POPULATION A HEADACHE BUT PART OF 3G (GLOBAL GROWTH GENERATOR) INDEX

CLARK FREEPORT, PAMPANGA, MARCH 2, 2011 (STAR) By Ding Cervantes – A runaway population may be a headache, but for Citigroup it’s part of the global growth generator or 3G index, which can signal huge growth potential for the Philippines and 10 other countries.

“Using that index the nations to watch over the coming years are Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, the Philippines, Sri Lanka and Vietnam,” said Citigroup chief economist Willen Buiter in an article written by Patrick Allen of CNBC.com for USA Today. Buiter called 3G a “measure of economic progress.”

“They are our 3G countries,” he said, referring to the 11 nations.

“For poor countries with large young populations, growing fast should be easy: open up, create some form of market economy, invest in human and physical capital, don’t be unlucky and don’t blow it. Catch up, and convergence should do the rest,” Buiter added.

“The world is going to become richer and richer as developing economies play catch up over the coming years,” he said.

“Occasionally, there will be growth disasters, driven by poor policy, conflicts, or natural disasters. When it comes to that, don’t believe that ‘this time it’s different’,” he said.

“There are some easy wins for poor countries with big, young populations,” he said.

“We expect strong growth in the world economy until 2050, with average real GDP growth rates of 4.6 percent per annum until 2030 and 3.8 percent per annum between 2030 and 2050,” Buiter added.

“As a result, world GDP should rise in real PPP-adjusted terms from $72 trillion in 2010 to $380 trillion in 2050,” he said. PPP is purchasing power parity.

“As the world watches oil prices rise sharply amid unrest in the Middle East, Buiter’s analysis of the world’s long-term prospects offer some hope that better times are ahead but if he is right, power will shift from the West to the East very quickly,” Allen said.

“Developing Asia and Africa will be the fastest growing regions, in our view, driven by population and income per capita growth, followed in terms of growth by the Middle East, Latin America, Central and Eastern Europe, the CIS, and finally the advanced nations of today,” he wrote.

“China should overtake the US to become the largest economy in the world by 2020, then be overtaken by India by 2050,” Buiter said.

Citi’s new meme: 3G or ‘Global Growth Generators’ Posted UK FINANCIAL TIMES by John McDermott on Feb 22 18:32.

In a whopping report out Monday, Citi’s Willem Buiter and Ebrahim Rahbari call time on ‘Emerging Markets’ and ‘BRIC’ labels.

And not a moment too soon, we reckon.

Instead, the authors propose — you guessed it — a new meme: Global Growth Generators. Or the 3G, for short.

But Buiter and Rahbari’s note is more than just a PR exercise. In a little under 90 pages it comprehensively surveys global growth trends, drivers and forecasts.

You know the historical trends: there are lots and lots of graphs here marking the impact of globalisation and catch-up growth on poor countries following the second world war.

You also know the forecasts: there are lots and lots of graphs extrapolating the above trends to show when other poor countries will become rich.

For brevity and impact we like this map from the report, via economist Danny Quah, showing the past (1980-2007) and projected future of the world’s ‘economic centre of gravity’ (click to expand):

Go east, my son (and grandson).

After tracking these familiar stories the report turns to where the largest amount of growth will occur in the next half century. For that, they recommend looking at the ‘3G Index’.

As part of that effort, we construct the 3G Index, which is a weighted average of six growth drivers that we and the literature surveyed in earlier sections consider important. The six components of the index are (1) a measure of domestic saving/ investment, (2) a measure of demographic prospects, (3) a measure of health, (4) a measure of education, (5) a measure of the quality of institutions and policies, and (6) a measure of trade openness.24 In our view, the countries that are most promising in terms of their growth potential are Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka, and Vietnam.

And in table form, complete with bumper-sticker advice:

But it’s easy to conflate growth potential with growth probability, a sceptical analyst may argue. Iraq, Egypt and Nigeria have a lot of (young) people and have missed out on the catch-up growth other countries have obtained in the last decades. The report doesn’t help itself, either, by pointing out that North Korea could join the 3G if it sorted itself out. No doubt, but will it?

However, this would be unkind as underlying the forecasts and slightly wishy-washy index (aren’t they all?) are some fascinating assumptions about the drivers of growth. More comprehensive than simple growth models; a bit of biology as well as physics.

In chapter seven, worth reading in full, we found the following insights particularly healthy:

1. Countries matter but can be unhelpful units of analysis (and lead to misleading if catchy taxonomies):

Regions (both sub-national and multi-national), cities (especially mega-cities), sectors, trade corridors, industries, firms, technologies, products and asset classes are worthy of attention and study in their own right.

2. Demographics = complicated: too many old people and too many young people can both be a drag on growth (though the former is worse).

3. Capital and human capital formation matter but institutions and policies matter a lot, too.

4. As do other, understudied factors:

i) Openness to trade, capital, migration and FDI ii) history, geography, and culture iii) financial endowments iv) endowment of natural resources v) the structure of production

None of this is brand new of course — see also the Commission on Growth and Development — but it’s good to see it all in one place. And it’s good that academics such as Barro, Romer and Solow are joined by Acemoglu, Easterly, North and even Putnam in the thinking of major strategists.

We’d have liked more on how climate change and inequality factor in, and more on how to end the stagnation at the frontier, but that may be forthcoming in future papers.

So one to watch — over the next few months and over the next 50 years.


Chief News Editor: Sol Jose Vanzi

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