OECD@100: POLICIES FOR A
SHIFTING WORLD
Giuseppe Nicoletti
Economics Department
4 June 2014
Introduction
– Illustrate some key economic challenges over
the coming 50 years
– Identify policies to address these challenges
and which trade-offs such policy action can
generate
– To do this, we have used and developed a suite
of models to illustrate trends and interactions,
and to identify risks and tensions
2
The central scenario: tools
3
Key trends identified
1. Shifting patterns of economic activity and
slowing growth
2. Rising global economic interdependence and
change in trade flows
3. Increasing global environmental costs
4. Continued increase in earning inequality
5. Substantial fiscal challenges
4
Global growth set to slow down
Contributions to global growth, 147 countries, 2001-2060
Growth will be increasingly driven by MFP and skill-biased technological progress
5
The world economy shifts balance
Shares in global GDP (at current PPPs)
2030
2010
2060
India
5%
China
14%
Other
nonOECD
24%
United
States
20%
Other
OECD
37%
India
8%
China
19%
India
11%
United
States
17%
United
States
14%
China
17%
Other
nonOECD
26%
Other
OECD
30%
Other
nonOECD
33%
Other
OECD
25%
OECD share falls from 57% to 39%
The global economy becomes multipolar
6
Global integration rises further
Trade will soar
Global exports as a share of GDP
Per cent
35
30
25
20
15
10
5
0
2010
2060
7
Issues raised by global growth patterns
1. Global trade expands in line with the shifting world
economy, what happens to interdependence
and specialisation?
2. Incomes in emerging economies catch-up, what are
the consequences, e.g. in terms of migration?
3. Global growth becomes even more reliant on
multifactor productivity and knowledge-based assets,
what happens to income inequality?
4. Global GDP expands by 350%, what are the
environmental consequences in a ‘business as
usual’ scenario?
5. New demands emerge, what are the fiscal
pressures ahead?
8
1. Interdependence and specialisation
The share of trade occurring within and with the nonOECD area will increase dramatically
9
1. Interdependence and specialisation
Industrial structure shifts to services and highervalue added activities in EMEs
Value-added shares of different sectors in China, India and Indonesia, 2010 and 2060
43%
49%
49%
51%
58%
16%
21%
13%
31%
2060
China
15%
High-skilled
manufacturing
43%
41%
2010
Services
8%
7%
41%
54%
31%
29%
2010
2060
India
2010
Other sectors
(agriculture,
energy and other
manufacturing)
2060
Indonesia
10
2. Migration and labour force
OECD labour forces could be depressed
by lower immigration
Labour force in 2060
11
3. Income inequality
Gross earnings inequality could continue
to rise dramatically in the OECD
Gross earning inequality (D9/D1), 2010 and 2060
Ratio D9/D1
2010
2060
8
7
6
5
4
3
2
1
0
12
4. Environment
GHG emissions will nearly double and climate
change will lower GDP, especially in Asia
Damages
as per
cent of
GDP
13
5. Fiscal pressures
Fiscal pressures in the OECD area are large
Budget adjustment needed as of 2014 to stabilise debt ratios at 60% of GDP by 2060
% of GDP
Tertiary education expenditures
Health expenditures (cost containment scenario)
Pension expenditures
Fiscal gap assuming constant pension, health and education expenditures
Total fiscal pressures
20
15
10
5
0
-5
14
* Tertiary education spending projections not available.
Policies for a shifting world
• Main challenges ahead:
– support knowledge-based growth while addressing redistributive
and environmental tensions
– scale up or develop international policy coordination in an
increasingly integrated and multipolar world
• To meet these challenges:
 long-standing OECD recommendations become more pressing (e.g.
framework policies, carbon pricing, openness)
 but redesign of policy tools is also needed, e.g.:
– adapt innovation policies (e.g. IPR)
– make tax structures and tax cooperation consistent with increasingly
mobile tax bases (e.g. CIT)
– meet new demands while ensuring fiscal stability via better targeting of
public policy (e.g. education)
15
Policies for a shifting world
Sustaining knowledge-based growth while mitigating inequality
 For productivity:
−
−
−
develop technological, managerial and workers’ skill base
foster market dynamism
ensure efficient matching and reallocation mechanisms
 For employment:
−
−
−
encourage longer working lives
higher participation
work-related immigration
 For equity:
−
meet rising demand for education spurred by high skill returns by focusing limited
public resources on early schooling and life-long learning funding university via
loan-financed tuitions
−
Help finance equal opportunity and redistribution policies by shifting from mobile
to immobile tax bases, such as consumption, property and use of natural resources
(e.g. extraction)
16
Policies for a shifting world
Scale up international policy coordination in three areas:
 Trade:
–
–
–
–
welfare gains, especially from multilateral liberalisation
technology diffusion supports knowledge-based growth
with expanding supply chains, effects of lifting border barriers are magnified
integration helps absorbing supply shocks (e.g. climate)
 Provision of global public goods:
–
–
–
–
basic research
intellectual property rights legislation
competition policy
climate
 Corporate income taxation (e.g. on anti avoidance measures):
– recover lost revenues
– avoid efficiency losses from excessive tax competition and BEPS
17
THANK YOU!
18
ANNEX SLIDES
19
Incomes p.c. are driven by skill biased tech.
progress and converge across countries
Contribution to growth and convergence in GDP per capita, 42 countries, 2000-2060
Per cent
50
Percentage points
7
6
40
5
30
4
3
20
2
10
MFP
1
Human capital
0
0
Other factors
-1
-10
OECD
nonOECD
G20
2000-2010
OECD
nonOECD
G20
2010-2020
OECD
nonOECD
G20
2020-2030
OECD
nonOECD
G20
2030-2040
OECD
nonOECD
G20
2040-2050
OECD
nonOECD
G20
2050-2060
20
1. Interdependence and specialisation
Tariffs are increasingly harmful for specialisation
due to GVCs
% change in gross
exports
30%
25%
20%
15%
Brazil:
Effect of
cutting
tariffs on
electronics
on exports of
electronics
South Africa
Effect of
cutting
tariffs on
textiles on
exports of
clothing
10%
Tariff on electronics in Brazil cut from
current (9.5%) to the Median (1.1%)
Tariff on textiles in South Africa cut from
current (20.5%) to the Median (9.2%)
21
3. Income inequality
Demand for high-skilled workers rose in most
countries over 1995-2008
Low-skill
Medium-skill
High-skill
Total
% change over 1995-2008 relative to the level in 1995
220
170
120
70
20
-30
-80
Note: Low -skill ref ers to completed primary and/or low er-secondary education (ISCED 1 and 2); mediumskill ref ers to completed upper-secondary and/or non-tertiary education (ISCED 3 and 4); and high-skill
ref ers to completed tertiary education (ISCED 5 and 6). 22
3. Income inequality
Relative wages of skilled workers are likely
to increase (2010-2060)
23
2. Migration and labour force
Will income convergence lead to a dry-up of
migration towards the OECD?
Downside
risk 150M
Source: UN population projections and OECD estimates
24
4. Environment
Greenhouse gas emissions will soar,
especially in Asia and Africa
Million tonnes, CO2 equivalent
2010
48 700 million tonnes
2060
99 500 million tonnes
25