Transcript Slide 1
The Rise and Fall of modern empires Part II: A world of inequality: per capita income evolution in developed and developing regions and countries Created by the Forecasting Net www.forecastingnet.com March 2012 Follow us on LinkedIn: Forecasting Net Group Like us on Facebook: Forecasting Net page “Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another.” Plato, Greek philosopher c. 427 – c. 347 BCE What we discovered in Part I The Rise and Fall of modern empires-Part I From the United States to China: a journey of global economic dominance from 1950 to 2010 Asia has been substituting the West, in terms of percentage contribution to global GDP, for many decades, initiating a shift of the international balance of power It all started with Japan’s economic miracle but it really took off with China’s and, to a lesser degree, India’s growth frenzy over the last few decades This is not a temporary but a long term trend that we could have easily identified as early as the 1980s, if only we looked… So, economic power is shifting from the West to the East However… Is this shift of power combined with an improvement of the individuals’ economic power in Asia? And if so, is this improvement large enough to narrow the income inequality gap between developed and developing countries? Let’s do the following: We will analyze the past performance of different geographical regions and countries1, between 1950 and 2010, based on the Relative Economic Power per Capita ratio (=Region or Country / Global GDP per Capita2) A ratio equal to 1 indicates a region/country with exactly the same GDP per capita as the world’s average A ratio larger than 1 indicates a region/country with larger GDP per capita than the world’s average A ratio smaller than 1 indicates a region/country with smaller GDP per capita than the world’s average By performing this analysis, we will try to identify if the long term shift of economic power from the West to the East is combined with a narrowing of the income inequality gap between developed and developing countries 1 We have included ten countries: the nine largest existing countries, in terms of 2010 GDP percentage contribution, and also USSR to ensure backward data continuity for the Russian Federation. 2 Source of actual GDP (in millions of 1990 US$, converted at Geary Khamis PPPs) ) and population data used in this analysis is: “The Conference Board Total Economy Database, January 2011, http://www.conference-board.org/data/economydatabase/” Let’s start! First, let’s see how regions perform Hi Avg=1 Lo Regions’ performance in a nutshell The West (North America, Western Europe, Oceania), is well above the world’s average GDP per capita. However, after 2000 the ratio started to decline rapidly for all western regions, even before the outburst of the global crisis in 2008. Asia is the only region experiencing continuous growth, especially after the late 1970s, although still lagging behind developed western countries and the World’s average The impact of the collapse of the Soviet Union is apparent in the evolution of the Eastern Europe and Central Asia region. The rise of the Russian Federation compensates for some but not all of this decline, especially after the year 2000. Latin America has a declining long term trend Middle East follows an increasing trend until1976-near the Oil crisis-and a downward trend afterwards Africa is by far the worst performer having the smallest GDP per capita and a declining long term trend Now, let’s see how countries perform 3 Hi Avg=1 Lo Countries’ performance in a nutshell All developed western countries (United States, Germany, France, United Kingdom) and Japan have high GDP per capita compared to the World’s average and the other large economies of China, India, Russian Federation, and Brazil. However, all western economies after 2000 and Japan after 1990, started to lose momentum against the World’s average as the other large economies gradually started to converge. Again, this has already been happening well before the current global crisis started in 2008. China has considerably improved its relative economic power per capita, especially after 1980, nearing World's average. India, on the other hand, despite its significant improvement in terms of GDP contribution to global GDP (see Part I), has a less impressive increase in its relative economic power per capita compared to China Following the collapse of the Soviet Union, the relative economic power per capita of the Russian Federation first declined and then increased rapidly after 2000. Brazil’s relative economic power per capita is almost stable with a spike near 1980 and a small downward trend afterwards. …and how about income inequality? Asia and the West are converging Hi income inequality Zero income inequality Asia has been converging to the West as the ratio between the GDP per capita of the two regions has declined by almost three times in the past sixty years; however, Asia still lags considerably behind the West’s average GDP per capita Assuming the ratio follows a linear trend (which is not certain at all), it will take almost forty years for Asia and the West to fully converge See where this is going? Not only has Asia been substituting the West for many decades but, at the same time, the income gap between the two regions has been shrinking as well! … However, full convergence is still far away And how about the rest of the world? The rest of the World is now converging to the West …but inequality still holds strong Hi income inequality Zero income inequality During the second part of the 20th century, all regions diverged from West’s average GDP per Capita The trend reversed after 2000 as all regions now converge, although the income gap from the West still remains significant And how about the large developing economies? All large developing countries are now converging …but inequality still holds strong Hi income inequality Zero income inequality China and India started converging to the West after the late 1970s The Russian Federation started converging after the late 1990s Brazil is almost stable through the years with a slight converging trend emerging in the last few years Let’s summarize… As we’ve seen in Part I, Asia has been substituting the West, in terms of percentage contribution to global GDP, for many decades, initiating a shift of the international balance of power The income gap between developed western countries and developing Asian economies has been shrinking during the past sixty years. However full convergence is still far away. All other regions, apart from Asia, have been diverging from the West during the second part of the 20th century and converging after the year 2000 Despite the improvement of the previous years, the income inequality still remains strong, as all regions and large economies still lag considerably below western economies and many below the World’s average. The Rise and Fall of modern empires Part II: A world of inequality: per capita income evolution in developed and developing regions and countries Created by the Forecasting Net www.forecastingnet.com March 2012 Follow us on LinkedIn: Forecasting Net Group Like us on Facebook: Forecasting Net page Coming soon The Rise and Fall of modern empires Part III: What drives economic growth: population vs. income per capita improvement