WORLD TRADE IN 2030 TRENDS IN WORLD TRADE

1
WORLD TRADE IN
2030 TRENDS IN WORLD TRADE
FINANCE IN THE FIRST HALF OF THE 21ST CENTURY

• 18 September 2006, Istanbul
• Yavuz Canevi, Chairman

2

• Recently, there have been more and more reports
  and attempts about the Futuristic Studies of
  the world economy and trade by some serious NGOs
  and research companies. World Economic Forum,
  Goldman Sachs, Price Waterhouse, IMF are among
  them. Forum Istanbul-2023 is trying to fo the
  same thing for Turkey.
• One projection, at least, is common in all of
  these studiesThere will be a fundamental shift
  in economic power in the world during the next
  30-40 years. Whether it is flat or round
  obvisously based on certain assumptions.

3

• According to a recent Price Waterhouse study the
  following projections are made.
• 1. Relative sizes of the two world
• The E7 economies will be by 2050 be around 25
  larger than the current G7 when measured in
  dollar terms at market exchange rate (MER) or
  around 75 larger in PPP terms.
• In contrast, the E7 is currently only around 20
  of the size of the G7 at market exchange rates
  and around 75 of its size, in PPP terms
• Pricewaterhousecoopers March 2006
• E7 G7
• China US
• India Japan
• Russia Germany
• Brazil France
• Mexico Italy
• Indonesia Canada
• Turkey

4
RELATIVE SIZE OF G7 AND E7 ECONOMIES
G7 US,Japan,Germany,UK,France,Italy,Canada
E7 China,India,Brazil, Russia, Indonesia,
Mexico, Turkey
5

• 2. Notable shifts are expected in relative growth
  rates within the E7, driven by divergent
  demographic trends.
• In particular, both China and Russia are
  expected to experience significant declines in
  their working age populations between 2006-2050,
  in contrast to relatively younger countries such
  as India, Indonesia, Brazil, Turkey and Mexico,
  whose working age populations should on average
  show positive growth over this period, at least
  in the first half of the century.

6
PROJECTED REAL GROWTH IN GDP AND INCOME PER
CAPITA2005-50 (PA)
7

• On the other hand, parallel to this development,
  the size of the financial markets in terms of
  financial assets, through diversifications and
  innovations, has trippled by reaching USD 75
  trillion since 1990s. According to IIF, this
  trend seems to continue, although at a slower
  pace.
• Net flow of funds (FDI and Portfolio) should
  continue to focus on two major zones whose growth
  is driven by integration in the globalization
  process Eastern Europe (including Turkey) and
  Asia.
• Remember that these NEW (New Emerging World)
  poses an important challenge to the EW
  (Established World)
• e.g. China Textile Exp. High Tech Products Exp.
• as a of Total as a of Total
• 1997 24 2000 15
• 2004 15
  2004 28

8
TRENDS IN INTERNATIONAL FLOW OF FUNDS IIF
Dünya genelinde 2007de gelisen
ülkelere Yatirimlar azalacak
Gelisen Avrupaya verilecek krediler artacak
9

• To give an idea in 2050 India would match US
  economy in PPP terms,
• China would be 40 larger than US in PPP terms,
• Brazil would be slightly larger than Japan by
  2050 in PPP terms,
• Indonesia and Mexico would be larger than the
  U.K. Or Germany in PPP terms,
• Russia would reach the size of France in PPP
  terms,
• Turkey would be similar size of Italy in PPP
  terms,

10

• 3. The study suggests that long-term relative E7
  GDP projections are particularly sensitive to
  assumptions on trends in
• Education levels
• Net investment rates
• Catch-up speeds and reform policies

11

• However, regardless of the above developments,
  the overwhelming likelihood is that there will be
  a significant shift in world GDP shares from the
  G7 to the E7 by the middle of the century.

12

• 4. The rise of the E7 economies is bound to boost
  average OECD income levels in absolute terms
  through creating major new market opportunities.
  This larger global market should allow OECD
  companies to specialize more closely in their
  areas of comparative advantage, both at home and
  overseas, while OECD consumers continue to
  benefit from low cost imports from the E7 and
  other emerging economies. Trade between the E7
  and the G7 should therefore be seen as a mutually
  beneficial process, not a zero sum competitive
  game.

13

• 5. Although the net effect of the E7 performance
  will be beneficial for the OECD economies
  overall, there will be significant numbers of
  losers at both corporate and individual level.
• Mass market manufacturers will tend to suffer,
  both in low tech and increasingly in hi-tech
  sectors.
• Economies like China, India and Turkey will also
  become increasingly competitive in tradable
  services sectors such as banking and other
  wholesale financial services.
• There may be a tendency for income inequalities
  to increase within the OECD economies, with
  global performances doing well, but low and
  medium-skilled workers facing an increasing
  squeze from lower cost E7 workers working
  tradable and non-tradable service sectors.

14
POTENTIAL WINNERS AND LOSERS WITHIN THE OECD
ECONOMIES OVER THE NEXT 10 YEARS
15

• 6. It is true that globalisation is a two way
  process. Many stumbling bloks are still to be
  removed on both sides.
• In fact the study rightly argues what the OECD
  countries should not embark in order to overcome
  these challenges
• They should not seek protectionism,but reducing
  tariffs and imrpoving market access,
• They should realize that subsidies are not a
  long-term solution,
• They should not be seeking to pick winners
  through industrial policy, as apposed to creating
  the right environment for potential winners to
  emerge.
• Overregulation is the main problem particularly
  in the EU. (e.g. For strawberries there are 16
  Directives)

16

• Instead they should embark on the followings
• i. Focus on boosting general educational level
• - Facilitating retraining, relocation and
  business start- ups in areas adversly affected by
  global competition,
• - To promote research, energy conservation,
  skilled labor, and to orient unskilled workers
  towards non tradable goods and services. That is
  why Lisbon Agenda is essential for EU,
• - Developing active labor market programmes
  based on conditions benefit regimes,
• - In-work tax credits,
• - Child-care support
• - In order to improve the competitiveness and
  the efficient use capital, they need to
  introduce the flexibility into their markets.

17

• ii. Focus on productivity gains, on high value
  added industries and services, innovation, human
  capital and technology. Even in the textile
  industry, which is one of the first hit by far
  East Asian competition, traditional producers are
  not condemned. Italy, France, Spain and others
  shown that quality, design, reactivity, are the
  keys to resilience. This is of course, also true
  for a country like Turkey.

18

• b. Similar protective reactions are also
  manifest in emerging countries themselves. India
  and China are opening up to FDI, but there are
  still significant limitations to foreign
  investment and to open trade in these
  countries.
• As a conclusion, let us hope that the benefits
  stemming from open trade - even if they are not
  evenly distributed, even if positive (indirect)
  benefits are sometimes difficult to detect, even
  if certain groups and sectors are bound to loose
  at some point in time will be the predominant
  element in decisions taken by governments.
• This is why the governments on both camps have
  the tough responsibility to manage politically
  the domestic consequences of the formidable
  transformation that is taking place in
  international competition.