Ec413: Global growth and distribution 9 October 2009

Ec413: Global growth and

distribution

Danny Quah
Economics Department, LSE
Michaelmas 2009

Ec413: Global growth and

distribution

The things you can see even from outer
space
World income and growth
People on Earth
Changing distribution across space of
economic activity
Global capital flows; global imbalances

Ec413: Global growth and

distribution D. Quah 2

Corresponding analytical ideas

Economic growth; income distribution;
poverty. China

International borrowing and lending. US
exceptionalism

International economic dynamics
Global inflation
Worlds reserve currency; international
financial architecture
Current account dynamics
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distribution D. Quah 3

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Ec413: Global growth and distribution 9 October 2009

The world economy growth and

underperformance
50

World GDP
40

Fitted World GDP,

30 1960-1996

Extrapolated

20

10

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Ec413: Global growth and
distribution D. Quah 4

ESE Asia excluding Japan

5

4 ESE \ Japan

Fitted, 1960-
3
1996

Extrapolated
2

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Ec413: Global growth and
distribution D. Quah 5

ESE Asia excluding Japan and

China
5

4 ESE \
China+Japan

Fitted, 1960-
3
1996

Extrapolated
2

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
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distribution D. Quah 6

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Ec413: Global growth and distribution 9 October 2009

World growth and poverty

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distribution D. Quah 7

World growth and poverty

Ec413: Global growth and

distribution D. Quah 8

World growth and poverty

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distribution D. Quah 9

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Ec413: Global growth and distribution 9 October 2009

World growth and poverty

1981 1990 1999 2005
World GDP, 26 35 45 56
1012 PPP$
GDP per 5876 6704 7505 8662
capita, PPP$
Worlds poor, 1904 1815 1695 1400
106
Chinas poor, 835 683 447 208
106
Remainder, 1069 1132 1248 1192
106

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distribution D. Quah 10

Even the WSJ

Ec413: Global growth and

distribution D. Quah 11

Growth and poverty in one third of

the world
1000

800
1990
600
1987
China
400 India

200

0
0 1000 2000 3000 4000

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distribution D. Quah 12

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Ec413: Global growth and distribution 9 October 2009

Spatial distribution across Earth

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distribution D. Quah 13

Shifts in the global economys centre

of gravity in flat world

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distribution D. Quah 14

2008 Global economic crisis

A year in: declines of 15% industrial
production, 50% world stock markets,
20% world trade

Deficit countries, surplus countries

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distribution D. Quah 15

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Ec413: Global growth and distribution 9 October 2009

From Eichengreen and ORourke 2009

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distribution D. Quah 16

From Eichengreen and ORourke 2009

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distribution D. Quah 17

From Eichengreen and ORourke 2009

Ec413: Global growth and
distribution D. Quah 18

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Ec413: Global growth and distribution 9 October 2009

But then

From: The Economist, 2009 June 27

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distribution D. Quah 19

And more

From: The Economist, 2009 August 15

Khazanah Megatrends: The

New Normal D. Quah 20

Already in previous downturns it

had been Asia China and India
Ratio 1961- 1991* 1992- 2001 2002-
GDP 1990 2000 2006
Growth
ESE Asia/ 1.0 18.2 0.6 1.8 1.1
US
China/ US 0.08 2.99 0.26 1.34 0.54
[China+ 0.13 3.20 0.33 1.67 0.69
India] /US

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distribution D. Quah 21

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Ec413: Global growth and distribution 9 October 2009

2008 Global economic crisis

1. Domestic financial markets over-
extended
2. Asian thrift, global savings glut

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distribution D. Quah 22

US trade deficit and a GDP

Billions US$
1200

1000

800
US Trade Deficit
600
India GDP
400

200

0
1980 1985 1990 1995 2000 2005

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distribution D. Quah 23

US bilateral trade balance

10

0
1980q1 1985q1 1990q1 1995q1 2000q1 2005q1
-10

-20

-30

-40 China

-50

-60

-70
US bilateral trade balance
-80

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distribution D. Quah 24

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Ec413: Global growth and distribution 9 October 2009

US bilateral trade balance

10

0
1980q1 1985q1 1990q1 1995q1 2000q1 2005q1
-10

-20

-30 China

-40 Oil exporters

-50 EU
-60

-70
US bilateral trade balance
-80

Ec413: Global growth and

distribution D. Quah 25

US bilateral trade balances

10

0
1980q1 1985q1 1990q1 1995q1 2000q1 2005q1
-10

-20

-30 China
Oil exporters
-40
EU
-50
Oil+EU
-60

-70
US bilateral trade balance
-80

Ec413: Global growth and

distribution D. Quah 26

Bretton Woods: Keynes and the

ICU

Asymmetric obligations

Worlds reserve currency

Short-term versus long-term forces in
USD adjustment

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distribution D. Quah 27

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Ec413: Global growth and distribution 9 October 2009

Ec413: Global growth and

distribution

Danny Quah
Economics Department, LSE
Michaelmas 2009

D. Quah 10