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developing countries

Global investment patterns will see radical changes by 2030

Jamus Lim's picture

In an earlier post, we highlighted a feature of the global pattern of investment in recent times: that since 2000, developing countries have gradually increased their share of global investment, moving from around 20 percent through much of the second half of the last century, to around 46 percent by 2010. The rapidity of this rise notwithstanding, the natural question is whether this trend will continue into the future.

Answering this question---on changing patterns of global investment---is one of the main concerns of the most recent edition of the Global Development Horizons report, entitled Capital for the Future. In order to frame the question, the report considers how different countries will distinguish themselves in the global economy and, consequently, how by doing so they will provide investment opportunities that would attract financing from the pool of global saving.

Scenarios are not merely uncertain forecasts

Hans Timmer's picture

My previous blog ended with a question about the usefulness of anticipating the long-term future if that future is highly uncertain. Ever since the 1982 article on “Trends and random walks in macroeconomic time series” by Nelson and Plosser, there has been a debate about the long-term statistical properties of GDP and other macroeconomic variables. Nelson and Plosser could not reject the hypothesis of a random walk (with drift), which means that random shocks have a permanent impact on the level of GDP and that the uncertainty interval around forecasts becomes wider and wider with every year you try to peek farther into the future. The message seems to be: If next year’s world is already very uncertain, don’t even bother forecasting the world in 2030.

Others found that “macroeconomic time series are best construed as stationary fluctuations around a deterministic trend function”, if you allow for a few structural breaks in the trend. The consequences for long-term forecasting are huge because, in this case, random shocks are transitory, there is mean reversion, and it is in fact easier to analyze long-term trends than short-term fluctuations.

In the long run, we all want to be alive, and thrive

Hans Timmer's picture

Ninety years ago, in his A Tract on Monetary Reform Keynes famously wrote “In the long run we are all dead”. That observation recently stirred a lot of debate for all the wrong reasons, after Niall Ferguson obnoxiously claimed that Keynes did not care about the future because he was childless. Whether Keynes cared about the long-term future or not (and whether he had children or not) is completely irrelevant in this context, as many (e.g. Brad DeLong and Paul Krugman) have pointed out.

The actual context in which Keynes wrote this observation was a discussion about the quantity theory of money, which states that doubling the supply of money will only double the prices, but will have no consequences for other parts of the economy. This is the classical dichotomy between real and nominal variables. Keynes argued: “Now in the long run this is probably true”. But “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”  So, Keynes’ point was obviously not that the future doesn’t matter. His point was that simple theories that might describe long-term relationships are just not good enough to deal with current issues. In the short run, changes in money supply can have all kinds of important consequences beyond the price levels. Economists will have to make their hands dirty and delve into the complicated dynamics of the here and now.

Land Rights and the World Bank Group: Setting the Record Straight

Klaus Deininger's picture

The leasing or purchase of agricultural land in the developing world has become a hot button issue as the planet has grown more crowded and the pressure to stake out more arable land – whether for food or biofuels – grows. At the same time, agricultural productivity in many of the poorest communities around the globe has stagnated and, unless higher crop yields can be attained, far too many people will remain trapped in poverty.  Helping such smallholders catch the wave of rising interest in farmland is a key aim of the Annual World Bank Conference on Land and Poverty, which began Monday. Our theme this year is ‘Land Governance in a Rapidly Changing Environment.”

It’s clear that this year, many stakeholders who are either taking part in the conference or criticizing the event from outside think that global interest in farmland in the developing world is at a tipping point.

Beyond Keynesianism in the Year of the Dragon

Justin Yifu Lin's picture

Millions of Chinese have just celebrated the beginning of the year of the Dragon - a year which according to Chinese tradition is auspicious for ambitious undertakings. These may be required as the global economy faces severe headwinds. According to the January edition of Global Economic Prospects (GEP) report the world economy is expected to grow at 2.5 percent and 3.1 percent in 2012 and 2013, significantly below the 3.6 percent projected for both years in last July’s GEP. But even achieving these much weaker outturns is highly uncertain. The downturn in Europe and weaker growth in several large developing countries, such as Brazil and India, could potentially reinforce one another, resulting in an even weaker outcome. But without growth it will be more difficult to reduce the high debt of some advanced economies to sustainable levels and create much needed jobs world-wide.

