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North-South interdependence: Projections of the world economy, 1985–2000
North-South Interdependence: Projections of the World Economy, 1985-2000 Akira Onishi, Center for Global Modeling, Soka University,
Tokyo, Japan This article makes projections of the world economy where the North-South interdependence is incorporated through complex internationallinkages for the period 19852000, using a latest version of FUGI global macroecomic model type IV 011-62. Based on two alternative future scenarios--a baseline and on optimistic one--the model forecasts that the real economic growth of the developing countries as a whole in 1985-2000 will likely be around 4%-7% annual rate whereas the developed countries seems likely to sustain around 2.5%-3.5% annual rate of economic growth for the period.
INTRODUCTION The trend toward greater interdependence of the world economy on the global level is progressing, a n d is not limited to the exports a n d imports of goods a n d capital, but has meant a strengthening of international relationships of interdependence also through exchanges of information, culture, a n d individual talents. This in turn has pushed the science of economics to overcome traditional frameworks which encompassed primarily the economy of one or another single country. In a similar way, the appearance of complex a n d interrelated problems such as population, environment, food, resources, energy, development, arms race, displaced persons, etc., has posed problems whose solution is quite impossible within the old frameworks of an economics dealing for the most part with only one country. These facts help explain why, in the 1970s, research was begun on the design of "global economic models." In his own research on globel models, the author has used a "dynamic systems approach," progressing from simple conceptual models to more complex theoretical models, and then to computer models. The "first generation" F U G I global macroeconomic model of the 1970s has now, in the
Address correspondence to Professor Akira Onishi, Director, Center for Global Modeling. Soka University, Hachioji-shi, Tokyo, 192, Japan. This article is based on a study originally prepared for the United Nations. The author is grateful to his global modeling staff members including Kazuo Aoki, Osamu Nakamura, Makoto Sato and Kimihiro Onishi for their helpful cooperation in the computer modeling work. Assistance in computation work made by Hitachi Co. is also greatly acknowledged. Received July 1985; accepted November 1985. Journal of Policy Modeling 8(2):181-198 (1986) © Society for Policy Modeling, 1986
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1980s, developed into a "fourth generation" model. As a result of this process of developing more complex models from simpler models, this "fourth generation" model ~, known as 'Type IV-011-62," classifies the world into 11 sub-blocs and 62 countries or regions. With approximately 13,700 equations and 100,000 software steps, this is one of a handful of global economic models which have won favorable international recognition.
PROJECTION S C E N ~ S
FOR THE W O L D ECONOMY
In our attempts at making projections of the world economy in the year 2000, we hypothesized a baseline scenario and an "optimistic" scenario.
(A) The Baseline Scenario The baseline projection scenario (Table 1) makes the following suppositions: 1. Nominal interest rates in the United States will, through appropriate fiscal and financial policies, drop by 2 to 3 percentage points during the period 1985-1990. During the period 1990-2000, real interest rates in the United States will be for the most part between 3% and 4%. Other major OECD countries will follow the U.S. with lower interest rates. 2. The tendency toward lower inflation which was achieved in the United States in 1984 will continue during the period 1985-1990, thus avoiding a recrudescence of severe inflation. 3. Levels of international trade restrictions in the OECD countries will remain approximately the same as at present. 4. Official development assistance (ODA) will during the period 19852000 remain at almost the same percentages of the donor countries' GNP achieved in 1984. 5. International oil prices slowly rise from the relatively low levels of 1984-85. 6. To alleviate the external obligations of the developing countries, repayment of principal on loans is postponed for 3-5 years, and a grace period is established for new loans, during which time only interest is repaid. 7. From now through the year 2000, the developing countries choose an export-oriented path of development and keep down domestic inflation through appropriate fiscal and financial policies. In particular,
IAt present this model is being used by the United Nations Secretariat in New York for
the forecast simulations of scenarios for international development policy, and is being similarly used by the Japanese Economic Planning Agency, the Japanese Ministry of International Trade and Industry, World Economic Information Service (in Tokyo),the Japan Foreign Trade Association. the Bank of Tokyo,and a number of other private and public organizations.
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The above baseline scenario is constructed upon the hyothesis that although economic policies in both the developed and developing countries are subject to certain changes which have been taking place in the economic environment, the scope for further policy choices does not indicate the likelihood of any dramatic changes. In other words, the parameters for the model's "policy response functions" and "structural behavioral equations" as estimated from past data (up to and including the present) are taken as being nearly unchanging, To give and example, the international oil price is calculated according to the following function: DOT(PEO) = -0.0105 + 0.6447 * DOT(G1FI10)_~ (-0. 1050) (0.8198) +
3.0036, DOT(GDP#I10)_~ + 1.6680, (FERSII10)_I (1.5674) (3.4365)
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Sample: 1972-1984 R 2 = 0.9891; S.E. = 0.097: DW = 2.0418. where, PEO: international oil price index, based on nominal dollars (1975 = 1). GIFI 10: weighted average inflation rate indices (1975 = 1) of a group of 10 developed countries (such as Japan, United States, Belgium, France, West Germany, Italy, Netherland, Sweden, Switzerland, and United Kingdom) with 2/3 of the weight representing consumer price indices and 1/3 representing export price indices. GDP#I10: real GDP index of the group 10 (1975 = 1). FERSIIt0: effective dollar exchange rate index calculated from rates of the group 10 (1975 = 1). PETRO (OECD)/TENERGY(OECD): share of oil in the total energy supplies of the OECD countries. FS01: policy "dummy variable" in reference to the "first oil shock" FS02: policy "dummy variable" in reference to the "second oil shock."
