Structural Transformation of the Global Economy Implications of Global Power Shifts Amar Bhattacharya G-24 Secretariat Eurodad/Glopolis International Conference Prague, June 4, 2013

Overview 1.Structural transformation in the global economy 2.Implications of changing power dynamics 2

Overview 1.Structural transformation in the global economy 2.Implications of changing power dynamics 3

Structural Transformation  World Economy at a point of structural transformation in the relationship and position between developed and developing countries  Change has been highlighted and accentuated by the crisis but had started well before  For almost 60 years developing country growth tracked that of developed countries and with depreciating countries led to growing divergence  During the past decade there has been a structural decoupling even though there are strong cyclical links 4

Growth in EMDCs has consistently outpaced AEs for decades 5 Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicators, World Bank

This trend is evident in G-24 countries, especially when GDP is weighted 6 Source: Canuto (2013), World Bank Poverty Reduction and Economic Management Department

Structural Transformation  Not a story of China and India or of a few emerging markets and developing countries  Prior to crisis, 94 EMDCs recorded growth in excess of 5 percent per annum and 90 percent of EMDCs grew faster than the average of AEs  Trend will be continued; although average growth of both AEs and EMDCs lower than before the crisis, differential will be sustained  Particularly striking that low income countries and SSA are part of this trend  Underpinning this impressive growth has been a virtuous cycle of rising savings and investment, growing trade and macroeconomic resilience 7

8 Number of countries Advanced EconomiesEMDCs Increasing Number of EMDCs are on path to convergence Dispersion of Average Growth <2.5%2.5-5%>5% Source: G-24 calculations based on data from World Economic Outlook Database April 2013, IMF.

Income groups are gradually converging 9

Structural Transformation  Sustained growth differential between AEs and EMDCs leading to a profound change in the global economic landscape with the share of EMDCs in the global economy measured in PPP terms greater than that of AEs  Similar trend between the G7 and the BRICS reflecting a new rebalancing of power  Convergence between GDP at market prices and GDP PPP in contrast to the pre-2000 an important element of the new story of convergence 10

Share of GDP (Market Prices) Share of GDP (PPP) 11 Source: G-24 calculations based on data from World Economic Outlook Database, IMF Advanced EconomiesEMDCs EMDCs account for increasingly large shares of global GDP

Share of GDP (Market Prices) Share of GDP (PPP) 12 Source: G-24 calculations based on data from World Economic Outlook Database, IMF G7 BRICS EMDCs account for increasingly large shares of global GDP

Growing Convergence Between GDP at Market Prices and GDP PPP (Share of EMDCs in Global GDP) 13 Source: World Economic Outlook, IMF

14 Growth rates in EMDCs have withstood the crisis better than those in AEs Advanced EconomiesEMDCs Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank GDP Growth

Continued, differential growth prospects between EMDCs and AEs are forecast 15 Other high- income countries Euro-area Real GDP, index 1980=100

Though amongst EMDCs, there is heterogeneity across regions 16 Average GDP Growth Source: G-24 calculations based on data from World Economic Outlook, IMF and World Development Indicator, World Bank

Major Challenges to Sustained and Sustainable Growth  Infrastructure development and financing  The jobs crisis and prospects for long-term employment creation  Growing income inequality with lagging countries and growing inequality in both AEs and EMDCs  Sustainability including climate impact and resilience also a source of enormous concern 17

Overview 1.Structural transformation in the global economy 2.Implications of changing power dynamics 18

Implications for Global Governance 19 Growing interconnectedness poses new challenges in global coordination and governance arrangements Recent waves of financial crises has underscored importance of coordination in the economic and financial sphere but also the inherent challenges of such coordination The new wave of global challenges coincides with major shifts in relative positions and the role of old and new powers

The global rank of economies has shifted markedly in the last four decades 20 Rank United States2788United States5801United States9951United States Japan997Japan2370Japan3256China Germany762Germany1447China3015India5930 4France537France1027Germany2144Japan5095 5Italy509Italy976India1571Germany United Kingdom450 United Kingdom922France1532Russia2957 7Brazil446China910 United Kingdom1486Brazil2780 8Mexico337Brazil786Italy1404 United Kingdom2572 9India286India745Brazil1234France Canada280Mexico612Russia1121Mexico Spain272Canada558Mexico1065Italy China248Spain551Canada911Korea Netherlands150Korea336Spain900Canada Poland150Australia306Korea776Indonesia Australia146Turkey291Australia525Spain1499 GDP (PPP), $Billions Source: WEO Database, IMF

Contributions to World Growth (percent) 1981 to to to to2011 United States Euro Area+ UK Japan China India Rest of World Source: A. Virmani based on IMF data

IFI governance arrangements have failed to account for changing economic realities 22 Evolution in Actual and Calculated IMF Quotas Relative to Weight in Global Economy Source: G24 calculations based on IMF data

23 With a Persistent Bias Against Poor Countries 1 Defined as EMDCS whose GDP PPP share divided by the 14th General Review Quota share is greater than 1 and not over-represented by more than 25% based on the current quota formula. 2 PRGT-eligible countries including Zimbabwe. Source: G24 calculations based on IMF data

Trends in GDP PPP and GDP at Market Prices Source: Calculations based on WEO data 24

Why Europe Needs to Adjust Its Quota and Voting Share in the IMF Post-2010 Quota Share GDP Weight 1 Calculated Quota 2 United States Japan Europe excl CIS Advanced Europe EMDCs Poor Countries GDP Blend of 40 percent GDP at market exchange rates and 60 percent at GDP PPP 2 Based on current formula and data

Thank you