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OECD Development Centre Working Paper No.285
DEV/DOC(2010)2
What are the main differences between this Four Speed World model and other global
models?
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• I have a sample of 145 countries . Many countries have small GDP but large
populations and the larger sample allows a better understanding of the interaction
between demographic trends and economic trends. It also means I can compute
trends for geographic regions and local neighbourhoods, like South Asia.
• I do not assume all countries converge with the US. Importantly, I classify Brazil
and Mexico for now as being caught in the middle-income trap rather than as
being part of the group of converging globalizers.
• I base parameters for capital accumulation and total factor productivity growth on
actual data and estimations, rather than on ad hoc assumptions. For example, in
their 2003 study, Goldman Sachs assumed an investment rate for India of 22 per
cent of GDP and a growth rate of 6 per cent. In actuality, India’s investment rate
today has risen to 36.7 per cent and even in the face of the current crisis, 6 per cent
growth seems low24.
The modelling framework may appear overly deterministic and devoid of policy content,
but several of the variables reflect policy choices. For example, some analysts emphasize the role
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of undervalued exchange rates in promoting rapid growth over long periods of time . In our
model, this same outcome is achieved as undervalued exchange rates lower a country’s income
level relative to the United States and induce more rapid technological growth. As another
example, openness and other reform measures may show up in higher investment rates as
businesses enter new sectors or may be captured by a demonstrated track record of convergence,
boosting projected tfp growth. Implementation effectiveness, governance and institutional
development are captured by giving higher rates of technical progress to countries with
demonstrated high levels of growth which are indicative of their institutional depth. Indeed, the
countries in the four tiers show a pattern of governance that reflects their performance: affluent
countries do best, followed by the convergers, stalled and poor, in that order26. Thus, deep
policymaking structures are captured in our model through higher rates of technological change
and investment, even though actual policies themselves are not specified.
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Goldman Sachs first looked only at 6 developed countries and 4 BRIC countries, and then extended their
analysis to a further 11 emerging economies. PWC look at 30 emerging economies.
Indeed, in their 2007 update, Goldman Sachs analysts Poddar and Yi raise their sustainable growth
forecast for India to 8 per cent through 2020. See Tushar Poddar and Eva Yi, “India’s Rising Growth
Potential,” Goldman Sachs Global Economics Working Paper, No 152 (2007).
Surjit
Bhalla,
“Indian
Economic
Growth,
1950-2008”,
http://oxusresearch.com/downloads/CE140309.pdf.
(October,
2008),
available
at:
Means of governance values in the Kaufmann, Kraay, Mastruzzi index. The pattern of mean values by tier
is the same across all six of the KKM indicators.
© OECD 2010
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