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

Capital for the Future

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

One picture on methodology

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Which countries will drive investment in a multipolar world?

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By 2030, 60 cents of every investment dollar will be invested in developing countries

Russian Fed. Brazil Indonesia India Sub- Saharan Africa High income 10 15 20 25 30 35 40 45 2005 2010 2015 2020 2025 2030 I/Y (%)

Despite declining investment rates, their growing size means that global investment remains stable

Developing High income World investment World GDP 20 40 60 80 100 120 5 10 15 20 25 30 2005 2010 2015 2020 2025 2030

Y (USD trillions) I (USD trillions)

Total investment in the developing world will overtake high-income countries…

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

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While there will undoubtedly be demographic pressures, the world will not “run out” of saving in the future

7 High income East Asia Sub- Saharan Africa Latin America 10 15 20 25 30 35 40 45 50 2005 2010 2015 2020 2025 2030 S/Y (%)

…implies heterogeneous decline in saving rates, with only SSA bucking the trend

High- income East Asia & Pacific Latin America Sub- Saharan Africa 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 1950 1970 1990 2010 2030 2050 Working/ non- working population

Asynchronicity in evolving demographic pressures...

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:

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 Generosity: Avg. expenditures on each program participant in age cohort, relative to

• avg. output per working-

age person Coverage: Share of the cohort participating in the program Cohort population, relative to working-age population

Projected demographic effect on public transfers:

9 0.2 0.4 0.6 0.8 1 1.2

% of GDP

Mexico: Public Education Transfers by 5-year Cohort

2010 2050 0.05 0.1 0.15 0.2 0.25 0.3

% of GDP

Mexico: Public Health Care Transfers by 5-year Cohort

0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5

% of GDP

Mexico: Public Pension Transfers by 5-year Cohort

0.2 0.4 0.6 0.8 1 1.2 1.4

% of GDP

Mexico: Total Public Age-Related Transfers by 5-year Cohort

Convergence of public systems would have an even greater effect than aging in some cases

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0.2 0.4 0.6 0.8 1 1.2 1.4 % of GDP

Mexico: Public Education Transfers by 5-year Cohort

2010 2050 - baseline 2050 - convergence to US 0.2 0.4 0.6 0.8 1 1.2 % of GDP

Mexico: Public Health Care Transfers by 5-year Cohort

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 % of GDP

Mexico: Public Pension Transfers by 5-year Cohort

0.5 1 1.5 2 2.5 % of GDP

Mexico: Total Public Age-Related Transfers by 5-year Cohort

Scenarios for six developing countries with NTA data: demographic change alone; convergence to US; to Sweden

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

The dynamics of saving: panel vs cross sections

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The dynamics of saving: the role of education

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While inequality across countries will reduce, inequality within countries may not

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• 20
• 10

10 20 30 40 50 60 70 1 2 3 4 5 6 7 8 9 10

Saving by decile, as a percent of total saving. Mexico, 2010

• 0.25

0.00 0.25 0.50 0.75 1.00

• Lorenz curves, income and saving.

Mexico, 2010

How will savers and investors be matched in the future?

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5 10 15 20 25 2000 2005 2010 2015 2020 2025 2030 Developing countries Advanced countries

$ trillion

Developing countries will increasingly be the main savers and investors, but will they become key players in the international financial arena?

16 High income Rapid convergence scenario

These outcomes will only be realized if policymakers take active steps in terms of policy and institutional reform

17 Demographic effect Demographic + education effect 10 11 12 13 14 15 16 17 18 2010 2015 2020 2025 2030 2035 2040 2045 2050 Household Saving rate (%)

• For example, even though saving will be more equally

distributed across countries, within them saving may still be concentrated among a few rich households (and even more unequal than consumption), unless education

• pportunities are given to everyone

www.worldbank.org/CapitalForTheFuture