37Lecture 02(BRICs and Other Groups of EMs )

BRICSANDOTHERGROUPSOFEMSImreKonyáriInvestmentsinCEELecture2OUTLINE
BRICs
Concept
Importance
Potential
Methodology
Methodology
MajorFindings
Prerequisites
N-11
MIKT
CIVETS
CEE2THEBRICSCONCEPT
Atermcoinedin2001byJimO'Neill,headofglobaleconomicresearchatGoldmanSachs.
GoldmanSachsGlobalEconomicsPaper(2003)No:99.DreamingWithBRICs:ThePathto2050.
Mainprojection:Brazil,Russia,India,andChina–orBRICs,asJimO'Neillcalledthegroup–will3–orBRICs,asJimO'Neillcalledthegroup–willbecomefourofthesixlargesteconomiesintheworldby2050.
Economicmodel:itdemonstrateshowthisgrowthpatternwillshiftthebalanceofeconomicpower,asBRICsbecomenewsourceofglobalspending.THEIMPORTANCEOFBRICS
25%oftheworld'slandcoverage
40%oftheworld'spopulation
HoldingacombinedGDP(PPP)of18.486trilliondollars4POTENTIALOFBRICSBRICs,asdevelopingeconomies,areamajorpotentialforhighergrowthrates,dueto:1.Lesscapitalperworkerthanthedevelopedeconomies:thisresultsinhigherreturnsoncapital,i.e.investmentrateresultsinhighergrowthinthecapitalstock5capitalstock2.Opportunitytousealreadyexistenttechnologiesfromthedevelopedeconomiestoadvancemorequickly3.Appreciatingcurrencies:asBRICcountriesexperiencehigherproductivity,withhigherincomepercapita,theyarriveatPurchasingPowerParityexchangerates.THEMETHODOLOGYBEHINDTHEBRICSCONCEPTUsing•demographicprojections,•modelofcapitalaccumulation,and•productivitygrowth,GoldmanSachsmapsoutGDPgrowth,percapita6GoldmanSachsmapsoutGDPgrowth,percapitaincome,andcurrencymovements(allinUSDterms)foreachoftheBRICeconomiesthrough2050.MAJORFINDINGS/11.EconomicSize:Brazil,Russia,India,andChinawillbecomefourofthesixlargesteconomiesintheworldby20507Source:GSBRICsModelProjectionsMAJORFINDINGS/22.EconomicGrowth:GrowthfortheBRICsislikelytoslowsignificantly;Indiahasthepotentialtoshowthefastestgrowthoverthenext30and50years8Source:GSGlobalEconomicsPaper(2003)MAJORFINDINGS/33.IncomesandDemographics:•Regardlessofthegrowth,by2050peoplelivinginBRICcountries(exceptfromRussia)willstillbepooreronaveragethanpeopleinG6,intermsofincomepercapita.OnlyRussiaisprojectedtocatchupwiththepoorerofG6economiesintermsofincomepercapita,whileforinstance9termsofincomepercapita,whileforinstanceChinaby2050willhavereachedtheleveloftheUSpercapitaincomefrom2003.•DemographicsdiffersignificantlyamongtheBRICs:BrazilandIndiawithasharpsurgeintheirworkingagepopulation;ChinaandRussiasteeperdeclineintheirworking-agepopulation,althoughthisdeclineisprojectedtotakeplacelaterthanintheG6economies.MAJORFINDINGS/44.GlobalDemandPatterns:•By2025,BRICs’annualincreaseinUSDspendingisprojectedtobetwicethatoftheG6,andby2050fourtimesasthatoftheG6.5.CurrencyMovements:10•RisingexchangerateswillsignificantlyimpactBRICs’increaseinGDP.Around1/3oftheirannualincreaseinUSDGDPwillcomedirectlyfromtheappreciationofthecurrencies,while2/3wouldcomefromfastergrowth.•By2050,BRICs’realexchangeratescouldappreciatebyupto300%.Particularly,China’scurrencywasprojectedtodoubleinvalueintenyears’time(2013)ifgrowthcontinuedandf/xrateallowedfloatingfreely.PREREQUISITES/11.Soundmacroeconomicpoliciesandastablemacroeconomicbackground:
Lowinflation,supportivegovernmentpolicy,soundpublicfinancesandawell-managedexchangerateallhelptopromotegrowth.
Anunstablemacroenvironmentcanhampergrowthbydistortingprices.
Inflationhindersgrowthbydiscouragingsavingandinvestment.
Keyfocus:pricestability,achievedthroughfiscaldeficitreduction,tightermonetarypolicyandexchange-raterealignment.11PREREQUISITES/22.Strongandstablepoliticalinstitutions:
Politicaluncertaintyandinstabilitydiscouragesinvestmentanddamagesgrowth.
Moreefficientinstitutionsallowaneconomytoproducethesameoutputwithfewerinputs.
‘Institutions’includethelegalsystem,functioningmarkets,healthandeducationsystems,financialinstitutionsandthegovernmentbureaucracy.12PREREQUISITES/33.Openness:
OpennesstotradeandFDIcanprovideaccesstoimportedinputs,newtechnologyandlargermarkets.4.Highlevelsofeducation
Helpfulincontributingtomorerapidgrowthandcatch-up.Aseconomiesgrowrapidly,theymayfaceshortagesofskilledworkers,meaningthatmoreyearsofschoolingareaprerequisiteforthenextstageofeconomicdevelopment.13THEIMPACTOFTHECRISISONBRICS14Source:IMF,InternationalFinancialStatistics,UNWorldEconomicOutlook/NationalStatisticsTHENEXTELEVEN(N-11)/1
ConceptintroducedbyGoldmanSachsinlate2005toidentifythosecountriesthatcouldpotentiallyhaveaBRIC-likeimpactonrivallingtheG7:
Bangladesh,Egypt,Indonesia,Iran,Korea,Mexico,Nigeria,Pakistan,Philippines,TurkeyandVietnam15THENEXTELEVEN(N-11)/2
Themaincriterion:Population
Theresult:theN-11isagroupofmanyofthelarge-population,developingeconomiesoutsidetheBRICswhichismorediversethantheBRICsandismoretypicalasanemergingmarketinvestment(portfoliodiversificationmoresecurity)
Similarities:populationandpotentialeconomicsize
Differences:regionalrepresentation,levelofeconomicandmarketdevelopment,integrationwiththeglobaleconomyamongotherfactors
Knowledgeofcountriesbyinvestors:well-knowntomanyinvestors(KoreaandMexico)aswellaspracticallyunknown(Nigeria,Vietnam,Pakistan,Bangladesh)16MIKT
AlsothisconceptcomesfromJim