Goldman Sachs Global Economic Paper No: 99

[Cain]

Anyone read this?  It is from 2003, but it is remarkably prescient:

http://antonioguilherme.web.br.com/artigos/Brics.pdf

Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a much larger force in the world economy. We map out GDP growth, income per capita and currency movements in the BRICs economies until 2050.

The results are startling. If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.

About two-thirds of the increase in US dollar GDP from the BRICs should come from higher real growth, with the balance through currency appreciation. The BRICs’ real exchange rates could appreciate by up to 300% over the next 50 years (an average of 2.5% a year).

The shift in GDP relative to the G6 takes place steadily over the period, but is most dramatic in the first 30 years. Growth for the BRICs is likely to slow significantly toward the end of the period, with only India seeing growth rates significantly above 3% by 2050. And individuals in the BRICs are still likely to be poorer on average than individuals in the G6 economies, with the exception of Russia. China’s per capita income could be roughly what the developed economies are now (about US$30,000 per capita).

Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICs economies until 2050. This allows us to paint a picture of how the world economy might change over the decades ahead.

The results of the exercise are startling. They suggest that if things go right, the BRICs could become a very important source of new global spending in the not too distant future. The chart below shows that India’s economy, for instance, could be larger than Japan’s by 2032, and China’s larger than the US by 2041 (and larger than everyone else as early as 2016). The BRICs economies taken together could be larger than the G6 by 2039.

Well worth reading.

[Precious Moments Zalgo]

Thanks.  I downloaded it, will read later.

[Triple Zero]

Hm, and I suppose that when they wrote that, they couldn't have taken into account the Black Swan hits that Japan (tsunami) and the USA (toxic debts/bailouts) took? Also arguably the EU with Portugal/Greece/etc (though maybe those could have been predicted? I dunno?).

[Cain]

Sachs has known since about 1999 that Greece has more debt on its books than it says, because they helped hide the debt.  They also, theoretically, had "insider knowledge" about the weak economies of other states as well, though that is partly conjecture based on their involvement in Greece.

But yes, this was well before all of that hit.  The thing is, the BRICs are working from a rather privileged position, something I like to call "inconsistent backwardness".  The paradox of backwardness states that less economically developed countries will have much quicker growing economies once they get on the right track, because they can import new technology directly, instead of having to phase out legacy systems over time.  In general, that is more or less true, though there are several problematical issues with how that works out in reality.  However, in the case of all these countries, they have something which gives them a massive boost over other less economically developed countries (Russia's mineral resources, espionage networks and legacy Soviet technology, for example) while retaining aspects of the paradox of backwardness which allow them to take advantage of advances from Europe and North America.  They also have relatively sophisticated institutions and systems of governance.  As such, they can take advantage of their relative backwardness much more effectively than, say, Liberia.