Paul Lachine

The Global Economy’s New Path

Whether we like it or not, the world around us is in a state of constant change. But recent economic trends suggest that this change may be shifting its direction in a fundamental way, with external factors coming to play a larger role in output changes in advanced and developing countries alike.

WASHINGTON, DC – Whether we like it or not, the world around us is in a state of constant change. But recent economic trends suggest that this change may be shifting its direction in a fundamental way.

Consider the advanced economies. During the last two decades, economic growth in these countries was led by consumption – so much so that economic activity in these economies swung from investment to consumption by a total of 10 percentage points of GDP. As a result, in 2010 the share of consumption in their GDP had reached 81.6%.

1990

2010

(In percent of GDP)

Advanced economies

Consumption

76.4

81.6

Investment

23.7

18.4

Emerging and developing economies

Consumption

73.4

67.1

Investment

26.0

30.8

Meanwhile, emerging markets and developing economies provided almost a mirror image of this trend, raising their investment and boosting the supply of goods to the rest of the world at the cost of consumption in their own economies. By 2010, the share of consumption in their GDP had declined, from 73.4% to 67.1%.

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