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DOT: Percentage changes. Of course, the baseline projection scenario supposes that there will be no third oil shock. Rather it may be expected that depreciation of the U.S. dollar and continuing shift toward greater use of nonpetroleum energy sources, the real oil price will be stable in the longer term, at lower levels.
(B) The Optimistic Scenario The optimistic scenario (Table 2) is constructed upon the hypothesis that the future course of the world economy can be changed as the result of human wisdom and appropriate policies. This scenario combines seven suppositions, as follows: 1. A coordinated lowering of interest rates among the developed countries. The major O E C D countries make an effort at international coordination of monetary and fiscal policies. More specifically, the United States Federal Reserve first of all lowers the official discount rate by 2 percentage points below the rate that would prevail in the baseline. The U.S. nominal prime rate drops to 7% by 1990 and maintains this level through the year 2000. Following the U.S. example, the other developed countries carry out fiscal and financial policies that likewise make possible the achievement of lower interest rates. 2. Policies aimed at coordinated North-South trade expansion and liberalization. The northern countries increase real imports from the non-oil-producing developing countries by an amount that is 5% per year greater than in the baseline. Also, "South-South" trade is increased, by an amount that is 10% more than in the baseline. 3. Achievement by 1990 of O D A equal to 0.7% of GNP. O E C D / D A C member countries after 1985 gradually increase official development assistance (ODA) to developing countries, and by 1990 achieve the goal of O D A equivalent to 0.7% of their GNP. It is further supposed in this scenario that the increase in O D A from most donor countries is generated through, tax increases. 4. Cooperative policies encouraging North-South and South-South private foreign direct investment. The scenario presupposes North-South and South-South international cooperation for the purpose of encouraging private foreign direct investment in the developing countries. From 1985, the developed countries carry out an expansion of private foreign direct investment in developing countries by an amount equivalent to 0.5% of GDP. At the same time, the developing countries themselves expand private foreign direct investment in one another's economies to an extent whereby this mutual investment represents 1% of their G D P each year. 5. Success in rescheduling foreign debts. It is supposed in this scenario that the short-term debts of the major borrowers among the developing countries are successfully rescheduled in the form of medium- and long-term obligations. More specifically, it is hypothe-
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sized that the average spread in the London interbank offered rate (LIBOR), which is a sort of standard for interest on commercial bank loans to developing countries, will be from 1.0% to 1.25%, while the average term for repayment will be extended to 10-15 years. It is further hypothesized that there will be a grace period of 2-3 years attached to new loans, during which time repayment will begin for interest but not for principal. 6. Strengthening of technology transfers and development of skills in developing countries. For the purpose of raising a part of the funds needed to carry out large-scale technology transfers to the developing countries, we here hypothesize a "global disarmament scenario," characterized by the following points: (a) During 1985-2000, North-South cooperation in developing technology and skills in the developing countries will be carried out so as to raise labor productivity in the developing countries as a whole by 1 percentage point above what it would otherwise be in the baseline. From our current research, it is seen that together with private foreign direct investments by the developed countries in the developing countries, technology transfers to developing countries play a crucial role in raising labor productivity. For reference, an example of an estimated labor productivity function (the ratio of real gross domestic product to civilian employment) is given as follows, for the case of Indonesia: L O G ( G D P P # / C E M P ) = 1.3257 + 0.3371 • L O G (SUMT5(NHI#)/CEMP) (2.5622) (5.7883) + 0.1227 • LOG(SUMT3(ODATC_~/PMS_0/CEMP) (1.4643) + 0.2503 • L O G ( S U M T 5 ( G E D # _ t ) / C E M P )
(5.1046) Sample: 1973-1982 S.E. = 0.014
R 2 =
0.9937
D W = 2.0059
where, G D P P # : Gross domestic product at 1975 prices (in millions of dollars). CEMP: Civilian employment (in thousands of persons) N H I # : Nonhousing investment at 1975 prices (in millions of dollars). ODATC: Technical cooperation (in ODA) received from O E C D / D A C member countries and from international agencies (in millions of nominal dollars). PMS: Dollar-based import price index (1975 = 1). G E D # : Government expenditures on education and health at 1975 prices (in millions of dollars).
