The Rise of Developing Countries and the Future of Global Saving and Investment

This paper examines the evolution of saving, investment, and associated capital flows and rates of return in the context of impending changes in socioeconomic structure of countries in the global economy. A baseline is constructed for the 2011–2030 period by considering how structural factors—in particular, demographic trends, financial development, institutional quality, and social protection—interact with likely productivity and population paths to determine saving rates, investment rates, and capital flows for major economies and regions. The main finding— which stands in contrast to the existing literature that argues for either continued, low interest rates or sharply rising ones—is that future global investment and saving rates will decline only slightly, accompanied by modest rises in interest rates, although substantial heterogeneity exists at the country or regional level. The paper also considers a range of perturbations to the basic model and verifies that the overall message of fairly limited changes in global investment and saving rates remains reasonably robust, even in a scenario with rapid global growth and structural change.