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#163 Asia's Future is Now


One of the most dramatic developments of the past 30 years has been emerging Asia’s
soaring consumption and its integration into global flows of trade, capital, talent, and
innovation. In the decades ahead, Asia’s economies will go from participating in these flows to
determining their shape and direction. Indeed, in many areas—from the internet to trade and
luxury goods—they already are. The question is no longer how quickly Asia will rise; it is how
Asia will lead.

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#161 Global Competitiveness Report


Sustained economic growth remains a critical pathway out of poverty and a core driver of human development. There is overwhelming evidence that growth has been the most effective way to lift people out of poverty and improve their quality of life. For least-developed countries (LDCs) and emerging countries, economic growth is critical for expanding education, health, nutrition and survival across populations.

With a decade left, the world is not on track to meet most of the 17 United Nations’ Sustainable Development Goals by the deadline of 2030. On Goal 8 (Decent Work and Economic Growth), LDCs have consistently missed the target of 7% growth since 2015. Extreme poverty reduction is decelerating. At current pace, it is estimated that by 2030 the rate will stand at about twice the 3% target set in Goal 1.

As of 2015, 46% of the world’s population struggled to meet basic needs. Hunger is on the rise again and affects one in nine people in the world. The “zero hunger” target set by Goal 2 will almost certainly be missed. It is clear that for most of the past decade, growth has been subdued and has remained below potential in many developing countries.

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Over the past few decades, income inequality has increased in both advanced and emerging economies. Growth and shared prosperity started to decouple in most of the advanced economies in the 1970s and have further diverged since the early 2000s. Similarly, in developing and emerging economies, growth has been accompanied by a significant increase in inequality—despite pulling millions out of poverty and reducing the gap with advanced economies.

The gap between the top ranked #1 though #20 and the bottom ranked #124 to $141 is very large and increasingL

The competitive index can be seen from the standpoint of several variables:
It will take a favorable interaction of 12 variables to yield the resultant index.

The GCI shows that there is little determinism and fatalism in the process of economic development.
Economic growth does not happen in a vacuum. Some basic building blocks are required to jumpstart
the development process, and more are needed to sustain it. The GCI makes it possible to identify specific constraints to growth or bottlenecks, as well as the causes behind episodes of economic recession or high volatility. Indeed, performance on the GCI is a good indicator of resilience to shocks of various nature (e.g. related to global demand, commodity price, currency or credit conditions).
There is no question that the high competitiveness levels of Europe and North America will yield high levels of GNI per capita, whereas low competitiveness of Subsaharan Africa will result in low levels of GNI per capita.
What is striking is the level or decline in the total factor productivity (TFP) while the central bank assets were steeply rising.  This suggests that the economies in three countries maintained constant productivity while the central financial assets kept showing radical gains.

#162 China Role in Globalization


China has been one of the pivotal drivers of this trend. Its transformation into a powerhouse
of trade has helped to lift a huge population into the middle class, creating massive market
opportunities. While China’s rise may be the most dramatic manifestation, drawing more
countries into global markets and value chains has produced economic growth around the
world and historic progress toward reducing poverty in developing nations.

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But the era of globalization has also been a period of deepening inequality. Digitization
and automation have unleashed job churn and disruption, but global trade has also
contributed—and it has been a clearer political target. Today calls for protectionism and
immigration restrictions are gaining traction in the West, but this path could have damaging
consequences in a world still struggling to jumpstart growth. It would pose real risks
for China, whose economic prospects are deeply intertwined with its integration into
world markets.

The world has never been more intricately tied together by global flows of commerce and
communication than it is today. In 1990, $5 trillion worth of goods, services, and finance
moved across the world’s borders, equal to 24 percent of world GDP at that time. By 2007,
on the eve of the financial crisis and the Great Recession, that figure had soared to some
$30 trillion, equivalent to 53 percent of GDP. In 2015, it had declined to about 34 percent of
GDP, reflecting some fundamental shifts—most notably a sharp drop in cross-border capital
flows and a shortening of global supply chains as consumer demand sharply declined in
developed markets.

