Tuesday, August 2, 2011

U-shaped GDP of Asia between 1700-2050

The estimates in a new book (Asia in 2050) by the ADB shows that if Asia continues on its recent trajectory it would double its share of global GDP to 52% by 2050 and regain its dominant economic position it held in the 1700s. The rise, fall and rise of Asia is depicted in figure 1 by the U-shaped GDP (share of global GDP). Specifically, it is like the shape of a marginal cost curve.

But, it warns that “Asia’s continued rise is plausible, but by no means pre-ordained”. China, India, Viet Nam, and Indonesia could fall victim to the “middle-income trap”—as countries grow rapidly they are unable to compete with low-income, low-wage economies in manufactured exports and advanced economies in high-skill innovations. It basically means that countries fail to make a timely transition from resource-drive growth, with low-cost labor and capital, to productivity-drive growth. South Korea avoided this trap, but Brazil and South Africa could not, says the report.

Two scenarios:

  • Asian Century scenario: Asia’s GDP (at market exchange rates) increases from $17 trillion in 2010 to $174 trillion in 2050, or half of global GDP. Seven countries—China, India, Indonesia, Japan, South Korea, Thailand, and Malaysia—would lead the Asian march to prosperity. They will account for 73 percent of global population and 90 percent of Asia’s population. They will account for 45 percent of global GDP. Asia would have a per capita GDP of $40,800 in 2050, equal to the Europe’s level today. Interestingly, Asia would have no poor countries (those with average per capita GDP of less than $1000), compared with eight today.
  • Middle Income Trap scenario: Assumes that fast-growing converging economies fall into the trap in the next 5-10 years, without any of the slow- or modest-growth aspiring economies improving their record. Asia’s GDP in 2050 would be $65 trillion only and GDP per capita $20,600. A combination of bad macro policies, finance sector exuberance with lax supervision, conflict, climate change, natural disasters, changing demography and weak governance could lead to this scenario.

Growth challenges faced by Asia’s leaders:

  • Increasing inequality within countries, which could undermine social cohesion and stability.
  • For some countries, the risk of getting caught in the “Middle Income Trap”, for a host of domestic economic, social, and political reasons.
  • Intense competition for finite natural resources, as newly affluent Asians aspire to higher standards of living.
  • Rising income disparities across countries, which could destabilize the region.
  • Global warming and climate change, which could threaten agricultural production, coastal populations, and major urban areas.
  • Poor governance and weak institutional capacity, faced by almost all countries.

In May 2011, the ADB came out with an earlier version of the same report/book. Then, it argued that Asia’s GDP under Asian Century scenario and Middle Income Trade scenario would be $148 trillion and $61 trillion in 2050. Have to find out what led to the discrepancy in estimates in two months period.  Below is how the report identified per capita GDP in South Asia.

South Asian per capita GDP and 65+ population in 2050
Country per capita GDP (PPP, US$) 65+ population
Bhutan 48,600 15
India 41,700 13.7
Sri Lanka 34,700 21.4
Bangladesh 14,200 14.9
Pakistan 7,900 10
Nepal 3,400 10.6
Afghanistan 2,800 3.6