Section 2 Present and future of emerging 1. Economic growth rate First, we will look at emerging growth potential. Between 2003 and 2013, the average annual growth rate (in terms of real GDP growth rate) was nearly 5% for all emerging-economy income groups (low-income, lower-middle-income and uppermiddle-income ), compared with an annual growth rate of 1.5% for high-income (Figure I-2-2-1-1). The average growth rate for upper-middle-income was 4.9%, the highest of all emerging-economy income groups, followed by 4.8% for lower-middle-income and 4.7% for low-income. The average income (GNI) per capita for emerging is less than a fifth of the average for high-income. However, given that the population size and economic growth rate of emerging are far higher than those of high-income, emerging economic potentials cannot be ignored. Figure I-2-2-1-1 Economy growth rate by income group Real GDP growth rate (annual rate) Average from 2003 to 2013 High-income 1.3 billion people Average 37,000 dollars Upper-middle-income 2.4 billion people Average 7,000 dollars Lower-middle-income 2.6 billion people Average 2,300 dollars Middle-income 5 billion people Emerging 5.8 billion people Low-income 800 million people Average 600 dollars Notes: Figures in the items above represent population sizes and national income levels (GNI per capita) as of 2013. Source: World Population Prospects: The 2012 Revision (United Nations), WDI (World Bank). (1) Changes in the average growth rate A look at long-term changes in the economic growth rates of emerging by income group shows that a significant change occurred around 1990, when economic globalization started to advance (Figure I-2-2-1-2). First, we will look at annual changes in the average growth rate by income group since 1965 in terms of the coefficient of variation (standard deviation mean). The co-efficient of variation for high-income 56
has risen significantly since 1990, when economic globalization started to advance. This indicates that annual changes in the average growth rate have been becoming larger in recent years in high-income. In contrast, the coefficients of variation for upper-middle-income and lower-middle-income have not significantly changed, meaning that the growth rates for both groups of since 1990 has stayed at around the pre-1989 levels. From this, it may be said that upper-middle-income and lower-middle-income have been maintaining stable growth over the long term. The coefficient of variation for low-income has declined significantly since 1990, indicating that annual changes in the average growth rate have become smaller than before 1989. It may be said that although their growth rate is still higher than the growth rate of upper-middle-income, lower-middle-income are gradually getting on a path of more stable growth. A similar trend is observed among oil-producing countries 9. As shown above, since 1990, the annual economic cycle swing has tended to become smaller in emerging and oil-producing countries, whereas in high-income that bore the brunt of the Lehman Shock, the annual economic cycle swing has become larger than before 1990. (Coefficient of variation) Figure I-2-2-1-2 Changes in average growth rates Comparison of changes in annual average growth rates (coefficient of variation) between the period before 1980 and the period after 1990 Coefficient of variation of all income groups (from 1990 to 2013) Coefficient of variation of all income groups (from 1965 to 1989) High-income Lowermiddleincome Uppermiddleincome (2) Growth inequality within income groups Low-income Oil-producing countries Notes: 1. Coefficient of variation of average annual growth rates of income groups between the periods; Coefficient of variation = standard deviation / mean 2. Income groups include oil-producing countries. Source: WDI (World Bank). 9 Oil-producing countries as referred to here are those which have recorded a daily export volume of 100,000 barrels or more according to recent data (regardless of the income group). 57
