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OECD: Looking to 2060: Long-term global growth prospects

12.11.2012

 http://www.oecd.org/economy/economicoutlookanalysisandforecasts/2060%20policy%20paper%20FINAL.pdf

Once the legacy of the global financial crisis has been overcome, global GDP could grow at around 3% per year over the next 50 years. Growth will be enabled by continued fiscal and structural reforms and sustained by the rising share of relatively fast-growing emerging countries in global output.
 
Growth of the non-OECD will continue to outpace the OECD, but the difference will narrow over coming decades. From over 7% per year over the last decade, non-OECD growth will decline to around 5% in the 2020s and to about half that by the 2050s, whereas trend growth for the OECD will be around on average 13⁄4 to 21⁄4% per year.
 
The next 50 years will see major changes in the relative size of world economies. Fast growth in China and India will make their combined GDP measured at 2005 Purchasing Power Parities (PPPs), soon surpass that of the G7 economies and exceed that of the entire current OECD membership by 2060.
Notwithstanding fast growth in low-income and emerging countries, large cross-country differences in living standards will persist in 2060. Income per capita in the poorest economies will more than quadruple by 2060, and China and India will experience more than a seven-fold increase, but living standards in these countries and some other emerging countries will still only be one-quarter to 60% of the level in the leading countries in 2060.
 
In the absence of more ambitious policy changes, rising imbalances could undermine growth. As the current cycle unwinds, the scale of global current account imbalances may increase and return to pre-crisis peaks by 2030. Government indebtedness among many OECD countries will exceed thresholds at which there is evidence of adverse effects on interest rates and growth. Global interest rates may therefore start to rise over the long-term.
 
Bolder structural reforms and more ambitious fiscal policy could raise long-run living standards by an average of 16% relative to the baseline scenario of moderate policy improvements. Ambitious product market reforms, which raise productivity growth, could increase global GDP by an average of about 10%. Policies that induce convergence towards best practice labour force participation could increase GDP by close to 6% on average.
 
 Human capital will continue to improve
 
While on balance the quantity of labour used in production will not be a major driver of growth, improvements in the quality of labour will. In the past, educational attainment has converged across high- and medium-income countries (Morrisson and Murtin, 2009) and the average number of years of schooling has increased (on average) by four years over the period 1970-2010, with particularly large up-skilling in countries starting out from very low levels of education in the 1970s (e.g. Korea, Indonesia, China, Turkey and Brazil) (Figure 6). The evolution of the stock of average years of schooling among the adult population is translated into a marked improvement in the value of the stock of human capital under reasonable assumptions about the wage return to be expected from additional years of education.5
 
This build up of human capital is set to continue over the next half century. Thus, average years of schooling of the adult population are projected to increase by two years on average over the next 50 years, with attainment of cohorts aged 25-29 slowly converging towards that of the current highest attainment country (Korea), with education in this country also rising over time. Convergence is generally explained by decreasing returns to education for both individuals and society as a whole and by the fact that the cost of additional years of education rises with attained grades (Mincer, 1974; Psacharapoulos and Patrinos, 2004). Marked increases in education are projected in India, China, Turkey, Portugal and South Africa (Figure 6). However, large differences in average education will persist in the long term, as the stock measure of education involves the whole adult population and, therefore, displays sluggish developments.
 


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