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SUMT5: Cumulative values over the past 5-year period. (b) In order to attain the goals outlined in scenario (a), it is necessary to raise both the ratio of "physical capital" to labor and the ratio of '~human capital" to labor. It is supposed that the needed increment in physical capital investments in the productive sector (i.e., agriculture, manufacturing, services, etc.) will be provided through the use of additional private foreign direct investment from the developed countries. Also, it is supposed that improvements in labor productivity will be achieved in part through technical cooperation extended by the developed countries. Increase in the ratio of human capital to labor, as shown in the comparisons of government expenditures on education and health with respect to the labor force, are hypothesized as follows: (i) It is supposed that this ratio will continue to grow in the majority of the developing countries, reaching by the year 2000 the high levels that have already been achieved in a certain number of countries among the developing group. (ii) It is further supposed that in certain countries among the developing group which may already be considered to have achieved a high ratio of human capital to labor, further effort will be made to achieve real increases in expenditures on research and development of the sort seen at present in the major developed countries. It is here worth commenting that in our global model improvements in labor productivity in the developed countries is explained in part by increases in the ratio of R & D expenditures to the labor force. (c) In order to check by simulation analysis the total capital cost fbr realizing this scenario, we made studies of estimating financial resources for carrying out the project here under consideration, as well as studies of possibilities for their realization, taking into account, for example, possible increases in private foreign direct investment, technical cooperation, government expenditures on education and health, and disarmament, etc. Capital costs necessary for these plans were calculated in terms of both current and constant dollars. As a result, it was found that in order to have a yearing improvement by approximately 1 percentage point (compared with the baseline projection) in labor productivity in the developing countries as a group over the period 19852000, an effective combination of government policies would be the following: (i) The developed countries incresae private direct foreign investment in developing countries by an additional amount equivalent to 0.5% of GDP. (ii) The developed countries reduce military expenditures by 10% and apply the equivalent funds to increased technical cooperation with developing countries. (iii) The developing countries reduce military expenditures by 10% and apply the equivalent funds to government expenditures on education and health or, in the case of the NICs, to research and development.
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(7) Global Disarmament Policy. This scenario covers much of the same ground as the "technology transfer" scenario insofar as it is assumed that a considerable part of the funding sources necessary for bringing the technology transfer scenario into reality will come from reductions in military expenditures. In the global disarmament scenario, we hypothesize that beginning in 1985 military expenditures in all countries of the world are frozen at 1984 levels. We also suppose that in the case of nearly all the developed countries (both those with market economies and with centrally planned economies) 50% of the financial resources made available by these reductions in defense expenditures will be transferred to official development assistance (ODA) to the developing countries, while the remaining 50% will be applied to improving the welfare of the people of their own countries (e.g., reducing fiscal deficits or increasing expenditures on R & D). In the case of the developing countries and Asian centrally planned economies, we considered that the financial resources which are released from the burden of national defense expenditures will be used principally for increases in domestic capital formation. We call the above seven scenarios in combination "the optimistic scenario." We applied the techniques of first running simulations on each of the separate constituent scenarios and then, through a process of progressive cancellation of cumulative redundancies, finally making forecast calculations based on the combination of the 7 constituent scenarios. We have also treated a pessimistic scenario (Table 3) based upon the following hypotheses: (a) The official discount rate in the United States is raised by 2 percentage points above the "baseline forecast," with the result that very high interest rates prevail. (b) Success is not achieved in debt rescheduling, with the result that during the coming several years there is a sharp rise in the ratio of developing countries' debt service (repayment of principal and interest) to these developing countries' exports. (However, due to the increase in "country risks," possibilities for new loans will recede, with the result that the above ratio would probably in fact decrease toward the year 2000.) For a considerable time into the future, the major debtor countries will be forced to sharply curtail imports in order to manage their debt service, and will most likely suffer greater impediments to economic growth as a result of decreased investment accompanying the decrease in imports of machinery and other items needed for development. It is also possible that there could for a time be runs on banks and other panic situations delivery from defaults on debts and accompanying international financial crises. (c) The present level of trade protectionism will in the future continue to increase. It is hypothesized that real imports by the developed countries from the developing countries will be reduced by 10% compared with the baseline. (d) Although official development assistance (ODA) might increase in nominal terms, it is supposed that it would decrease as a percentage of the
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GDP of the donor countries. More precisely, it is hypothesized that ODA will be less by 10% compared with the baseline. (e) World trade will show an increased tendency to contract, prices of primary products will not rise by any substantial amount, and the developing countries' terms of trade will continue to worsen. (f) Although the level of South-South trade cooperation might rise somewhat, it would not be of a scale sufficient to cause any substantial change in developing countries' former patterns of growth and trade. However, information about the unusual computations related to the less desirable options is not presented here. Results are available to interested readers upon request.
ANALYSIS OF THE PROJECTION RESULTS Herein is a comparison of the simulation results for two scenarios outlined above.