Meanwhile, if we look at the differences in the average growth rates for income groups in terms of the coefficient of variation, we can see that the value of the coefficient varies significantly from income group to income group and from time to time. A similar trend is observed among oil-producing countries. However, since 2008, the year of the Lehman Shock, the coefficient of variation has declined significantly for oil-producing countries and all income groups, indicating that their growth rates have been converging around the lowest-ever level (Figure I-2-2-1-3). These trends suggest that around the world, including emerging and oilproducing, have been becoming increasingly interconnected with each other. While there are presumably various factors behind the increasing interconnection, the widespread economic globalization, including in emerging, has had a great impact. In other words, behind the increasing interconnection is the fact that because of the advance of globalization, economic mutual dependence between emerging and between high-income and emerging has grown, with the result that economic cycle swings now spread throughout countries and regions around the world without a time lag. (Coefficient of variation) Figure I-2-2-1-3 Growth inequality within income groups High-income Upper-middle-income Lower-income Low-income Oil-producing countries Notes: 1. For each income group, when the growth rates of countries and regions are four times larger than the standard deviation of target income groups, such countries and regions are excluded as outliers. Coefficient of variation = standard deviation / mean; Three-year moving average 2. Income groups include oil-producing countries. Source: WDI (World Bank). 2. Income per capita As was already shown, although the average income (GNI) per capita in most emerging is less than a fifth of the level in high-income, it has been growing significantly since the 2000s. The high growth has been continuing in upper-middle-income in particular, bringing 58
the average income there above 7,000 dollars in 2013 (Figure I-2-2-2-1). A look at the distribution of upper-middle-income and high-income in terms of income per capita shows that whereas the former group is concentrated in a relatively narrow income range between 4,000 dollars and 13,000 dollars, the latter group is distributed very widely across income brackets above 13,000 dollars, including those above 70,000 dollars. Consequently, there is a wide gap between the two groups in the average income level (Figure I-2-2-2-2). However, despite the very wide range of distribution for high-income, around half of those are concentrated in income brackets of less than 27,000 dollars. Therefore, if some high-income are excluded, the gap between the two groups is not so wide as is the case when compared on an average basis. A similar comparison between lower-middle-income and upper-middle-income shows that these two groups of are distributed in a similar way (Figure I-2-2-2-3). Figure I-2-2-2-1 Changes in income per capita GNI per capita Upper-middle-income Lower-middle-income Low-income High-income Notes: Figures show simple average values of countries and regions constituting income groups. Source: WDI (World Bank). 59
Figure I-2-2-2-2 Distribution of GNI by income group (1) (Number of countries Distribution of GNI by income group and regions) (High-income vs upper-middle-income in 2012) Average of upper-middle-income : 7, 000 dollars Half of the high-income are concentrated on 27,000 dollars. Upper-middle-income High-income Average of high-income : 37, 000 dollars 4,000 dollars or less 4,000 5,000 dollars 5,000 6,000 dollars 6,000 7,000 dollars 7,000 8,000 dollars 8,000-9,000 dollars 9,000 10,000 dollars 10,000 11,000 dollars 11,000 12,000 dollars 12,000 13,000 dollars 13,000 14,000 dollars 14,000 15,000 dollars 15,000 16,000 dollars 16,000 17,000 dollars 17,000 18,000 dollars 18,000 19,000 dollars 19,000 20,000 dollars 20,000 21,000 dollars 21,000 22,000 dollars 22,000 23,000 dollars 23,000 24,000 dollars 24,000 25,000 dollars 25,000 26,000 dollars 26,000 27,000 dollars 27,000 28,000 dollars 28,000 29,000 dollars 29,000 30,000 dollars 30,000 31,000 dollars 31,000 32,000 dollars 32,000 33,000 dollars 33,000 34,000 dollars 34,000 35,000 dollars 35,000 36,000 dollars 36,000 37,000 dollars 37,000 38,000 dollars 38,000 39,000 dollars 39,000 40,000 dollars 40,000 41,000 dollars 41,000 42,000 dollars 42,000 43,000 dollars 43,000 44,000 dollars 44,000 45,000 dollars 45,000 46,000 dollars 46,000 47,000 dollars 47,000 48,000 dollars 48,000 49,000 dollars 49,000 50,000 dollars 50,000 51,000 dollars 51,000 52,000 dollars 52,000 53,000 dollars 53,000 54,000 dollars 54,000 55,000 dollars 55,000 56,000 dollars 56,000 57,000 dollars 57,000 58,000 dollars 58,000 59,000 dollars 59,000 60,000 dollars 60,000 61,000 dollars 61,000 62,000 dollars 62,000 63,000 dollars 63,000 64,000 dollars 64,000 65,000 dollars 65,000 66,000 dollars 66,000 67,000 dollars 67,000 68,000 dollars 68,000 69,000 dollars 69,000-70,000 dollars Notes: Distribution of GNI per capita by country or region in 2012. Total number of high-income : 49 countries and regions; Total number of uppermiddle-income : 51 countries and regions. Source: WDI (World Bank). 60