Chinese firms now account for a greater proportion of the corporate universe, intensifying
global competition in many industries. While this dynamic supports greater allocative
efficiency, it has also produced churn and margin pressure as Chinese and other emerging
market companies capture greater market share at the expense of industry incumbents.

The 2014 USA flow of $6,832 B value, or 39% of GDP should be compared with China flow of $6,480 B value or 63% of GDP.


#160 Solving the Productivity Puzzle


While productivity growth has been declining since a boom in the 1960s in the United States and much of Western Europe, that decline accelerated after the financial crisis.

Few topics in economics today generate as much debate as the productivity-growth slowdown in advanced economies. While productivity growth has been declining in the United States and across much of Western Europe since a boom in the 1960s, that decline accelerated after the financial crisis. Exceptionally weak productivity growth in recent years has raised alarms at a time when advanced economies depend on productivity growth more than ever to promote long-term economic growth
and prosperity. In an age of digital disruption, when companies are focused on implementing digital solutions and harnessing innovations such as automation and artificial intelligence, disappearing productivity growth is even more puzzling. Yet for some time now, the only consensus about what is behind this weakness is that there is no consensus, leaving decision makers in both the private and public spheres without a clear perspective from which to chart a path forward.

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While there are many schools of thought, we find three waves explain those patterns and
the decline.
ƒƒ Wave 1: The waning of a productivity boom that began in the 1990s dragged down productivity
growth by about one percentage point. Around 2005, a decade-long productivity boom from a
PC, software, and database system ICT revolution and the restructuring of domestic operations
and global supply chains was ending. By then, retail supply chain management tools were
broadly implemented and manufacturing offshoring momentum slowed.
ƒƒ Wave 2: Financial crisis aftereffects, including weak demand and uncertainty, caused another
percentage point drag. After the crisis hit, sectors such as financial services went from boom
to bust, and companies reacted to weak demand and uncertainty by holding back investment,
driving capital intensity growth down to the lowest rates since World War II. Weak demand further
depressed productivity growth through negative economy of scale effects and downshifts in
product and service mix.
ƒƒ Wave 3: Digitization, often involving a transformation of operating and business models, promises significant productivity-boosting opportunities but the benefits have not yet materialized at
scale. This is due to adoption barriers and lag effects as well as transition costs; the net effect on
productivity in the short term is unclear.

Patterns indicate that the productivity-growth slowdown is broad-based across countries and sectors, point to a set of common, overarching factors at work, and reveal the importance of demand-side as well as supply-side factors:

 Since the Great Recession, capital intensity, or capital per hour worked, in many developed countries
has grown at the slowest rate in postwar history. Capital intensity indicates access to machinery, tools,
and equipment and is measured as capital services per hour. An important way productivity grows is
when workers have better tools such as machines for production, computers and mobile phones for analysis.

Analysis represents a decomposition and is not a causal analysis, and is sensitive to the underlying growth accounting formulation. 

Demand for goods and services across countries and industries dropped sharply during
the financial crisis as people lost jobs, income contracted, and the credit impulse reversed.6
This fall in demand for goods and services resulted in significant excess capacity
and a pullback of investment. At the same time, in many countries, companies reacted to
the demand shock by cutting hours worked, particularly in sectors like manufacturing, retail,
finance, and construction. The contraction of hours was so dramatic in the United States
that it briefly increased productivity growth in 2009 and 2010.

While improvements in material living standards are important, the size of the overall economy matters, too. In a world where demographic headwinds are slowing the pace at which employment growth can occur, productivity growth becomes crucial to increase overall economic growth.

Income inequality has increased in both Western Europe and the United States, particularly
in the pre-crisis period. Widening income inequality can reduce consumption and demand 
across a broad range of products by shifting incomes from lower-income households with
a higher propensity to consume to higher-income households with a lower propensity to consume.   We estimate that rising income inequality since the mid-2000s, including  the effects of declining labor share of income, has acted as a constant moderate drag on overall household spending in all countries.