Currently, the developing world contributes more than fifty per cent of global growth and, according to OECD perspectives on Global Development, the combined GDP of China and India is equivalent to about one-third of that of the developed economies, which they are expected to surpass by 2060.

Combined with very large populations and the accumulation of skills production capabilities, high growth in developing countries has contributed to the creation of a new world economy, it says. While China has been the main driver of this process, other countries also contribute. China, Brazil and India are among the top ten world manufacturers.

Under IMF’s classification, revised annually, global weights in GDP and Trade for advanced and developing economies were 50.1 and 49.9 per cent respectively in GDP and 61.2 and 38.8 per cent in world trade in 2011. In population, the shares were 15 and 85 per cent. China’s share in global GDP is nearly 15 per cent, second only to USA, and accounts for 10 per cent of world trade, as against India’s 5.6 and 2 per cent respectively.

According to the World Bank snapshot for 2030, more than two-thirds of all global investment and half of the global accumulated capital stock will be in developing economies. The global stock is estimated to total 158 trillion (in 2010 dollars), of which half will reside in the developing world 17 years from now, compared to less than one-third today. The Bank’s latest report on Global Development Horizons (GDH) explores patterns of investment, saving and capital flows as they are likely to evolve over the next two decades.

The gradual acceleration of trend growth in developing countries, which started during the 1990s, has increased their contribution not only to global investment but also to global saving. Collectively, developing countries’ domestic saving stood at 34 percent of their gross domestic product (GDP) in 2010, up from 21 percent in 1970, and their investment was around 33 percent of their GDP in 2012. Their share of global saving now stands at 46 per cent, nearly double the level of the mid-1960s.

According to Mr Kaushik Basu, the World Bank's Senior Vice President and Chief Economist, experience of countries as diverse as South Korea, Indonesia, Brazil, Turkey and South Africa underlines the pivotal role investment plays in driving long-term growth. In less than a generation, global investment will be dominated by the developing countries. China and India, with largest investments, are expected together to account for 38 percent of the global gross investment in 2030. All this will change the landscape of the global economy, he adds.

The report says key economic and structural drivers, together with demographic shifts, would affect saving and investment decisions over the next two decades—and thus the global distribution of capital in the future. The average per capita income of the developing world will rise from about 8 percent of that in high-income countries in 2010 to about 16 percent by 2030. With gradual convergence, the contribution of developing countries to global growth will rise from 73 percent around 2015 to 87 percent by 2030.

By then, employment in services would account for more than 60 per cent of total employment in developing countries and they will account for more than 50 percent of global trade. For all this to materialize, the report underlines two conditions – productivity growth and sectoral shifts to create enough investment opportunities. Secondly, both domestic and international investors will have to be willing to finance these investments and allocate two-thirds of global savings to developing countries.

This in turn depends on major structural changes and continued improvements in governance over the next two decades in the developing countries. The Bank expects global investment and saving rates and yields on capital to remain fairly stable through 2030. Aging would tend to be less pronounced in developing economies than in advanced economies over next two decades

The shift of global economic weight toward high-saving developing economies means that, by 2030, developing countries will account for 62–64 percent of total world saving up from 45 per cent in 2010. The Bank report reveals that while global capital stock would shift toward the developing world, “wealth may remain concentrated among high-income households in developing countries”. This should mean an accentuation of existing income and wealth disparities in most developing nations including India.

The Bank estimates China’s saving to be 9 trillion in 2010 dollars in 2030 with India a distant second at 1.7 trillion dollars, having surpassed the levels of Japan and USA in the 2020s. But the aging of the population will bring increases in age-related expenditures such as pensions and health services, putting pressure on public finance of countries.

That all these aggregates in saving and investment may not contribute to the desired extent in meeting infrastructural needs is another take from the World Bank report. Global infrastructure bill for developing countries would be some 566 billion dollars annually in 2030 while infrastructural needs would be the largest in developing East and

South Asia. Over the next 20 years, financing for infrastructural projects would pose a major challenge and this financing would have to be done in an environment in which demographic pressures would exacerbate public sector funding difficulties.

On capital inflows and outflows, the report says developing countries would account for a greater share in the future. Under the Bank scenario, India, and Sub-Saharan Africa would run current account deficits averaging 2.4 percent and 3.2 percent of GDP respectively, over 2010–30. The inference drawn from rapid growth in cross-border capital flows in the decades ahead is the world’s economies getting more integrated than at any time in history.

At the global level, the report calls for policies to raise educational attainment, especially for the poor and levels of skills for jobs. Also, it refers to the need to adjust the course of global monetary and financial policy-making as developing countries become responsible for an expected half or more of the world’s capital outflows.

Secondly, the report refers to greater use of the renminbi, China’s currency, which would strengthen the impact of China’s monetary policy on the rest of the world, partially eroding the dominance of U.S. and Euro Area monetary policy.

Increasing share of global flows going to and from developing countries indicates that these countries should have a larger role in management of capital flows at the international level, within both bilateral and multilateral organizations, the Bank said. Policy-makers would also have to provide for a greater role of capital markets in international financial intermediation and promote the development of domestic capital markets.—(IPA Service)