(A) The Baseline Projection (1) According to the baseline projection (Table 4), oil prices will rise from a nominal $27 per barrel in 1985 to approximately $32 in 1990 and approximately $48 in 2000. The real price of oil may be expected to remain nearly constant when deflated by the OECD countries' weighted average export price indices. (2) The annual average growth rate of the world economy (including the centrally planned economies) is estimated at 3.7% during 1985-1990, 3.7% during 1990-1995, and 3.3% during 1995-2000. This represents an increase in the yearly average for the entire decade of the 1980s from 3.1% to a yearly average of 3.5% for the decade of the 1990s. The annual average real growth rate of GDP of the developed market economies as a whole during the 1980s would be expected to grow from 2.7% to 3.1% during the 1990s. In the case of the developing market economies, average 3.3% real growth during the 1980s would be expected to accelerate to 4.5% during the 1990s. Through the stabilization of the price of oil, one may expect an improvement in the real economic growth of the non-oil-producing developing countries, namely an increase of the yearly average growth of 3.3% for the 1980s to 5.5% in the following decade. In the centrally planned economies, one may expect a stable trend, namely an average yearly real growth of 4.4% in the 1980s, and 4.1% in the 1990s. During two decades the real growth rate of the economy of the People's Republic of China may be expected to maintain nearly 6%. Among the developed market economies, the highest rate of economic growth between the years 1985 and 2000 is forecast for Japan (the yearly average being 4.2% between 1985 and 1990 and 4.1% between 1990 and 2000), followed by the United States (3.6% between 1985-1990 and 3.2% between 1990 and 2000), Australia (3.4% between 1985-1990 and 3.1% between 1990-2000), and Canada (3.1% between 1985-1990 and 3.2% between 1990-2000), in descending order of magnitude. It is noteworthy that these countries are all in
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the so-called Pacific Basin Region. Looking at economic growth in the developing countries of the Pacific Basin Region, it appears likely that an average yearly growth of 6.4% (i.e., 2 percentage points higher than the 19852000 yearly average for developing market economics as a whole) may be expected in both the Asian NICs group (Republic of Korea, Taiwan, Hong Kong) and the ASEAN group (Singapore, Indonesia, Malaysia, Philippines, Thailand). The Pacific Basin Region, including the People's Republic of China, may be expected to account for 50% of the world economy as a whole by the year 2000, raising the curtain, so to speak, on an Asian and Pacific Age in the 21st Century. It is quite possible that the vitality of this region can spur revitalization of the w o r d economy as a whole. (3) World inflation, which, with the exception of the centrally planned economies, recorded an average annual rate of 13.7% during the first half of the 1980s, is gradually constricted, amounting to an average of 9.6% during the latter half of the 1980s. It may be expected to show a dampening to an average yearly level of 8.1% during the 1990s. The consumer price index in the developed market economies may be expected to rise somewhat from a yearly average of 3% during the latter half of the 1980s to 5.9% during the 1990s. On the other hand, in the developing market economies, the inflation rate is expected to show a downward tendency, dropping from an average yearly 32.3% during the 1980s to 15.1% during the 1990s. This declining tendency is largely due to the gradual falling off of Latin American inflation, dropping from an average yearly rate of 93% during the first half of the 1980s to 60% during the latter half of the 1980s, and further to 27% during the decade of the 1990s. In East Asia and the ASEAN countries, average yearly inflation during 1985-2000 will most likely be somewhere between 6% and 9%. Among the developed market economies, the greatest stability of consumer prices is forecast for Japan (an average yearly rise of 3.3% between 1985-1990 and of 3.5% between 1990-2000) and West Germany (an avreage yearly rise of 3.0% between 1985-1990 and of 3.2% between 1990-2000). In the United States, the inflation rate will probably rise from a yearly average of 4.5% during the latter half of the 1980s to a yearly average of 5.9% during the 1990s. (4) The ratio of industrial activities to GDP in the developed market economies will fall slightly, from 32.1% in 1985 to 30.8% in 2000. The proportion of the GDP in the developed market economies represented by services will probably rise slightly from 64.0% in 1985 to 66.0% in 2000. Conversely, the industrialization rate in the developing market economies is predicted to rise from 29.8% (of which 18% accounts for manufacturing industries: in 1985 to 35.2% (22.1% for manufacturing in 2000. Although the ratio of manufacturing industry to GDP in the developing market economies will not come to equal by 2000 the developed market economies' corresponding figure of 26.3% in that year, their overall industrialization rate is seen as catching up with and surpassing that of the developed market economies. In the year 2000, the world's highest ratio of manufacturing industry to GDP will be found in the East Asian NICs (47.7%). By 2000, this ratio in the East Asian NICs will have far surpassed the corresponding ratio for Japan, which
