The ongoing pattern of capital flows is quite unusual. Emerging market economies finance US consumers who are living beyond their means. This is clearly a misallocation of world saving that is unsustainable in the long run. The present paper uses the INGENUE 2 worldwide growth model to shape the conjecture of a growth regime for the first half of this century. The engine of growth rests on demographic and technological forces tied up together in a catching-up process involving very large countries. In this process, capital flows substantiate an intergenerational saving transfer to the huge number of people who aspire to get access to Western standard of life. Two scenarios explore the consistency of this prospect: a baseline scenario with relatively conservative hypotheses and a fast-growth scenario in China and India. In both scenarios Western Europe and Japan appear to be structural capital exporters with appreciating real exchange rates. The US progressively saves more and recovers a strong foreign net asset position. No scenario prevents world growth from decelerating with demographic trends.
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Paper provided by CEPII research center in its series Working Papers with number
2007-01.
Find related papers by JEL classification: C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
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