Global Megatrends and Challenges for Developing Countries

1. Global Megatrends and Challenges for Developing Countries Hyun-HoonLEE (Kangwon National University)

2. Table of Contents Introduction Megatrend I: Population Aging Megatrend II: The 4th Industrial Revolution Megatrend III: Income Convergence among Countries, but Income Divergence within Countries Megatrend IV: Reverse Globalization? Challenges for Developing Countries

3. Megatrend I: Population Aging Source: UN, World Population Aging, 2015.

4. Megatrend I: Population Aging • The number of people aged 60 years or over will grow fast, while the number of children under age 10 and adolescents and youth aged 10-24 will changed very little. • By 2030, the number of people aged 60 years or over will surpass that of children under age 10.

5. Megatrend I: Population Aging • High-income countries tend to be the most aged. Source: UN, World Population Aging, 2015.

6. Megatrend I: Population Aging • High-income countries tend to be the most aged. Source: UN, World Population Aging, 2015.

7. Megatrend I: Population Aging Source: UN, World Population Aging, 2015.

8. Megatrend I: Population Aging Source: Lee, Shin, and Park (2017), “Impact of population aging on economic growth: A Panel Analysis”

9. Megatrend I: Population Aging • Period: from 1960 to 2014 • Countries: 142 • Penn World Table 9.0 Source: Lee, Shin, and Park (2017), “Impact of population aging on economic growth: A Panel Analysis”

10. Megatrend I: Population Aging

11. Megatrend I: Population Aging • A10 percentage point increase in the old age share will decrease the 10-year economic growth rate by 0.41 points (or 41 percentage points) in the long run, leading to a lower steady state income per capita. • A 10 percentage point increase in the old age share will decrease the annual economic growth rate by 3.5 percentage points.

12. Megatrend I: Population Aging Consequences of population aging • The current economic slump of the high-income countries are largely due to their population aging. • The global economy will grow slower as it population becomes older. • Income disparities will grow between the youth and the old as well as among the old. • In high-income countries, there will be in more dire need of migrant workers but this will create social conflicts and anti-globalization sentiment will grow.

13. Megatrend II: The4th Industrial Revolution The 4th Industrial Revolution has just begun • The 1st Industrial Revolution: Late 18th century • The 2nd Industrial Revolution: Early 20th century • The 3rd Industrial Revolution: Late 20th century • The 4rdIndustrial Revolution: Early 21th century

14. Megatrend II: The4th Industrial Revolution • Key words: big data, artificial intelligence (AI), sharing economy, smart city, self-driving car, ubiquitous computing, robotics, cloud computing, internet of things, 3D printing, nanotechnology, etc • Overall productivities will grow very rapidly, but not only human’s physical labor but also mental labor will be replaced by robots and artificial intelligence (AI). Video: https://youtu.be/khjY5LWF3tg

15. Megatrend II: The4th Industrial Revolution • Source: Klaus Schwab, The Fourth Industrial Revolution, The World Economic Forum Annual Meeting 2016

16. Megatrend II: The4th Industrial Revolution • “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before" • Source: Klaus Schwab, The Fourth Industrial Revolution, The World Economic Forum Annual Meeting 2016

17. Megatrend II: The4th Industrial Revolution Consequences of the 4th Industrial Revolution • Overall productivities will grow very rapidly, but not only human’s physical labor but also mental labor will be replaced by robots and artificial intelligence (AI). • As labor becomes less crucial in production, MNEs of high-income countries may return to their home countries (Re-shoring)  Reverse globalization. • Fewer jobs for human and greater disparities of job opportunities and income. • As income disparities increase, anti-globalization sentiment may grow  Reverse globalization (?).

18. Megatrend III: Income Convergence among Countries, but Income Divergence within Countries Source: Dabla-Norris, et al (2015), "Causes and Consequences of Income Inequality: A Global Perspective", IMF Staff Discussion Note No. SDN/15/13.

19. Megatrend III: Income Convergence among Countries, but Income Divergence within Countries Source: PEW Research Center, (2015), ”Share of adults living in middle-income households is falling”

20. Megatrend III: Income Convergence among Countries, but Income Divergence within Countries Source: Jain-Chandra, et al (2016), “Sharing the Growth Dividend: Analysis of Inequality in Asia”, IMF Working Paper No. WP/16/48.

21. Megatrend III: Income Convergence among Countries, but Income Divergence within Countries Source: Dabla-Norris, et al (2015), "Causes and Consequences of Income Inequality: A Global Perspective", IMF Staff Discussion Note No. SDN/15/13.

22. Megatrend III: Income Convergence among Countries, but Income Divergence within Countries • New politics • Brexit • Election of Donald Trump as President of the U.S. • Upcoming elections in France, Germany, Netherlands, etc.