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has already peaked at 40.5% in 1985 and is expected to follow a declining course, to stand at about 34.1% in 2000. Though not as spectacular as in the case of the East Asian NICs group, there is also a noteworthy rise in the ratio of manufacturing industry to G D P in the ASEAN group, most likely growing from 20.3% in 1985 to 25.6% in 2000. (5) If we adopt an index of "1" for average real per capita G D P in the developing market economies as a whole (calculated in 1980 U.S. dollars), the developed market economies had a level that was 10.1 times greater in 1980, and will in 2000 have a level that is 11.8 times greater. It should thus be noted that the North-South income gap will tend to increase rather than decrease. The above-defined per capita G D P index in the oil-producing developing market economies will fall from 2.4 (6.5 for those in the Middle East only) in 1980 to 2.0 (5.1 for Middle East countries in 2000. While the index for non-oilproducing developing countries as a group records the same figure (0.7) in 2000 as in 1980, in the case of the Asian NICs the index may be expected to rise from 2.2 (2.1 in the case of the "East Asian NICs" only) in 1980 to 4.6 (4.4 for East Asian NICs) in 2000. Among the developed countries, a rise in the above-defined index is especially noteworthy in Japan, going from 9.8 in 1980 to 14.9 in 2000, within a relatively small margin of equaling the corresponding figure of 15.4 for the United States in the latter year. Looking at real per capita income calculated in 1980 U.S. dollars, the 912 dollar figure for the developing market economies as a whole will increase to 1190 dollars by 2000, while the 9,180 dollar figure for the developed market economies as a whole in 1980 is expected to increase to 14,013 dollars in 2000. In the latter year, 4 countries constitute a group having per capita incomes in excess of $20,000, namely, Switzerland, Norway, Sweden, and West Germany. They are followed by the United States ($18,399), France ($18,295), and Japan ($17,764). OI) The Optimistic
Projection
In the above baseline projection, the North-South income gap will follow an expanding course. What, however, are the results of the optimistic projection (Table 5)which presupposes greater North-South cooperation aimed at additionally encouraging economic development in the developing countries? (1) According to the optimistic projection the oil price will in 1990 be $35 per barrel, or a nominal $3 higher than in the baseline projection. In the year 2000, it will be $54 per batre!i or $5.7 higher than in the baseline projection. It is seen that although the oil price rises, this is in keeping with improved conditions for real growth in the world economy. (2) The average yearly growth rate of the world economy as a whole is 0:8 percentage point above that of the baseline projection for the period 1985~90. It is higherby an average 0.7 percentage point during 1990"95, and also by an average 0.7 percentage point for the entire decade of the 1990s. Thus, the average yearly economic growth rate is increased to 4.4%, 4.4%, and 4.2%, for
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each of these periods, respectively. During the 1980s as a whole, the baseline projection's average yearly growth rate of 3.1% will improve to 3.5%, while the baseline projection figure of 3.5% for the decade of the 1990s as a whole will be upgrade to 4.2%. The average yearly growth rate for the developed market economies as a whole is 3.5% during the latter half of the 1980s and 3.3% for the decade of the 1990s. Although this is during both periods only 0.2 percentage point higher than in the baseline forecast, in the case of the developing market economies (taken as a whole) average annual growth may be expected to be 2.6 percentage points higher than in the baseline projection for the latter half of the 1980s (reaching 6.8%) and 1.9 percentage point higher for the decade of the 1990s (registering 6.4%). Since average yearly economic growth in the developing market economies is estimated at only 2.6% during the first half of the 1980s, even with the optimistic scenario's predicted improvement during the latter half of the decade, average annual growth during the decade as a whole will be only 4.7%, falling short of the 7% goal set for the United Nations Third Development Decade, 198 I - 1990. The yearly average growth of 4.0% in the economies of the oil-producing countries during the 1980s increases to 5.4% during the 1990s, and an average 5.0% growth rate in the non-oil-producing developing countries during the 1980s rises to 6.9% during the subsequent decade. The only countries which may be expected to achieve the 7% yearly goal for the 1980s (as well as for the 1990s are the Asian NICs. With yearly average growth prospects of 7.9% during the 1980s and 7.4% during the 1990s, these are seen as contributing to a revitalization of global economic development. (3) As a result of increased growth rates for the world economy as a whole. the w o r d trade will definitely follow a path of expansion and is seen to be greater than in the baseline forecast by approximately 324 billion nominal dollars in 1990 and greater by approximately 1.285 billion dollars in the year 2000. In real terms (calculated in constant 1975 dollars), this represents an improvement, i.e., expansion in the world trade figures (over the baseline forecast) of approximately 84.4 billion dollars in 1990 and of approximately 358.1 billion dollars in 2000. (4) Although price increasing rates in the world economy as a whole will be somewhat higher than in the case of the baseline projection due to a higher rate of growth in the world economy as a whole together with somewhat higher prices for oil and other primary products, this rise in costs will probably not be so great as some people might imagine since it will be to a considerable extent adsorbed by improvements in productivity that will accompany appropriate currency management. With the exception of the centrally planned economies. the average yearly increase in the wholesale price index for the rest of the world economy as a whole in project, for example, to rise from 8.0% in the baseline projection 1985-90 to 8.8%, and from 7,0% for 1990-2000 to 7.4%. The average yearly growth of the developed market economies (OECD) will grow from 4.2% in the baseline forecast for 1985-90 to 4.6% (i.e., an increase of 0.4 percentage point, and during the 1990s is expected to remain at the same level as in the baseline projection. In the developing countries too. there would not