(Number of countries and regions) Figure I-2-2-2-3 Distribution of GNI by income group (2) Distribution of GNI by income group (Higher-midde income vs lower-middle-income in 2012) Lower-middle-income Upper-middle-income Average of lower-middle-income : 2,300 dollars Average of uppermiddle-income : 7,000 dollars 500 dollars or less 500-1,000 dollars 1,000-1,500 dollars 1,500-2,000 dollars 2,000-2,500 dollars 2,500-3,000 dollars Notes: Distribution of GNI per capita by country or region in 2012. Total number of high-income : 51 countries and regions; Total number of uppermiddle-income : 45 countries and regions Source: WDI (World Bank). 3,000-3,600 dollars 3,600-4,300 dollars 4,300-5,000 dollars 5,000-6,000 dollars 6,000-7,500 dollars 7,500-10,000 dollars 10,000-15,000 dollars 3. Total population According to an estimate by the United Nations, population growth will continue until 2020 in most emerging (Figure I-2-2-3-1). However, in 2020 and beyond, population growth is expected to almost come to a halt in uppermiddle-income, and in 2040 and beyond, the growth is expected to come to a halt in lowermiddle-income as well. Population growth is expected to continue in 2040 and beyond only in low-income. 61
Figure I-2-2-3-1 Expected population growth rate 2010 Expected population growth from 2010 to 2020 (annual rate) Expected population growth from 2020 to 2040 (annual rate) Expected population growth from 2040 to 2050 (annual rate) High-income Upper-middle- Lower-middleincome income Middle-income Emerging Source: World Population Prospects: The 2012 Revision (United Nations). Low-income 4. Aging of population The aging of population is expected to advance rapidly in the future not only in high-income but also in emerging. Figure I-2-2-4-1 shows projections of the future working age-population and elderly population by income groups based on data prepared by the United Nations. The figure shows that while the working-age population is expected to start declining after remaining flat until 2040 in upper-middle-income, the elderly population is expected to grow rapidly from now on. Meanwhile, in lower-middle-income and low-income, while the working-age population is expected to continue growing, the elderly population is also expected to increase. As a result, in many emerging, the elderly population is expected to grow rapidly from now on. In upper-middle-income in particular, the aging of the population is expected to advance rapidly, as the working-age population is expected to start declining after staying flat. 62
Figure I-2-2-4-1 Expected working-age population and elderly population (100 million people) Working age-population Elderly population High-income Upper-middle-income Lower-middle-income Source: World Population Prospects: The 2012 Revision (United Nations). Low-income Next, we will look at the progress in the aging of population by income group. Figure I-2-2-4-2 shows projections of the future proportion of the elderly population by income group based on data prepared by the United Nations. As defined by a report prepared by the United Nations, a society is regarded as aging if people aged 65 or older (the elderly population) account for more than 7% of the population, as aged if the proportion of such people is higher than 14% and as super-aged if the proportion is higher than 21%. According to these definitions, upper-middle-income, which are already aging societies, are expected to turn into aged societies by 2040 and into super-aged societies by 2050. Lower-middle-income and low-income are expected to turn into aging societies by 2040 and by 2050, respectively. 63