Youth Bulge: A Demographic Dividend or a Demographic Bomb in Developing Countries?

Justin Yifu Lin's picture

The youth bulge is a common phenomenon in many developing countries, and in particular, in the least developed countries.   It is often due to a stage of development where a country achieves success in reducing infant mortality but mothers still have a high fertility rate. The result is that a large share of the population is comprised of children and young adults, and today’s children are tomorrow’s young adults. 

Figures 1 (a)-(b) provide some illustrative examples. Dividing the world into more and less developed groupings (by UN definitions) reveals a large difference in the age distribution of the population. The share of the population in the 15 to 29 age bracket is about 7 percentage points higher for the less developed world than the more developed regions. In Africa (both Sub-Saharan and North Africa), we see that about 40 percent of the population is under 15, and nearly 70 percent is under 30 (Figure 1(a)). In a decade, Africa’s share of the population between 15 and 29 years of age may reach 28 percent of its population.  In some countries in “fragile situations” (by World Bank definitions), almost three-quarters of the population is under 30 (examples in Figure 1(b)), and a large share of 15-29 year olds will persist for decades to come (Figures 1(c) and (d)).

Is the West Being Taken Over by the Rest?

Shahrokh Fardoust's picture

Renowned British economic historian Niall Ferguson in his new and dazzling history of Western ideas, Civilization: The West and the Rest, argues as his central thesis that the West developed six killer “apps”—referring to the popular software applications for smartphones and tablets—that caused the West to dominate the global stage for the last 500 years. These key institutions and complexes of ideas, such as “competition,” “property rights,” “the Work Ethic,” were what led the West to preside (relatively unchallenged) over global politics, economics, and culture, despite the fact that the civilizations of the Orient were much more advanced than Western Europe in the 1400s, which was plagued by disease and war. Over time, however, the West has become, as Ferguson puts it, a “template” for the Rest (i.e. non-Western countries), which have been copying (or downloading) the apps and are now on the verge of overtaking the West in terms of economic strength and size, led  by China.

On Aid and Growth – reflections ahead of Busan

Finn Tarp's picture

Not a month goes by without some sort of bad news about foreign aid. Examples of incompetence , abuse of funds by corrupt leaders, and distorted incentives abound. These stories fuel a deep skepticism of foreign aid. In this view, perverse effects dominate – and end up weakening, rather than encouraging, growth and development. If one accepts this view, then it is logical to turn off the poisoned tap of foreign aid. But are such views well founded?

The answer is no.

Managing Capital Flows

Shahrokh Fardoust's picture

With sluggish growth in advanced economies, much investment money is heading south to more favorable climates. And while capital flows can provide greater opportunities for emerging and developing economies to pursue economic development and growth, capital inflows can also pose some serious policy challenges for macroeconomic management and financial sector supervision. Recently, large capital inflows in some middle-income countries have placed undue  upward pressure on their currencies, adversely affecting  macroeconomic and financial system stability as well as export competitiveness in a number of  these countries. Furthermore, the pro-cyclical nature of global capital flows to emerging and developing economics can serve to aggravate these risks.

Flying Geese, leading dragons and Africa’s potential

Justin Yifu Lin's picture

The “flying geese” pattern describes the sequential order of the catching-up process of industrialization of latecomer economies.The potential for expanding the industrial sectors of African countries is substantial – this was a message I delivered on a recent trip to Italy, Tanzania, Mozambique and Malawi. This can happen through an improved understanding of the mechanics of economic transformation as well as by focusing on how such countries can follow their comparative advantage in natural resources and labor supply. 

During my site visits and meetings with the private sector for the African segments of my trip, I became more convinced than ever of the strong untapped potential for private sector-led industrialization. Yet that can only happen when the government plays a facilitating role, such as by overcoming information asymmetries, coordination failures and externalities associated with first-mover actions. In Tanzania, initial experiments with industrial parks look promising, as do agricultural development projects and rural transport initiatives currently under way. In the case of industrial parks, it’s important to have a one-stop shop for registration and other administrative obligations, adequate electricity and water supply, and good transport/logistics links.