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seem to be any great danger that global inflation might be rekindled due to the acceleration of global economic growth. (5) Because of the relatively higher growth rate of the economies of the developing countries, it should be noted that in terms of the previously discussed index which assigns the value of ' T ' to the average real per capita GDP of the developing economies as a whole, there is a clear improvement in the North-South income gap compared with the baseline projection. While in the baseline projection there is a tendency for this North-South income gap to widen as we approach the year 2000, the optimistic scenario emphasizing greater international cooperation shows a tendency for a shrinkage in this gap from a ratio of 10.2 to 1 in 1990 to 9.1 to 1 in 2000. Among the developing countries as a whole, the real per capita GDP (in 1980 dollars) is 1,102 dollars in 1990 and 1,597 dollars in 2000, which represents an improvement over the baseline projection of 131 dollars and 406 dollars, respectively. The respective figures for the Asian NICs group are 3,749 dollars in 1990 and 6,759 dollars in 2000. This in effect means that these countries are expected to lead the group of the developing countries and join the developed countries. The average per capita income in the countries in the Pacific Basin Region is predicted to be 7,642 dollars in 1990 and 10,014 dollars in 2000. Japan's per capita income is seen as rising from 12,881 dollars in 1990 to 18,576 dollars in 2000. approximately on a par with the 18.817 dollar figure forecast for the United States. CONCLUSION As seen from the forecasts discussed above, the future perspectives for the w o r d economy in the year 2000 become brighter or darker through human behax~ior and are by no means determined in a fatalistic way. Also, if each courttry should decide on its behavior in the sphere of international cooperation on the basis of this type of global information, the future of the global economy wilt probably improve. On the other hand, if each country should opt for behavior of a type that blindly seeks only its own national !nterest without taking optimum benefit from this type of global information, it is not unlikely that a pessimistic scenario (Table 6) for the world economy could become the future reality. The essential point is that whether or not we can succeed in entering the 2]st century that will be a century of peace and life will depend on whether or not each of our various countries opts for cooperative attitudes and actions.
Tokyo, Japan This article makes projections of the world economy where the North-South interdependence is incorporated through complex internationallinkages for the period 19852000, using a latest version of FUGI global macroecomic model type IV 011-62. Based on two alternative future scenarios--a baseline and on optimistic one--the model forecasts that the real economic growth of the developing countries as a whole in 1985-2000 will likely be around 4%-7% annual rate whereas the developed countries seems likely to sustain around 2.5%-3.5% annual rate of economic growth for the period.
INTRODUCTION The trend toward greater interdependence of the world economy on the global level is progressing, a n d is not limited to the exports a n d imports of goods a n d capital, but has meant a strengthening of international relationships of interdependence also through exchanges of information, culture, a n d individual talents. This in turn has pushed the science of economics to overcome traditional frameworks which encompassed primarily the economy of one or another single country. In a similar way, the appearance of complex a n d interrelated problems such as population, environment, food, resources, energy, development, arms race, displaced persons, etc., has posed problems whose solution is quite impossible within the old frameworks of an economics dealing for the most part with only one country. These facts help explain why, in the 1970s, research was begun on the design of "global economic models." In his own research on globel models, the author has used a "dynamic systems approach," progressing from simple conceptual models to more complex theoretical models, and then to computer models. The "first generation" F U G I global macroeconomic model of the 1970s has now, in the
Address correspondence to Professor Akira Onishi, Director, Center for Global Modeling. Soka University, Hachioji-shi, Tokyo, 192, Japan. This article is based on a study originally prepared for the United Nations. The author is grateful to his global modeling staff members including Kazuo Aoki, Osamu Nakamura, Makoto Sato and Kimihiro Onishi for their helpful cooperation in the computer modeling work. Assistance in computation work made by Hitachi Co. is also greatly acknowledged. Received July 1985; accepted November 1985. Journal of Policy Modeling 8(2):181-198 (1986) © Society for Policy Modeling, 1986
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1980s, developed into a "fourth generation" model. As a result of this process of developing more complex models from simpler models, this "fourth generation" model ~, known as 'Type IV-011-62," classifies the world into 11 sub-blocs and 62 countries or regions. With approximately 13,700 equations and 100,000 software steps, this is one of a handful of global economic models which have won favorable international recognition.
PROJECTION S C E N ~ S
FOR THE W O L D ECONOMY
In our attempts at making projections of the world economy in the year 2000, we hypothesized a baseline scenario and an "optimistic" scenario.
