Chinese President Xi Jinping (left) and Indian Prime Minister Narendra Modi take part in a group photo … [+]
A new study predicts that China and India will become the world’s leading economies in the next decade, while the US and Western Europe will decline in prominence. The analysis depends on productivity growth and demographics, as US immigration policies, China’s move away from the free market and other factors affect countries’ future influence in the global economy.
In the National Bureau of Economic Research’s (NBER) paper, “The Future of Global Economic Power,” the authors predict the rise of China and India’s global economic power. Authors of the paper: Seth G. Benzell, Lawrence J. Kotlikoff, Maria Kazakova, Guillermo LaGarda, Kristina Nesterova, Viktor Yifan Ye, and Andrey Zubarev.
According to the study, the US share of world GDP [gross domestic product] It will decrease from 16% in 2017 to 12% by 2100, while China’s share will increase from 16% to 27%. The study projects that India’s share of global GDP will rise from 7% in 2017 to 16% in 2100, while Western Europe’s share (including the UK) will decline from 17% in 2017 to 12% in 2100. According to the study, the GDP of India and China will rise from 23% in 2017 to 43% in 2100.
Productivity increase: According to the authors, the results are “highly sensitive to our estimate of regional productivity.” They disagree, but cite a 2019 NBER study by economists Ulrich K. Mueller, James H. Stock, and Mark W. Watson that predicted a near-total shutdown of the economy in several countries, including “China, India, Russia, Eastern Europe . , and the former Soviet Union catches up with labor productivity growth.”
Benzel et al. Using Mueller, Stock, and Watson’s model, the United States would be the “end-of-century economic king” in 2100, producing 18% of world GDP. Sub-Saharan Africa would be second at 17.5%. “China plus India’s share of production [under the Müller, Stock and Watson scenario] will decrease dramatically — from 24.2% in 2017 to 15.8% in 2100.”
According to another possible outcome, Benzell et al. If we assume growth rates are the same as the 20 years to 2017 (ie “recent growth rates”), “India has now become the planet’s superpower, with its 2100 share of the global economy rising from 6.8% to 33.8%. ” This means increasing China’s share of global GDP from 15.7% to 22%. However, India’s economy would be 50% bigger than China’s under this scenario, because it has 50% more population than China, but with the same labor productivity.
“All other economies see their economic impact decline or remain roughly constant relative to the baseline,” write Benzell et al. “The picture is particularly dire for the US. Its share of the world economy will fall to only 10% by the end of the century. The story is even more shocking for Western Europe, including the UK. In 2017, the WEU and the UK accounted for 25.2% of global production. But if the latest figures prevail, their share of 2,100 will be only 6.4%! In other words, Western Europe will go from the world’s largest economy to the smallest.”
A significant difference in a country’s economic output can also be seen in the size of its labor force and the productivity of its workers. “[C]Consider the US and China, which currently account for roughly the same share of global GDP,” write Benzell et al. “If today’s Chinese workers were as productive as American workers, China’s GDP would be 4.3 times that of the US.”
America’s average standard of living remains high compared to most of the world. “In 1997, China’s standard of living was only 3.5% that of the US,” notes Benzell et al. “In 2017, China’s share was 13.8% or 3.94 times higher than 20 years ago. India’s standard of living has also increased relative to the US, with the 2017 figure being 2.06 times the 1997 figure. Economists posit that millions of people in China, India and other countries have been lifted out of poverty thanks to market-oriented reforms.
Immigration, Demography and Productivity Growth: Immigration is crucial to the growth of the labor force – it is an important element of economic growth and has been shown to improve productivity growth.
“When we aggregate nationally, the foreign STEM stream [science, technology, engineering and math] workers explain between 30% and 50% of total productivity growth This was the case in the United States from 1990 to 2010,” said economists Giovanni Peri (UC, Davis), Kevin Shih (RPI) and Chad Sparber (Colgate University).
Studies show that higher levels of immigration boost the US economy, especially in the long run. “A 28% annual increase in legal immigration would increase average annual labor force growth in the United States by 23% over current U.S. projections, helping the economy grow and slowing U.S. labor force growth.” National Foundation for American Policy (NFAP).
On the other hand, reducing legal immigration would put the US economy on a much slower growth path. According to the NFAP analysis, “If the United States continued the Trump administration’s policy of administratively reducing legal immigration by approximately 49%, average annual labor force growth would be approximately 59% lower than under a policy that did not reduce immigration.” If immigration were to be halved, within 40 years the United States would have only about 6 million more people in the labor force than it does today.
China’s rejection of free market policies: A study by Benzell et al. It predicts that China’s economic growth will not decline due to poor economic policies. However, this may already be the case. “Some signs point to challenges for the country’s growth potential,” the newspaper writes The Wall Street Journal. “The IMF [International Monetary Fund] productivity growth averaged just 0.6% for most of the decade under Mr Xi’s watch, the analysis estimates. This is a sharp drop from the 3.5% average over the previous five years.
Under Xi Jinping, China has supported less efficient state-owned enterprises than the successful private sector, he notes Economistand the consequences of following the one-child policy for many years are visible in the demography of the country.
According to Rhodium Group’s Logan Wright, “over the long term, China’s growth prospects are constrained by demographics, declining productivity and, more importantly, the failed structural reforms of the past decade.” “Currently, China’s potential growth rate is closer to 3% than 5%, and China is currently growing well below that potential rate.”
James Pethokukis is a fellow at the American Enterprise Institute and a magazine editor Hurry up, please! newsletter, believes that the United States could grow faster than China in the coming decades if America pursues the right policies. “Can the US grow at least 3% going forward?” writes Petokoukis. “I think it will happen. There is nothing in the American economy that cannot be fixed by doing what is always right. This means an economy that embraces and attracts global talent, invests heavily in research and development (both public and private), regulates how new rules affect the ability to build and innovate in the physical world, and continues to reward high-impact entrepreneurship. . . . .The immigration part is very important here and China is a mismatch.
A study by Benzell et al. It predicts the future economic influence of China, the United States, and other nations, predicting that China and India will grow, while the economic influence of the United States will decline. U.S. immigration policy and China’s economic choices will determine whether this prediction comes true.
