Transcript Lecture 26: December 1, 2016 Outlook for the World Economy

Economics 1490
GROWTH AND CRISIS IN THE
WORLD ECONOMY
with
Professor Dale W. Jorgenson
Lecture 26: December 1, 2016
Outlook for the World Economy
Harvard University Department of Economics -- Fall 2016
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Course Outline
A. Introduction
B. U.S. Financial and Economic Crisis.
C. Europe and the U.S.: Convergence and
Divergence.
D. Asian Economic Miracles.
E. Sustainability of Economic Growth.
F. Outlook for the World Economy.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Major Trends in the World Economy
The Growth of the World Economy Has Accelerated Since
1995 and Become Much More Turbulent.
The Balance of the World Economy Is Shifting from the
Advanced Economies of the G7 to the Emerging
Economies of Asia, Especially China and India.
The Transformation of the World Economy has Led to a
New World Order, Led by China, the U.S., India, and Japan.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
THE SOURCES OF ECONOMIC GROWTH
Comparisons among Regions and Countries
Sources of Growth in Capital Input
Information Technology and Non-Information
Technology
Labor Input and Labor Quality
Total Factor Productivity
Lecture 26 : December 1, 2016
The Sources of Growth
MODEL OF PRODUCTION:
Production Possibility Frontier.
wI ,t  ln I t  wC ,t  ln Ct  vK ,t  ln K t  vL ,t  ln Lt   ln At
where:
I - Investment
C – Consumption
wI , wC  Shares of Investment, Consumption
K – Capital
L – Labor
vK , vL  Shares of Capital, Labor
A - Total Factor Productivity (TFP)
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Sources of World Economic Growth
Average annual growth rates, weighted by the income share.
Lecture 26 : December 1, 2016
The Sources of Growth
Sources of World Economic Growth
Annual percentage growth rates
Lecture 26 : December 1, 2016
The Sources of Growth
Sources of G7 Economic Growth
Annual percentage growth rates
Lecture 26 : December 1, 2016
The Sources of Growth
Sources of Growth for Developing and Transition Economies
Annual percentage growth rates
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Projecting the Growth of the World Economy
Future Demography: Population Projections for the World Economy Are
Available from the United Nations. Labor Input Growth Includes the
Growth of the Labor Force and Changes in Labor Quality Due to Age,
Gender, and Educational Attainment.
Future Productivity: Productivity Projections for the World Economy Are
Available from The Conference Board in New York. These Are Based on
Future Trends in the Development of Information Technology and NonInformation Technology.
We Derive Output and Capital Input Projections from Future Trends in
Demography and Productivity. Future Productivity Growth Is the Main
Source of the Substantial Uncertainty in Projections of the Growth of the
World Economy.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Sources of Average Labor Productivity Growth
 ln yt  vK ,t  ln kt  vL,t ( ln Lt   ln H t )   ln At
where:
y = Y/H - Output per Hour Worked (ALP).
k = K/H - Capital Input per Hour Worked.
•CAPITAL DEEPENING: growth of capital input per hour
worked, weighted by the share of capital.
•LABOR QUALITY GROWTH: growth of labor input per
hour worked, weighted by the share of labor.
•TOTAL FACTOR PRODUCTIVITY.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Range of World Output Projections
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Outlook for the World Economy
The Growth of the World Economy Has Accelerated since
1990 and This Acceleration Will Continue for 2015-2025.
Average Labor Productivity Growth for the World Economy
in 2015-2025 Will Slow Relative to 2005-2015.
Growth of Hours World for the World Economy in 20152025 Will Accelerate Relative to 2005-2015.
Future World Economic Growth Will Be Subject to
Substantial Uncertainty.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Range of World Output Projections
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Outlook for Major Regions of the World Economy
Future Growth of the G7: The Growth of the G7 Economies Will Slow Modestly to 1.22 Percent Per Year from
Growth of 1.26 Percent During the Past Decade 2005-2015. This Slowdown Reflects the Failure of the G7
Economies to Recover from the Great Recession that Began in the United States from 2007-2009.
The Upside Potential for Overcoming the Stagnation of the G7 Economies Would Require a Revival in the
Sources of Growth of Average Labor Productivity, Including Capital Deepening and Total Factor
Productivity Growth. The Downside Potential for Continued Stagnation Would Involve a Further Decline in
These Sources of Growth of Average Labor Productivity.