(A) The Baseline Scenario The baseline projection scenario (Table 1) makes the following suppositions: 1. Nominal interest rates in the United States will, through appropriate fiscal and financial policies, drop by 2 to 3 percentage points during the period 1985-1990. During the period 1990-2000, real interest rates in the United States will be for the most part between 3% and 4%. Other major OECD countries will follow the U.S. with lower interest rates. 2. The tendency toward lower inflation which was achieved in the United States in 1984 will continue during the period 1985-1990, thus avoiding a recrudescence of severe inflation. 3. Levels of international trade restrictions in the OECD countries will remain approximately the same as at present. 4. Official development assistance (ODA) will during the period 19852000 remain at almost the same percentages of the donor countries' GNP achieved in 1984. 5. International oil prices slowly rise from the relatively low levels of 1984-85. 6. To alleviate the external obligations of the developing countries, repayment of principal on loans is postponed for 3-5 years, and a grace period is established for new loans, during which time only interest is repaid. 7. From now through the year 2000, the developing countries choose an export-oriented path of development and keep down domestic inflation through appropriate fiscal and financial policies. In particular,
IAt present this model is being used by the United Nations Secretariat in New York for
the forecast simulations of scenarios for international development policy, and is being similarly used by the Japanese Economic Planning Agency, the Japanese Ministry of International Trade and Industry, World Economic Information Service (in Tokyo),the Japan Foreign Trade Association. the Bank of Tokyo,and a number of other private and public organizations.
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The above baseline scenario is constructed upon the hyothesis that although economic policies in both the developed and developing countries are subject to certain changes which have been taking place in the economic environment, the scope for further policy choices does not indicate the likelihood of any dramatic changes. In other words, the parameters for the model's "policy response functions" and "structural behavioral equations" as estimated from past data (up to and including the present) are taken as being nearly unchanging, To give and example, the international oil price is calculated according to the following function: DOT(PEO) = -0.0105 + 0.6447 * DOT(G1FI10)_~ (-0. 1050) (0.8198) +
3.0036, DOT(GDP#I10)_~ + 1.6680, (FERSII10)_I (1.5674) (3.4365)
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Sample: 1972-1984 R 2 = 0.9891; S.E. = 0.097: DW = 2.0418. where, PEO: international oil price index, based on nominal dollars (1975 = 1). GIFI 10: weighted average inflation rate indices (1975 = 1) of a group of 10 developed countries (such as Japan, United States, Belgium, France, West Germany, Italy, Netherland, Sweden, Switzerland, and United Kingdom) with 2/3 of the weight representing consumer price indices and 1/3 representing export price indices. GDP#I10: real GDP index of the group 10 (1975 = 1). FERSIIt0: effective dollar exchange rate index calculated from rates of the group 10 (1975 = 1). PETRO (OECD)/TENERGY(OECD): share of oil in the total energy supplies of the OECD countries. FS01: policy "dummy variable" in reference to the "first oil shock" FS02: policy "dummy variable" in reference to the "second oil shock."
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DOT: Percentage changes. Of course, the baseline projection scenario supposes that there will be no third oil shock. Rather it may be expected that depreciation of the U.S. dollar and continuing shift toward greater use of nonpetroleum energy sources, the real oil price will be stable in the longer term, at lower levels.
(B) The Optimistic Scenario The optimistic scenario (Table 2) is constructed upon the hypothesis that the future course of the world economy can be changed as the result of human wisdom and appropriate policies. This scenario combines seven suppositions, as follows: 1. A coordinated lowering of interest rates among the developed countries. The major O E C D countries make an effort at international coordination of monetary and fiscal policies. More specifically, the United States Federal Reserve first of all lowers the official discount rate by 2 percentage points below the rate that would prevail in the baseline. The U.S. nominal prime rate drops to 7% by 1990 and maintains this level through the year 2000. Following the U.S. example, the other developed countries carry out fiscal and financial policies that likewise make possible the achievement of lower interest rates. 2. Policies aimed at coordinated North-South trade expansion and liberalization. The northern countries increase real imports from the non-oil-producing developing countries by an amount that is 5% per year greater than in the baseline. Also, "South-South" trade is increased, by an amount that is 10% more than in the baseline. 3. Achievement by 1990 of O D A equal to 0.7% of GNP. O E C D / D A C member countries after 1985 gradually increase official development assistance (ODA) to developing countries, and by 1990 achieve the goal of O D A equivalent to 0.7% of their GNP. It is further supposed in this scenario that the increase in O D A from most donor countries is generated through, tax increases. 4. Cooperative policies encouraging North-South and South-South private foreign direct investment. The scenario presupposes North-South and South-South international cooperation for the purpose of encouraging private foreign direct investment in the developing countries. From 1985, the developed countries carry out an expansion of private foreign direct investment in developing countries by an amount equivalent to 0.5% of GDP. At the same time, the developing countries themselves expand private foreign direct investment in one another's economies to an extent whereby this mutual investment represents 1% of their G D P each year. 5. Success in rescheduling foreign debts. It is supposed in this scenario that the short-term debts of the major borrowers among the developing countries are successfully rescheduled in the form of medium- and long-term obligations. More specifically, it is hypothe-
