China’s and India’s Implications for the World Economy byHelmut.pptVIP

China’s and India’s Implications for the World Economy by Helmut Reisen, OECD Development Centre 1. China and India Growth contribution to global growth sources structure China’s raw material hunger impact of slowdown 2. The Global Labour Pool Has Doubled: Lower Wages, Fatter Profits labour wages China’s surplus labour the Lewis model with unlimited supplies of labour a Krugman-Lewis three-sector model rich-country wages: a simple Cobb-Douglas function the Stolper-Samuelson theorem 3. Price and Wage Effects: The Large-Country Case China’s terms of trade large-country trade analysis Implications for investors 1. China and India Growth contribution to global growth Table 1: China and India’s Contribution to Global Growth, 2000-2004 Percentage share of annual growth rate sources structure Table 2: Sources of China’s Income and Output Growth, 1998-2003 -Percentage points- FX Reserves and US Treasury Holdings-end 2005-Source: /tic; central banks;HKMA impact of slowdown What impact should a slowdown of China’s growth have on the world economy? Figure 1: China’s Hard vs Soft Landing  2. The Global Labour Pool Has Doubled: Lower Wages, Fatter Profits  Figure 2: The Global Labour Pool and Real Per Capita Incomes, 1980 and 2000 China’s Surplus Labour China’s Surplus Labour Over the coming 20 years, China’s rural surplus labour will not be exhausted. The shape and speed of China’s and India’s integration into the world economy will depend importantly on the transfer of labour from mostly rural low-productivity areas to mostly urban high-productivity sectors. This process can be well described by a core model of economic development, the Lewis-Ranis-Fei or surplus labour model. The crucial feature of the model is that the modern sector – and by extension the world economy (!) – faces an unlimited supply of labour at wages not far from the subsistence level.  Lewis model with unlimited supplies of labour The Krugman-Lewis Model How does that C