Future Growth of Developing Asia: The Growth of Developing Asia Will Slow to 5.18 Percent Per Year from
Growth of 7.58 Percent During the Past Decade 2005-2015. The Economies of Developing Asia Will
Continue to Growth More Rapidly Than the World Economy So That the Share of These Economies in
World GDP Will Rise from 35.20 Percent in 2015 to 42.73 Percent in 2025.
The Upside Potential for Developing Asia Is to Continue the Relatively Rapid Growth of the Past Decade. This
Would Require a Continued High Rates of Capital Deepening and Rapid Total Factor Productivity Growth. The
Downside Potential Is for Weaker Capital Deepening and Lower Growth of Total Factor Productivity.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Range of G7 Output Projections
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Outlook for the G7 Economies
Future U.S. Economic Growth: Our Projection Is for a Continuation of the Slow
Growth of 1.6 Percent Annually for the Past Decade, 2005-2015, to Potential
Growth at 1.5 Percent Annually for the Decade, 2015-2025.
Downside Risk for the U.S. Economy Is the Failure of Attempts to Develop a
Sustainable Fiscal Policy. Upside Potential for the U.S. Economy Is a Substantial
Stimulus to Growth from a Long Overdue Major Tax Reform.
Future Japanese Growth: Our Projection Is for a More Substantial Slowdown
from Growth Around 0.75 Percent Annually for the Past Decade to Potential
Growth of 0.52 Percent for the Next Decade. Adverse Demographic Trends
Pose Major Obstacles.
The Major Downside Risk for the Japanese Economy is Continuation of the
Stagnant Productivity Growth of the Past Two Decades. A New Growth Strategy
Will Be Required to Overcome the Two Decades of Economic Stagnation.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Range of Output Projections for Emerging Economies
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Outlook for the Major Emerging Economies
Future Chinese Economic Growth: Our Projection Is for a Substantial Slowdown
from 9.6 Percent Growth for the Past Decade, 2005-2015, to a Sustainable
Growth Rate of Five Percent for the Next Decade, 2015-2025. This Is Well Below
Official Chinese Projections.
The Major Downside Risk for the Chinese Economy Is for Financial Distress Due
to Unmanageable Levels of Debt. The Upside Potential of the Official Projections
Would Require Major Financial and Fiscal Reforms Yet to Be Undertaken.
Future Growth of the Indian Economy: Our Projection Is a More Modest
Slowdown from the Growth of the Past Decade, Almost 7.5 Percent Annually, to a
More Sustainable 6.5 Percent Annually in the Coming Decade.
The Downside Risk for the Indian Economy Is Failure to Restore Fiscal Balance
and Maintain Control of Inflation. The Upside Potential of India’s Favorable
Demographic Trends Depends on Labor Market Reform and Greatly Increased
Integration with the World Economy.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Summary of the Transformation of the World Economy
Despite the Economic Turbulence of the Past Two Decades, the World Economy Is
Entering a Period of Sustainable Growth at a Rate of almost 3.2 Percent Annually,
Only Slightly below the Growth Rate of 3.3 Percent for the Past Quarter Century.
Relative Importance of the Major Emerging Economies, China and India, Will Continue to
Increase, Even with Much Slower Growth in China and a Modest Slowdown in India. Growth
Potential Will Increase Modestly in Both Japan and the U.S.
Upside Potential Growth of the World Economy Is Considerable, But Would Require
Ambitious Domestic Reforms in the Major Emerging Economies that Appear
Unlikely. Downside Risks Are for Continued Stagnation of Productivity Growth
around the World.
Conclusion: The Base Case Projection of World Economy Is for Moderate but
Sustained Growth and a Continuing Shift from the Advanced Economies of the G7
to the Major Emerging Economies. This Has Established the New World Order of
the 21st Century.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Medium Term Outlook for the World Economy
According to the IMF the world economy will return to the high
levels of growth of 2004-2008.
This will close most of the gap between potential and actual
growth.
Developing Asia, especially China and India, will grow very
rapidly, shrinking the gap between levels of GDP for advanced
and emerging economies.
The U.S. will continue to grow more rapidly than Europe and
Japan.
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Lecture 26 : December 1, 2016
Outlook for World Economic Growth
Medium Term Outlook for the World Economy
According to the IMF the world economy will return to the
high levels of growth of 2004-2008.
This will close most of the gap between potential and
actual growth.
Developing Asia, especially China and India, will grow
very rapidly, shrinking the gap between levels of GDP for
advanced and emerging economies.
The U.S. will continue to grow more rapidly than Europe
and Japan.
THANKS FOR BEING
SUCH A GREAT
CLASS!