Economic growth and geo political power the emergence of a tripolar world
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Economic Growth And Geo-political Power: The Emergence of a Tripolar World Dr. Arvind Virmani, Director and CE, ICRIER Indian Council for Research on International Economic Relations Introduction Economic Basis for Global Power “Power Potential” of a Nation State (VIP 2 )

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Economic growth and geo political power the emergence of a tripolar world l.jpg

Economic Growth And Geo-political Power: The Emergence of a Tripolar World

Dr. Arvind Virmani,

Director and CE, ICRIER

Indian Council for Research on International Economic Relations


Introduction l.jpg
Introduction

  • Economic Basis for Global Power

  • “Power Potential” of a Nation State (VIP2)

    • Actual Power: Complex Models (Tellis etc)

  • ‘Natural Balance of Power’ & Global Governance in 21stCentury (ICRIER WP # 150)

  • 21st C: Globalisation and Catch-up growth

  • Projection of large Ecs: Scenario till 2050

  • Implication for National & International Security and Foreign Policy

    • Ending Nuclear discrimination against India

ICRIER: AV


Overview l.jpg
Overview

  • Size: Population & Per capita Income

  • Globalisation, Policy Reform & Catch-up growth

  • Future (20 large econs): Mean Scenario

    • Chinese & Indian Economy

  • Tripolar Global Economy & Potential Power

    • Key: USA-China-India relations not Multi polarity

    • 21st Century: Economic interdependence, Conflict risk. Not military alliances, cold war or containment

  • Policy Implications (Interdependence, Conflict risk)

    • China challenge for US power in Asia

    • India-US Partnership important for both

    • India, China Bilateral critical to Asian/global peace

    • Inclusive Structure patterned on EU:

      • Asian Economic Community

ICRIER: AV




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Catch up Growth Potential:Per Capita Income (GDP) Gap

ICRIER: AV






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Income Growth: Catch-up

  • Population perspective:

    • EU 4th pole iff it becomes “Virtual” State

    • Only Tri-polarity is possible. Will it happen?

  • Scope for Catch-up: India is a low income country, China is lower-middle income.

  • Trends in growth of per capita GDP.

    • How quickly will China slow down

    • Can India maintain its growth rate? Raise it?

  • Invention/innovation? Important within high-income country category!

ICRIER: AV



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China: Growth Model

  • Goal / Objective : National Power

    • Growth Maximization s.t. CCP retaining power

      • Decentralized to & ensured at all levels:

        • Nation, Province, City, Firm

      • Corporate growth maximization, market share, export

  • Means: Maximize Investment

    • Foundation of Growth: Public Investment

      • High Public Asset Ownership->Reinvestment of returns –> high investment with low tax rates

    • Engine of Growth: FDI and Exports

      • FDI-export led growth

ICRIER: AV


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China: Weakness and Risks

  • Weakness: Other side of coin of past growth drivers

    • Govt. Ownership: Excess capacity, Falling returns, Rising NPAs, Falling public saving/investment

    • Rising export share =>Falling unit values; Rising subsidies (NPAs)

    • Knife-edge character of FDI-export model

      • Asian crises (euphoria risk)

      • Over dependence on FDI

    • Gr. obsession: Worsening Income distribution

  • Projection: Growth goes to 7.5% (9.5%-2%) and declines gradually thereafter

ICRIER: AV


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Indian Reforms & Growth

  • Average Growth since 1992 is 6.1%

    • 0.6% higher than 5.5% (1980 to 1991)

  • Underlying Growth Trend: 6.1%=>6.5%

    • J curve of Liberalization

ICRIER: AV



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Indian Income Distribution & Poverty: Non-Issue?

  • Non-Issue: Poverty: Low average income

    • HCR=23%, Abs 230 mi -> pop size, Freedom -> Visibility

      • 2010: LMIC, HCR =15%

      • 2025: UMIC, HCR= nil

    • Gini 31/127 countries (China 91/127)

    • Bottom 10% share: 6/127 country

ICRIER: AV


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India: Weakness

  • Governance Deterioration

    • Public Goods & Services (police, legal system, administration; Political corruption)

    • Political Reforms needed: Happen slowly

  • Implications of Government Failure

    • A New Development Paradigm: Employment, Entitlement and Empowerment, Economic and Political Weekly, Vol. XXXVII No. 22, June 1-7, 2002, pp. 2145-2154.

    • Accelerating Growth and Poverty Reduction – A Policy Framework for India’s Development, Academic Foundation, New Delhi, January 2004.