23. IV: Reverse globalization?

24. IV: Reverse globalization? • Three waves of globalization • The 1st globalization: From the 1st Industrial Revolution and the beginning of World War I • The 2nd globalization: From the end of World War I to Great Depression (1929) • The 3rd globalization: Since the end of World War II Source: Bordo, M. (2003), "Globalization in Historical Perspective", NBER Working Paper

25. IV: Reverse globalization? • World trade (as percent of global GDP) was increasing until late 2000, but has no longer been increasing since then. Source: The Economist, 2017

26. IV: Reverse globalization? • Since 2008, GVC-related world trade and FDI flows have not been increasing (or decreasing). Source: The Economist, 2017

27. IV: Reverse globalization? • Non-tariff barriers have been on the rise in recent years World European Union Source: WTO, Integrated Trade Intelligence Portal (I-TIP)

28. IV: Reverse globalization? Consequences of globalizaton • Convergence of income between countries • But, divergence of income within countries Anti-globalization sentiment • Increasing migrant workers and social conflicts Anti-globalization sentiment • Political trilemma of the global economy (Danirodrik)

29. IV: Reverse globalization? • Political trilemma of the global economy Source: DaniRodrik (2013), "The Globalization Paradox", ppt.

30. IV: Reverse globalization? Begging of reverse globalization? • Brexit (2016) • Election of Donald Trump as President of the U.S. (2016)

31. IV: Reverse globalization? Peter Navarro, Director of the National Trade Council (NTC) of the U.S. • Professor at U of California, Irvine(Harvard Ph.D), butan eccentric economist • Known as a staunch critic of China (Death by China, 2012) • A strong proponent of reducing U.S. trade deficits • He has called for increasing the size of the American manufacturing sector, setting high tariffs, and repatriating global supply chains. • A strong opponent of the Trans-Pacific Partnership. • He promised “a seismic and transformative shift in trade policy”. • Fair trade, rather than free trade Source: The Economist, 21 January 2017

32. IV: Reverse globalization? Wilbur Ross, Secretary of Commerceof the U.S. • “King of Bankruptcy” • A banker specializing in leveraged buyouts and distressed business. • Has a net worth of $2.5 billion. • "I am not anti-trade. I am pro-trade, but I'm pro-sensible trade” • The government "should provide access to our markets to those countries who play fair, play by the rules and give everybody a fair chance to compete. Those who do not should not get away with it - they should be punished and severely.“ (The Bottom-Feeder King, New York) Source: Wikipedia

33. IV: Reverse globalization? Rex Tillerson, Secretary of State Steven Mnuchin, Secretary of Treasury • Joined ExxonMobil in 1975 and rose to serve as the chairman and chief executive officer (CEO) of the company from 2006 to 2016. • Strong ties with President Vladimir Putin of Russia • Worked for Goldman Sachs for 17 years, eventually becoming its Chief Information Officer. • After he left Goldman Sachs in 2002, he worked for and founded several hedge funds. • Founder of OneWest Bank Group Source: The Economist, 21 January 2017

34. IV: Reverse globalization? Robert Lighthizer, US Trade Representative (USTR) Gary Cohn, Director of the National Economic Council • A lawyer • Deputy trade representative during Ronald Reagan administration • A supporter of the U.S. steel industry • The president and chief operating officer of Goldman Sachs • Critics of Cohn attribute to him an arrogant, aggressive, abrasive and risk-prone work style.

35. IV: Reverse globalization? Stephen Bannon, White House Chief Strategist and Senior Advisor Stephen Miller, White House Policy Adviser • Executive chairman of Breitbart News, a website for the "alt-right." • Worked at Goldman Sachs • 32 years old • Worked for Alabama Senator Jeff Sessions • A true believer behind core Trump policies Source: Cosmopolitan.com

36. IV: Reverse globalization? Donald Trump Administration: Who Are They? • Alt-right • Pro-business, pro-Wall Street Strategists • Eccentric economists Source: The Economist, 21 January 2017

37. IV: Reverse globalization? History repeats itself • Smoot-Hawley Tariff Act (1930) • An act sponsored by Senator Reed Smoot and Representative Willis C. Hawley and signed into law on June 17, 1930. • The act raised U.S. tariffs on over 20,000 imported goods. • The Act and following retaliatory tariffs by America's trading partners helped reduce American exports and imports by more than half during the Depression. • This has exacerbate the Great Depression.

38. 5. Reverse globalization? History repeats itself • The share of U.S. GDP in the world GDP is far greater now than in the 1930s. • All countries in the World are closely intertwined, and hence any protectionist policies of the U.S. will pose a serious threat to the global trade and economy.

39. Challenges for Developing • Discussions

40. Hyun-Hoon Lee hhlee@kangwon.ac.kr