bn€
2012
EU
23.1%
USA
21.9%
CHN
11.5%
GDP
world
share
s
Trade flow
498bn€ 478bn€
466bn€
2010 2030
28
37
EU
2010 2030
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USA
2010 2030
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17 SAM
2010 2030
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JPN
2010 2030
7
24
CHN
2010 2030
2 4
SSA
2010 2030
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8
IND 2010 2030
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NAF
2010 2030
35
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CAN
2010 2030
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AUS
2010 2030
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35
RUS
GDP growth in 2030
GDP growth PPP in 2030 (blue shading) and GDP per capita PPP in thousands of USD (green bar charts)
Bilateral FDI
Based on MIRAGE, MaGE, BEA and OECD data
FDI assets (stock
) FDI flow
EU
€6.8tr
USA
3.4tr €
CHN 0.3tr €
273bn€ 36bn€
4bn€
• Extra-EU trade likely to increase in relative importance (gravity).
• Main trading blocks still EU-US-China
• Some re-shoring possible unless India replaces China.
• Trade liberalization potential with EMEs.
• => BRICS strategy rather than TTIP?
The Position of the EU in the
Global Trading System?
• The importance of Intra-EU trade
relative to extra EU-trade will fall.
Centrifugal forces undermining
EU integration
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Intra-EU
Extra-EU
2010
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Intra-EU
Extra-EU
2030
• Brexit will re-inforce this trend.
Trade and Globalisation
• Should not extrapolate trend of last
two decades
• Trade: might slow down for EMEs.
• Financial: might slow down among
advanced, but accelerate among EMEs
(especially FDI into OECD).
Globalisation:
Trade & financial flows
Longer term trend
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World trade (exports) as percent GDP
Avant propos: why do we care?
• Globalisation often defined as increase in volume of trade (relative to GDP), but welfare gains from trade arise from elimination of trade barriers.
• More trade is good if it is the result of lowering barriers.
• Gains from standard trade liberalization largely exhausted among advanced economies (not yet among EMEs).
• => recent slowdown in trade not due to increased tariffs. Other barriers (NTBs) also increased little.
Centre for European Policy Studies • www.ceps.eu
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Transport costs no longer falling
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World transport costs: Imports (CIF)/ Exports (FoB)
Trade (% GDP) and transport costs (= cif/fob factor)
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Trade and transport costs
Trade, tariffs and transport costs
Over the last two decades.
How to explain ‘hyper globalization’?
Cannot appeal to lower transport costs
Cannot appeal to lower tariffs (at least among advanced economies).
‘Recent development’
• Expansion of trade (in goods) relative to GDP has been driven by temporary special factors (oil prices and dispersion of growth) over the last two decades. No need to appeal to lower transport costs, or policy, or something else.
• => recent slowdown in trade mostly due to reversal of these factors. No need to become alarmist or impute it to populism, protectionism etc.
• The impression of globalization arises because a shrinking part of the economy (manufacturing) has become more open.
• Problem is juxtaposition of small very ‘globalized’ manufacturing (15 % of economy) and the remainder 85 %, which remains largely closed.
• Globalisation = welfare gain?
– Trade liberalization by and among advanced economies close to complete already in 1999 (tariffs < 2-3 %).
– But not for emerging market economies (EMEs) with tariffs around 8-10 % (plus more peaks).
– => EMEs tariffs 4 times higher => welfare loss 16 times higher.
The challenge: Explain globalization when trade barriers and transport costs do not fall any more.
Technical point on welfare
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Titolo del grafico
Supply Demand World price Price plus costs Price plus higher costs
Key takeaways from standard, static approach
• Welfare loss from (small) tariff is second order.
• Loss from (small) transport costs is first order.
• Dynamic considerations, externalities, etc. can overturn, but also reinforce conclusions, but many different ways to model them.
The evidence on globalisation
• Exhibit 1 is often the ratio of trade to GDP.
• Driven by oil and raw material prices over last 20 years.
• Higher oil prices boost immediately value of global trade even at constant volumes.
• Higher oil prices means importers have to export more manufactures to pay for their fuel bill.
• => increase in trade/GDP ratio largely (not totally) driven by raw materials.
• Trade net of raw materials and exports to pay for them increased much less.
Trade without (effect of) raw materials much less dynamic
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World trade (exports) as % of GDP
Total Manufacturing Net Manufacturing
Increase 3 %
points
Increase 9 % points
For manufacturing globalization is not a mirage
Trade (in manufacturing) has not increased much relative to GDP.
But trade in manufacturing has increased in relation to the output of the sector.
Impression of CEOs of manufacturing firms that they are globalizing is correct.
But the share of manufacturing in the overall economy is declining.
Difference between manufacturing and rest of economy increases, voters at large care less about the needs of this shrinking sector.
