A new study predicts that China and India will become the world’s leading economies in the coming decades, while the US and Western Europe will decline in importance. The analysis depends on productivity growth and demographics, meaning that US immigration policies, China’s withdrawal from the free market and other factors will affect the future influence of nations in the global economy.
In the National Bureau of Economic Research (NBER) paper, The Future of Global Economic Power, the authors predict the rise of China and India as global economic power. The authors of the paper are Seth G. Benzell, Laurence J. Kotlikoff, Maria Kazakova, Guillermo LaGarda, Kristina Nesterova, Victor Yifan Ye, and Andrey Zubarev.
According to the study, the US share of world GDP [gross domestic product] will decrease from 16% in 2017 to 12% by 2100, with China’s share increasing from 16% to 27%. The study projects that India’s share of global GDP will increase from 7% in 2017. to 16% in 2100, while the share of Western Europe (including the UK) will decrease from 17% in 2017. to 12% by 2100 India and China’s GDP to grow from 23% in 2017 to 43% by 2100
Productivity growth: According to the authors, the results are “highly sensitive to our assumed region-specific productivity catch-up rate.” They disagree, but cite a 2019 paper by economists Ulrich K. Müller, James H. Stock, and Mark W. Watson. The NBER study, which predicted much lower growth for several countries, including “an almost complete end to China, India, Russia and Eastern Europe. and the former Soviet Union caught up with labor productivity growth.
Benzell et al. note that according to the Müller, Stock, and Watson model, the United States would be the “end-of-the-century economic king” by 2100. producing 18% of world GDP. Sub-Saharan Africa would be second at 17.5%. “Share of Chinese and Indian production [under the Müller, Stock and Watson scenario] decreases sharply – from 24.2% in 2017 to 15.8% in 2100
According to another possible outcome, Benzell et al. explain that if we assume that the growth rates are the same as 20 years before 2017. (ie “recent growth rates”), “India is now becoming the superpower of the planet, which by 2100 the share of the world economy increases from 6.8% to 33.8%. This would mean that China’s share of world GDP would increase from 15.7% to 22%. However, in this scenario, India’s economy would be 50% larger than China’s because its population would be 50% larger than China’s, but the labor productivity would be the same.
“For all other economies, the economic impact declines or remains nearly constant relative to the base case,” write Benzell et al. “The picture in the US is particularly bleak. Its share in the world economy will decrease to 10 percent at the end of the century. The story of Western Europe, including the UK, is even more shocking. in 2017 VES and UK produced 25.2% of global production. However, if recent catch-up rates prevail, their 2100 share will be only 6.4%! That is, Western Europe will turn from the world’s largest economy into one of the smallest.
One can also see the wide variation in a nation’s economic output due to the size of its labor force and the productivity of its workers. “[C]consider the United States and China, which currently account for roughly the same share of global GDP,” write Benzell et al. “If Chinese workers were as productive as Americans today, China’s GDP would be 4.3 times that of the US.”
The standard of living for the average American remains high compared to much of the world. “In 1997 China’s standard of living was only 3.5% of that of the US,” notes Benzell et al. “In 2017, China’s share was 13.8% or 3.94 times higher than 20 years earlier. India’s standard of living has also been rising compared to the US, and in 2017 the ratio was 2.06 times higher than in 1997. Economists welcome the fact that millions of people in China, India and elsewhere have been lifted out of poverty by market-oriented reforms.
Immigration, demographics and productivity growth: Immigration is critical to labor force growth – a key element of economic growth – and has been shown to improve productivity growth.
“When we aggregate at the national level, foreign STEM streams [science, technology, engineering and math] the staff explains 30% to 50% increase in overall performance that took place in the United States between 1990 and 2010,” according to economists Giovanni Peri (UC, Davis), Kevin Shih (RPI) and Chad Sparber (Colgate University).
Studies show that higher levels of immigration would boost the US economy, especially in the long run. “A 28% increase in legal immigration per year would increase average annual labor force growth in the United States by 23% compared to current U.S. projections, contributing to economic growth and helping to address a slower-growing U.S. labor force,” according to the president’s analysis. National Foundation for American Policy (NFAP).
On the other hand, reducing legal immigration would make the US economy grow much more slowly. “If the United States continued the Trump administration’s policy of administratively reducing legal immigration by about 49%, average annual labor force growth would be about 59% lower than under a policy of no immigration reduction,” the NFAP analysis said. If immigration were cut in half, in 40 years the US would only have about 6 million more people working than it does today.
China’s turn away from free market policies: Benzell et al. research done. assumes that China’s economic growth will not decline due to bad economic policies. However, this may already be the case. “There are some signs that the country’s growth potential is in trouble,” reports The The Wall Street Journal.. “IMF [International Monetary Fund] The analysis estimated that over the past decade, observing Mr. Xi, productivity increased by only 0.6% on average. This was a sharp decline from an average of 3.5% over the past five years.
China under Xi supported less efficient state-owned enterprises rather than the more successful private sector, he notes The Economist.and the effects of maintaining the one-child policy for many years are felt in the country’s demography.
“Over the longer term, China’s growth prospects are constrained by demographics, declining productivity and, above all, the failure of structural reforms over the past decade,” says Logan Wright of the Rhodium Group. “China’s potential growth rate right now is probably closer to 3% than 5%, and China is currently growing well below that potential rate.”
James Pethokoukis, American Enterprise Institute Fellow and Journal Editor Faster please! newsletter, believes that the US can grow faster than China in the coming decades if America implements the right policies. “Can the US grow at least 3 percent?” writes Pethokoukis. “I think you can. There is nothing wrong with the American economy that cannot be fixed with what has always been good about the American economy. This means that the economy hosts and attracts global talent, spends heavily on research and development (both public and private), regulates how new regulations affect the ability to create and innovate in the physical world, and continues to reward high-impact entrepreneurship. . . . .The issue of immigration is obviously very important here and China cannot match.
Benzell et al. research done. predicts the future economic influence of China, the United States, and other countries, predicting that China and India will increase and that of the United States will fall. US immigration policy and China’s economic choices will influence whether this prediction comes true.