The Future of Global Economic Power

49 Pages Posted: 17 Oct 2022 Last revised: 28 Jun 2024

See all articles by Seth Benzell

Seth Benzell

Chapman University - The George L. Argyros School of Business & Economics; MIT Initiative on the Digital Economy; Stanford University, Human-Centered Artificial Intelligence Digital Economy Lab

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

Maria V Kazakova

Gaidar Institute for Economic Policy; Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research

Guillermo Lagarda

Global Development Policy Center Boston University; Inter-American Development Bank

Kristina Nesterova

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA)

Victor Yifan Ye

Boston University

Andrey Zubarev

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research; Gaidar Institute for Economic Policy

Date Written: October 2022

Abstract

The global economy’s enormous region-specific demographic, technological, and fiscal changes raise five major questions. First, which regions will come to dominate the world economy? Second, will regional levels of per capita GDP converge? Third, will high saving rates in fast growing regions lead to a global capital glut? Fourth, does aging augur far higher tax rates in particular regions? Fifth, will automation materially influence development? This paper develops the Global Gaidar Model, a 17-region, 2-skills, 100-period, OLG model, to address these questions. The model is carefully calibrated to 2017 UN demographic and IMF fiscal data. Productivity growth and its interaction with demographic change are the main drivers of future economic power. Fiscal conditions and automation matter, but are secondary factors. Our baseline simulation, which sets future productivity based on each region’s long-term record, predicts China and India becoming the world’s largest two economies with 27.0 percent and 16.2 percent of 2100 world GDP, respectively. The respective end-of-century U.S. and Western European global GDP shares are just 12.3 percent and 11.9 percent. Our baseline also features an evolving global savings glut, major reductions in the world interest rate, substantial aging-related increases in tax rates, and permanent differences in regional living standards. Automation, captured by a rising capital share, makes little difference to our results. But assumed productivity growth does. If recent productivity continues and demographic projections prove accurate, India will account for one third of world output in 2100 and China for over one fifth. The U.S. output share will grow slightly, while that of other developed countries will shrink dramatically. Under more econometrically sophisticated, if seemingly less plausible projections, productivity growth in China and India dramatically slows leaving China’s plus India’s 2100 output share at only 16 percent, but, remarkably, Africa’s at an astounding 17 percent.

Suggested Citation

Benzell, Seth and Kotlikoff, Laurence J. and Kazakova, Maria V and Lagarda, Guillermo and Nesterova, Kristina and Ye, Victor Yifan and Zubarev, Andrey, The Future of Global Economic Power (October 2022). NBER Working Paper No. w30556, Available at SSRN: https://ssrn.com/abstract=4249585

Seth Benzell (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA 92866
United States

MIT Initiative on the Digital Economy ( email )

245 First Street
Cambridge, MA 02142
United States

Stanford University, Human-Centered Artificial Intelligence Digital Economy Lab ( email )

Stanford, CA 94305
United States

Laurence J. Kotlikoff

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4002 (Phone)
617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gaidar Institute for Economic Policy

Gazetny per. 5-3
Moscow, 125993
Russia

Maria V Kazakova

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research ( email )

Russia

Guillermo Lagarda

Global Development Policy Center Boston University ( email )

53 Bay State Road
Boston, MA 02215
United States

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Kristina Nesterova

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) ( email )

Vernadskogo Prospect 82
Sredny av. V.O., 57/43
Moscow, St. Petersburg 119571
Russia

Victor Yifan Ye

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Andrey Zubarev

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Institute of Applied Economic Research ( email )

Russia

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

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