Capital for the Future Will an aging world Which countries will - PowerPoint PPT Presentation

Capital for the Future Will an aging world Which countries will How will savers and run out of saving to drive investment in a investors be matched fund investment? multipolar world? in the future? 2

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Which countries will drive investment in a multipolar world? 4

By 2030, 60 cents of every investment dollar will be invested in developing countries I (USD Y (USD Total investment in the Despite declining investment rates, I/Y (%) trillions) trillions) 30 120 developing world will overtake their growing size means that global 45 high-income countries… investment remains stable 25 100 40 Indonesia 35 India 20 80 World World GDP Russian 30 investment Fed. 15 60 Developing 25 Sub- Saharan 10 40 Brazil Africa High 20 income 5 20 High 15 income 0 0 10 2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030 5

Will an aging world run out of saving to fund investment? 6

While there will undoubtedly be demographic pressures, the world will not “run out” of saving in the future Asynchronicity in evolving 2.6 Working/ …implies heterogeneous decline in demographic pressures... S/Y (%) non- saving rates, with only SSA bucking working 2.4 the trend population East Asia & 50 Pacific East Asia 2.2 45 40 2 High- income 35 1.8 30 Latin 1.6 America Sub- 25 Saharan Latin 1.4 Africa America 20 Sub- Saharan High 1.2 15 Africa income 1 10 1950 1970 1990 2010 2030 2050 2005 2010 2015 2020 2025 2030 7

Aging will put pressure on public finances • Public expenditures (over GDP) on an age-related item (education, health care, or pensions), can be broken down into: Generosity : Avg. Coverage : Cohort expenditures on each Share of the population, program participant in cohort relative to age cohort, relative to participating working-age avg. output per working- in the population age person program where E is expenditures, Y is GDP, P is participants in the public system in question, W is working-age population, and C is cohort population • Projections were generated under three alternative assumptions: – Generosity and coverage are constant (isolating demographic effect) – Generosity Coverage linearly converges to that of the U.S. by 2050 – Generosity Coverage linearly converges to that of Sweden by 2050 8

Projected demographic effect on public transfers: 1.2 0.5 % of GDP Mexico: % of GDP Mexico: 0.45 Public Education Transfers Public Pension Transfers 1 by 5-year Cohort 0.4 by 5-year Cohort 0.35 0.8 0.3 0.6 0.25 0.2 2010 2050 0.4 0.15 0.1 0.2 0.05 0 0 1.4 0.3 Mexico: % of GDP % of GDP Mexico: Public Health Care Transfers 1.2 Total Public Age-Related Transfers 0.25 by 5-year Cohort by 5-year Cohort 1 0.2 0.8 0.15 0.6 0.1 0.4 0.05 0.2 0 0 9

Convergence of public systems would have an even greater effect than aging in some cases Mexico: Mexico: % of GDP 1.4 1.6 % of GDP Public Education Transfers Public Pension Transfers 1.4 1.2 by 5-year Cohort by 5-year Cohort 1.2 1 1 2010 0.8 0.8 2050 - baseline 0.6 0.6 2050 - convergence to US 0.4 0.4 0.2 0.2 0 0 % of GDP Mexico: Mexico: Total 1.2 2.5 % of GDP Public Health Care Transfers Public Age-Related Transfers 1 by 5-year Cohort by 5-year Cohort 2 0.8 1.5 0.6 1 0.4 0.5 0.2 0 0 10

Scenarios for six developing countries with NTA data: demographic change alone; convergence to US; to Sweden Public transfers per person Total in each cohort, relative to Pensions Health care Education change Country GDP per working-age adult: (% GDP) (% GDP) (% GDP) (% GDP) 2010 2030 2050 2010 2030 2050 2010 2030 2050 2010-50 constant 9.1 14.0 20.9 3.0 3.5 4.5 2.6 1.9 1.7 Brazil 12.4 → Sweden 9.1 10.9 12.8 3.0 5.9 13.2 2.6 4.9 6.9 Brazil 18.2 → U.S. 9.1 14.2 11.0 3.0 4.6 8.8 2.6 3.0 3.6 Brazil 8.7 constant 5.5 8.8 11.7 2.2 2.6 2.9 2.2 1.7 1.5 Chile 6.3 → Sweden 5.5 11.1 18.2 2.2 6.3 15.0 2.2 4.8 7.2 Chile 30.5 → U.S. 5.5 9.5 11.8 2.2 4.7 9.8 2.2 3.0 3.8 Chile 15.5 constant 3.4 5.9 8.1 1.7 2.2 3.0 2.1 1.6 1.5 China 5.4 → Sweden 3.4 13.6 33.7 1.7 5.4 14.3 2.1 4.0 6.4 China 47.2 → U.S. 3.4 7.0 12.8 1.7 4.2 9.7 2.1 2.5 3.3 China 18.6 constant 4.3 7.1 11.0 4.7 5.4 6.8 4.2 3.0 2.6 Costa Rica 7.2 → Sweden 4.3 9.8 20.3 4.7 6.8 13.4 4.2 5.4 6.7 Costa Rica 27.2 → U.S. 4.3 7.3 11.1 4.7 5.6 8.9 4.2 3.6 3.5 Costa Rica 10.4 constant 1.0 1.2 1.4 2.3 2.4 2.6 1.7 1.3 1.0 India 0.1 → Sweden 1.0 1.6 2.9 2.3 4.4 8.1 1.7 5.7 8.2 India 14.3 → U.S. 1.0 3.6 6.9 2.3 3.4 5.7 1.7 3.3 4.4 India 12.0 constant 1.5 2.3 3.2 2.1 2.2 2.6 3.5 2.5 2.0 Mexico 0.8 → Sweden 1.5 8.0 22.0 2.1 5.0 11.9 3.5 5.9 7.6 Mexico 34.4 → U.S. 1.5 4.1 9.8 2.1 3.8 8.0 3.5 3.7 4.0 Mexico 14.8 11

The dynamics of saving: panel vs cross sections 12

The dynamics of saving: the role of education 13

While inequality across countries will reduce, inequality within countries may not Lorenz curves, income and saving. Saving by decile, as a percent of Mexico, 2010 total saving. Mexico, 2010 70 1.00 60 0.75 50 0.50 40 30 0.25 20 0.00 10 0 1 2 3 4 5 6 7 8 9 10 -0.25 -10 ������ ������� -20 14

How will savers and investors be matched in the future? 15

Developing countries will increasingly be the main savers and investors, but will they become key players in the international financial arena? 25 $ trillion Rapid convergence scenario 20 Developing countries Advanced countries 15 10 High income 5 0 2000 2005 2010 2015 2020 2025 2030 16

These outcomes will only be realized if policymakers take active steps in terms of policy and institutional reform - For example, even though saving will be more equally distributed across countries, within them saving may still Household be concentrated among a few rich households (and even Saving more unequal than consumption), unless education rate (%) 18 opportunities are given to everyone 17 Demographic + 16 education effect 15 14 13 Demographic effect 12 11 10 2010 2015 2020 2025 2030 2035 2040 2045 2050 17

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