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Trade: an expanding part of a declining sector
Trade in manufaturing as % of output of sector Manufacturing value addes as % of GDP
Fall 6 %
Points of GDP
More than
doubled
Where globalization is real II: Global (regional) value chains
Increase in manufacturing trade driven partly by growing importance of ‘Global Value Added Chains’. In reality these are mostly regional chains. Value added chains across border key in three regions: 1. ‘Factory Europe’ (around Germany) 2. ‘Factory North America’ (NAFTA: low wage Mexico-US,
automotive CAN-US). 3. ‘Factory Asia’ (around low wage coastal China) Outside these regional ‘factories’ domestic value added in exports > 85-90 % (and little changed since 1995). + Role of China changing rapidly
China in the global value added chain
China switching from globalization to de-globalization factor
(without new protectionism) • When China was small relative to US and EU its growth
increased ratio of traded to GDP.
• Now China is as big as US or EU.
• => further growth of China reduces trade! (Because more components will be available in China, no need to import them anymore. This happens naturally, without any intervention of authorities.)
• General point for the academics: trade/GDP ratio reaches maximum when all country of equal size => trade a function of Gini coefficient of global GDP.
Factory Europe and its elements
• Apple case not representative: 70% of
value-added in Chinese export is local!
• In the EU
– As a whole: proportion of foreign inputs
in EU export low (12%).
– Part of intermediate goods import are
simply raw materials.
The Global or Regional Value
Chain?
Why Europe remains relatively pro? It is doing well in manufacturing exports
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Shares in global manufacturing exports
China Japan US EU
US: fall by 4 %
Points of GDP
EU: constant
Who takes care of the global system
• US was ‘benevolent hegemon’ in 1960s, large and trade not crucial for growth at home
• => can affort concessions on market access.
• No longer today?
• Today ‘Triad’ (US, EU (de facto now euro area) China).
• Worst possible constellation (Krugman 1995 ‘Is bilateralism bad?’).
47 Centre for European Policy Studies • www.ceps.eu
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Leader(s)
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Leaders and followers in global trade 1960
49 Centre for European Policy Studies • www.ceps.eu
US 1960
US today
China today,
China 2006
EA today
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Size
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Openness = trade/GDP
Leaders
Followers
Nash (small open)
• Some factors exhausted:
– Opening of China plus FSU.
– Growth of BRICS
– Earl stage of growth cycle favors manufacturing/trade.
– Increase in commodity prices
– Transport costs no longer decreasing (at least for goods).
Globalisation of trade unlikely
to continue
Trade and development
China (2030)
China (2013) India (2013)
India (2030)
Exports
GDP
capita
SSA (2013) EU, US (2013)
SSA (2030)
Exports/GDP
• Services about 40% of value added in goods trade.
• + services directly traded (10%)
=> About one half of all value added in trade is services.
=> Productivity in services key element of competitiveness!
– business services key
Services in the Global Value
Chain
• OECD used to be dominant, but possible retrenchment as global credit boom ends.
• Non-OECD accounts for most savings.
• EMEs grow more than proportionally as source countries (especially FDI).
=> Sharp shift from North-> ‘South’
to (former) ‘South’ -> ‘South’ &
(former) South’ -> ‘North’.
Financial globalisation
Financial flows grow more than
proportional to GDP growth
China (2030)
China (2013) India (2013)
India (2030)
Financial Outflows
GDP
capita
SSA (2013) EU, US (2013)
SSA (2030)
Fin. Flows (FDI
out) /GDP
Trade and financial flows across
economic development
China (2030)
China (2013) India (2013)
India (2030)
Exports
Financial Outflows
GDP capita
SSA (2013) EU, US (2013)
SSA (2030)
Exports/GDP Fin. flows/GDP
• Key moment in the demographic
transition, when demographic dividend
turn into burden
• How Japan managed it
• …why this option is not available for
everybody (EU, US and China) together
Population and Savings
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Japan Crisis EU & US crisis
• An increasing share of world GDP is produced by non-democratic countries
• Large share of EU exports go to corrupt countries with questionable rule of law
And aside on values ….
*1 = highest standard of Political Rights, 7 = lowest
Share of EU in global economy will shrink, but remain part of G-3 until 2030, but relative position in science, innovation etc. down.
• So far held position in global trade (manufacturing), but gravity implies extra-trade increasing.
• Global value chains within Europe (East-West).
Some conclusions
Thank you for the attention!
• Overinvestment cycle may lead soon to excess capital accumulation (K-overhang Japanese style)
=> investment may fall drastically
• If savings do not adjust accordingly, China’s current account may display a large surplus which will need to be absorbed by the RoW, including Europe.
=> This may represent a huge challenge for Europe
Falling investment in China
without rebalancing
Migration
• Migration: pressure on EU might
diminish as income differential with
sending countries (MENA) diminishes.
Youth Bulge over
in the Mediterranean
reduced potential for political strive and upheavals
Need to focus policies on
higher employment and education standards
energy
Youth as % of total population
Sub Saharan Africa
Europe