Figure I-2-2-4-2 Expected proportion of elderly population 2013 Expectations in 2020 Expectations in 2040 Expectations in 2050 Super-aged society (>21%) Aged society (>14%) Aging society (>7%) High-income Upper-middleincome Lower-middleincome Middle-income Emerging Low-income Source: World Population Prospects: The 2012 Revision (United Nations). Meanwhile, healthcare expenditure per capita in upper-middle income, which are already aging societies, has increased rapidly since the 2000s, when per-capita income there started to rise (Figure I-2-2-4-3). In line with increases in income per capita and the share of the elderly population, healthcare expenditure is also expected to grow rapidly in the future in other emerging where the growth is still low. 64
Figure I-2-2-4-3 Changes in healthcare expenditure per capita (100 dollars) Upper-middle-income Lower-middle-income Low-income Source: WDI (World Bank). 5. Urbanization Urbanization is rapidly advancing in emerging as well. Figure I-2-2-5-1 shows the urbanization rate and the urban population growth rate by income group in 2013. The figure shows that the share of residents in urban areas (urbanization rate) in the total population is higher than 60% in upper-middle-income. The urbanization rate is nearly 40% in lowermiddle-income and around 30% in low-income. Behind the high urbanization rates are rapid population inflows into urban areas. The ratio of population inflow into urban areas to the urban population in the previous year was 0.8% (2013) in high-income, meaning that the population inflow has almost come to a halt. However, the ratio remains at high levels, ranging from 2.3% to 3.9%, in emerging. 65
Figure I-2-2-5-1 Urbanization rate and urban population growth rate Urbanization rate in 2013 Urban population growth rate in 2013 (right scale) High-income Upper-middle- Lower-middleincome income Middle-income Emerging Low-income Source: World Urbanization Prospects: The 2014 Revision (United Nations), World Development Indicators (World Bank). According to an estimate by the United Nations, the urbanization rate will continue rising for all income groups. In upper-middle-income in particular, the rise in the urbanization rate is projected to accelerate in the future (Figure I-2-2-5-2). Consequently, the urbanization rate in upper-middle-income is expected to reach 80% in 2050, close to the levels in high-income. 66
Figure I-2-2-5-2 Expected urbanization rate High-income Upper-middle-income Lower-middle-income Low-income Source: World Urbanization Prospects: The 2014 Revision (United Nations). 6. Simultaneous advance of aging and urbanization Figure I-2-2-6-1 shows past changes and estimated changes in the urbanization rate and the share of the elderly population by income group in the period up to 2050 based on data prepared by the United Nations. According to this figure, urbanization has already advanced in high-income and since the 1970s, the pace of urbanization has been slowing down. Meanwhile, the pace of aging of population is expected to accelerate over the coming years, with a time lag behind the advance of urbanization. On the other hand, in emerging, urbanization and aging of population are expected to advance simultaneously over the coming years. In upper-middle-income, urbanization is expected to continue advancing rapidly until around 2030, whereas aging of population is expected to accelerate in 2020 and continue afterwards. In lower-middle-income, while urbanization is expected to continue advancing over a long period of time, aging of population is expected to accelerate in 2020 and beyond. In low-income, while urbanization is expected to continue advancing over a long period of time as it is in lower-middle-income, aging of population is expected to advance in 2030 and later. As a result, emerging are confronted with the difficult challenge of dealing with aging of population and urbanization at the same time. This also means that in emerging, there will be two huge markets, one for services in the medical and healthcare sectors as a solution for aging of population and the other for infrastructure development as a solution for urbanization. 67
Figure I-2-2-6-1 Expected urbanization rate and proportion of elderly population High-income Upper-middle-income Urbanization rate Elderly population rates (RHS) Urbanization rate Elderly population rates (RHS) Lower-middle-income Low-income Urbanization rate Elderly population rates (RHS) Urbanization rate Elderly population rates (RHS) Source: World Urbanization Prospects:The 2014 Revision (United Nations). 68