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Global Growth and Income Distribution: Are China and India Reshaping the World?. Maurizio Bussolo, Rafael E. De Hoyos, Denis Medvedev and Dominique van der Mensbrugghe The World Bank - PowerPoint PPT Presentation
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Global Growth and Income Distribution: Are China and India
Reshaping the World?
Maurizio Bussolo, Rafael E. De Hoyos,
Denis Medvedev and Dominique van der Mensbrugghe
The World Bank
Paper prepared for the WIDER project meeting on “Southern Engines of Growth”. 12-13 January 2007, Beijing, China
Motivation
1. Shift of global production towards developing countries
• Basically explained by China and India
2. Global distribution of income is changing• Between 1990 and 2005 450 million pulled out of
poverty
• Increase in the “global middle class”
China and India are Reallocating World Output
Share of developing countries in real global output (%)
0
5
10
15
20
25
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
China India Brazil Mexico Other developing
Hypotheses and Objectives
• If the present pattern continues in the next 25 years:
– How will the world’s GDP be affected by growth attainments in China and India?
– How will the global income distribution and hence the size of the global middle class be change as a consequence of future growth in China and India?
• Objectives: Analyze, in an ax-ante fashion, the effects that economic expansion in China and India will have on global growth and the global middle class
Outline
• Methodology– LINKAGE (Global CGE model)
– GIDD (model for Global Income Distribution Dynamics)
• Results for global growth
• Results for global income distribution
• Conclusions
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Results: Global Growth
Sectoral Reallocation: Shift into services is more pronounced in China and India
Contribution to total output, percent
010
2030
405060
7080
90100
2005 2030 2005 2030 2005 2030 2005 2030
China India Developing High income
Agriculture Processed foods Fossil fuels Manufacturing Services
Skill premiums are likely to rise across the developing world
Ratio of skilled wages to unskilled wages
0
1
2
3
4
5
6
7
8
China
India
East A
sia
Easte
rn E
urop
e
Latin
Am
erica
Midd
le Eas
t
South
Asia
Sub-S
ah. A
frica
Devel
opin
g
High in
com
e
2005 2030
Per Capita Incomes converge, but not for all
0
5
10
15
20
25
30
35
40
45
East Asia &Pacific
South Asia Europe &Central Asia
Middle East& NorthAfrica
Sub-Saharan
Africa
LatinAmerica &Caribbean
China India
2001 2005 2010 2015 2020 2025 2030
Index: High-income=100 in each year
Note: Ratio of PPP-adjusted per capita incomes relative to high-income average. PPP is fixed at base year (2001) level.Source: World Bank simulations with Linkage model.
Methodology: GIDD
Population Projection by Age Groups(Exogenous )
Education Projection(Semi- Exogenous )
New Population Shares or Sampling Weights by Age and Education
Household Survey(Simulated Distribution )
CGE(New Wages, Sectoral Reallocation )
Results: Global Distribution
The between-countries inequality component decreases, explained, to a great extent by the catching up of China and India
The Emergence of a Global Middle Class
• Definition: Individuals whose income is between the per-capita income of Brazil and Italy, annual (2000 PPP) US$3,914 and US$16,746, respectively
• Increase in the global middle class – 2000 = 460 million members– 2030 = 1.2 billion members
• How much is due to China and India? – ½ of the total change in the global middle class (GMC) is
explained by China
The Importance of China and India in the Global Middle Class
• Growth in China and India determines the performance of the GMC
• Within-country distribution also matters
Conclusions