The World Over the Next Twenty-five Years: Global Trade Liberalization, and the Relative Growth of Different Regions

This paper examines prospective developments for the next 25 years under four headings. I. The Economic Size of Different Countries. We begin by examining the current GDP rankings, and the process whereby various countries have closed the gap in per capital income with the United States over the last 50 years. We then turn to the recent literature on convergence, factor accumulation, and total productivity growth, in explaining the superior record of the East Asian countries (including the Krugman-Young claim that mere factor accumulation explains the entire miracle, and the Summers-Easterly claim that mere chance does), before venturing predictions. II. Increases in International Trade: Will Globalization Continue? Some have concluded that countries are now so open and integrated internationally that such geographical encumbrances as borders and distance no longer play a role. If a level of perfect integration had indeed already been achieved, one might expect that over the next 25 years trade would no longer continue to grow more rapidly than income. Such a conclusion would be incorrect, however. It follows that trade will continue to grow more rapidly than income in the future. The reasons are not only the obvious ones of declining costs of transportation and communication and declining trade barriers, but also rising incomes in formerly-poor countries. III. The Impact of Trade: Will the U.S, and Europe Be Endangered by Widening Deficits? The paper forecasts that the problem of the Japan-U.S. trade imbalance will probably vanish by the year 2020, as the result of financial implications rather than of deliberate trade policies. We then discuss the trend in the trade balances of Europe and the U.S., vs. Developing Countries, and the debate on the causes of stagnation in demand for labor. Trade does not appear to be the major cause of stagnation. IV. Bilateral Patterns: Who Will Trade with Whom? Clearly, trade will grow the most rapidly where economies grow the most rapidly, especially among NICs in East Asia and elsewhere. But we also look at the effects of distances, common languages, political federations and their dissolution, preferential trading arrangements, and currency unions.