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Saving and Investment in 2030

Saving and Investment in 2030

Major structural transformations under way in the global economy will shape the economic fortunes of nations for decades to come. The gradual acceleration of trend growth in developing countries, which started during the 1990s, has increased their contribution not only to global investment but also to global saving. This is a significant change from a few decades ago, when many considered low national saving rates and difficulty in attracting foreign capital to be constraints to investment and growth in developing countries. As a result of the upward trends in saving rates and an accelerated economic expansion, developing countries’ share of global saving now stands at 46 percent, nearly double the level of the mid-1960s.

What is behind these trends, and will they continue in the future or are they collectively a short-term phenomenon? What do they mean for development and poverty reduction? This report addresses these questions, identifying key economic and structural drivers that, together with demographic shifts, will affect saving and investment decisions over the next two decades—and thus the global distribution of capital in the future. The report builds two distinct scenarios that serve as “economic laboratories” to study the potential consequences of changes in these drivers. The main differences between the two scenarios are (a) the speed of convergence between the developed and developing worlds in per capita income levels (due to productivity catch-up) and (b) the pace of structural transformations in the two groups (such as financial development and improvements in institutional quality). In the first scenario, this convergence is gradual, while in the second, convergence is more rapid.

The two convergence scenarios do not account for every trend or shock that may have an important economic impact over the time horizon considered, such as climate change, commodity shocks, or financial crises. Indeed, these scenarios are not intended to be forecasts and should not be judged by their likelihood of materializing. The two scenarios presented in the report offer a picture of the future of global capital that does not parallel recent trends, providing a template for thinking strategically about a number of global financial and economic challenges looming ahead and their implications for policy today.

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