ICRIER: AV


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GDP at PPP (relative to USA)

ICRIER: AV


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Incremental Impact: Country/USA

ICRIER: AV


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Global Growth Drivers:Incremental Impact

  • Current & Immediate Future

    • China is now the second largest growth driver after USA

    • India will overtake UK by 2008 to rank 4th

    • India will overtake Japan in 3rd place by 2016

  • Twenty Years & Beyond

    • China will overtake USA in 1st place by 2027

    • India’s incremental impact will become 2nd highest by mid-century

ICRIER: AV


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Index of Power Potential: VIP2

  • GDP (at ppp): Y = N * y

    • N= Population, y=Per Capita Income

    • Globalisation and Tech flows

    • y = T f(k, h, r) or T = y/f(k, h, r)

      • T=technology, h=Human Capital/skills

  • Strategic & Dual Use technology restricted

    • Power Potential (PP) depends on General Technological Capability T or y

  • Virmani Index of Power Potential

    • VIP2 = (N/Nus) * (y/yus)1+a = (Y/Yus) * (y/yus)a

      • a = technology weight; 0 < a < 1

      • Mean Scenario: Assume a=0.5

ICRIER: AV


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Actual Power VIP and VIP2

  • Actual Power: Depends on

    • Public Expenditure on Development of Strategic Technology. This is affected by the

      • Will to power (contrast Japan & Russia, India & China)

    • Cost (p) and efficiency of expenditure. Depends on

      • Alliances (technology, equipment) respectively.

  • Kst = pt Et – δ Kst-1 ,

    • Kst is the stock of strategic technology at t

    • Et =expenditure on this technology valued at the shadow price/cost pt (not actual cost in each country)

    • δ is the rate of depreciation of the stock.

  • The Virmani index of actual power (VIP):

    • VIP = VIP2 * (Ks / Ksus )

ICRIER: AV


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VIP2: Index of Power (a=0.5)

ICRIER: AV



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Sensitivity Of VIP2 to Technology Weight a

ICRIER: AV


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SUMMARY CONCLUSIONS

  • Bipolar World By 2025

    • China will challenge US power in Asia

  • Tripolar World by 2050:

    • India weakest pole, China strongest!

  • Balance of Power: 2050

    • China equal to 6 largest Asian democracies (India, Japan, Indonesia, Russia, S Korea, Australia)

    • China’s economy will be 40% smaller than US + India; Its Power may be 1/3 rd less

  • History Lesson => Heightened Risk of Conflict between the rising power and others

    • Exception: USA & UK (Overlap of values, systems)

    • China: Leninist Party. Single party rule.

ICRIER: AV


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SUMMARY CONCLUSIONS

  • How to Reduce the risk of conflict?

    • Close economic and technological gap between India and China

      • Better balance of power => less temptation => greater stability

      • Greater freedom of action for smaller Asian countries

    • Technological collaboration between India & Russia, Japan, EU (UK, France, Germany, Italy), USA.

ICRIER: AV


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Indo-US Partnership for Peace

  • CECA (Comp Econ Coop Agreement)

    • Services, FDI, Movement of skilled people.

  • Strategic Partnership

    • Technology

      • Dual Use Technology

      • Nuclear Power plants & equipment

      • Strategic: Space, NMD

    • Defense: Co-production, R&D (IT)

  • Global Governance: G8, UN reform;

ICRIER: AV


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India-China-Asia

  • Normalization of Bilateral India-China Relations (Critical to Peace & Security in Asia)

    • Exploit Large trade potential-Remove barriers

  • Three Key issues from India’s perspective:

    • Fair & Equitable Border Settlement: ‘No worse than’ offered by PM Chou en Lai in 1960s

    • Stop Nuclear Proliferation to Hostile countries

    • India’s due role in Asia and World (UN)

  • Inclusive Economic Structures patterned on EU

    • Asian Economic Community (<= EAEC)

    • Asian Oil/Energy Community

  • Greater Co-operation among Asian democracies (India, Japan, Russia, S Korea, Indonesia, Australia)

ICRIER: AV


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References

  • “A Tripolar World, India, China & US,” Lecture delivered at India Habitat Centre on May 18, 2005 ( http://www.icrier.org/public/TripolarWrld_IHC5.pdf ).

  • “Economic Performance, Power Potential and Global Governance: Towards a New International Order”, Working Paper No. 150, ICRIER, December 2004( www.icrier.org/wp150.pdf ).

  • “A Tripolar Century: USA, China and India,” Working Paper No. 160, ICRIER, March, 2005 ( www.icrier.org/wp160.pdf ).

  • “China’s Socialist Market Economy: Lessons Of Success”, ICRIER Occasional Policy Paper, April, 2005 ( http://www.icrier.org/China05_policy7.pdf ).

  • VIP2: A Simple Measure of Nations (Natural) Global Power, ICRIER Occasional Paper, July, 2005 ( http://www.icrier.org/vipp4.pdf ).

ICRIER: AV