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sized that the average spread in the London interbank offered rate (LIBOR), which is a sort of standard for interest on commercial bank loans to developing countries, will be from 1.0% to 1.25%, while the average term for repayment will be extended to 10-15 years. It is further hypothesized that there will be a grace period of 2-3 years attached to new loans, during which time repayment will begin for interest but not for principal. 6. Strengthening of technology transfers and development of skills in developing countries. For the purpose of raising a part of the funds needed to carry out large-scale technology transfers to the developing countries, we here hypothesize a "global disarmament scenario," characterized by the following points: (a) During 1985-2000, North-South cooperation in developing technology and skills in the developing countries will be carried out so as to raise labor productivity in the developing countries as a whole by 1 percentage point above what it would otherwise be in the baseline. From our current research, it is seen that together with private foreign direct investments by the developed countries in the developing countries, technology transfers to developing countries play a crucial role in raising labor productivity. For reference, an example of an estimated labor productivity function (the ratio of real gross domestic product to civilian employment) is given as follows, for the case of Indonesia: L O G ( G D P P # / C E M P ) = 1.3257 + 0.3371 • L O G (SUMT5(NHI#)/CEMP) (2.5622) (5.7883) + 0.1227 • LOG(SUMT3(ODATC_~/PMS_0/CEMP) (1.4643) + 0.2503 • L O G ( S U M T 5 ( G E D # _ t ) / C E M P )
(5.1046) Sample: 1973-1982 S.E. = 0.014
R 2 =
0.9937
D W = 2.0059
where, G D P P # : Gross domestic product at 1975 prices (in millions of dollars). CEMP: Civilian employment (in thousands of persons) N H I # : Nonhousing investment at 1975 prices (in millions of dollars). ODATC: Technical cooperation (in ODA) received from O E C D / D A C member countries and from international agencies (in millions of nominal dollars). PMS: Dollar-based import price index (1975 = 1). G E D # : Government expenditures on education and health at 1975 prices (in millions of dollars).
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SUMT5: Cumulative values over the past 5-year period. (b) In order to attain the goals outlined in scenario (a), it is necessary to raise both the ratio of "physical capital" to labor and the ratio of '~human capital" to labor. It is supposed that the needed increment in physical capital investments in the productive sector (i.e., agriculture, manufacturing, services, etc.) will be provided through the use of additional private foreign direct investment from the developed countries. Also, it is supposed that improvements in labor productivity will be achieved in part through technical cooperation extended by the developed countries. Increase in the ratio of human capital to labor, as shown in the comparisons of government expenditures on education and health with respect to the labor force, are hypothesized as follows: (i) It is supposed that this ratio will continue to grow in the majority of the developing countries, reaching by the year 2000 the high levels that have already been achieved in a certain number of countries among the developing group. (ii) It is further supposed that in certain countries among the developing group which may already be considered to have achieved a high ratio of human capital to labor, further effort will be made to achieve real increases in expenditures on research and development of the sort seen at present in the major developed countries. It is here worth commenting that in our global model improvements in labor productivity in the developed countries is explained in part by increases in the ratio of R & D expenditures to the labor force. (c) In order to check by simulation analysis the total capital cost fbr realizing this scenario, we made studies of estimating financial resources for carrying out the project here under consideration, as well as studies of possibilities for their realization, taking into account, for example, possible increases in private foreign direct investment, technical cooperation, government expenditures on education and health, and disarmament, etc. Capital costs necessary for these plans were calculated in terms of both current and constant dollars. As a result, it was found that in order to have a yearing improvement by approximately 1 percentage point (compared with the baseline projection) in labor productivity in the developing countries as a group over the period 19852000, an effective combination of government policies would be the following: (i) The developed countries incresae private direct foreign investment in developing countries by an additional amount equivalent to 0.5% of GDP. (ii) The developed countries reduce military expenditures by 10% and apply the equivalent funds to increased technical cooperation with developing countries. (iii) The developing countries reduce military expenditures by 10% and apply the equivalent funds to government expenditures on education and health or, in the case of the NICs, to research and development.
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(7) Global Disarmament Policy. This scenario covers much of the same ground as the "technology transfer" scenario insofar as it is assumed that a considerable part of the funding sources necessary for bringing the technology transfer scenario into reality will come from reductions in military expenditures. In the global disarmament scenario, we hypothesize that beginning in 1985 military expenditures in all countries of the world are frozen at 1984 levels. We also suppose that in the case of nearly all the developed countries (both those with market economies and with centrally planned economies) 50% of the financial resources made available by these reductions in defense expenditures will be transferred to official development assistance (ODA) to the developing countries, while the remaining 50% will be applied to improving the welfare of the people of their own countries (e.g., reducing fiscal deficits or increasing expenditures on R & D). In the case of the developing countries and Asian centrally planned economies, we considered that the financial resources which are released from the burden of national defense expenditures will be used principally for increases in domestic capital formation. We call the above seven scenarios in combination "the optimistic scenario." We applied the techniques of first running simulations on each of the separate constituent scenarios and then, through a process of progressive cancellation of cumulative redundancies, finally making forecast calculations based on the combination of the 7 constituent scenarios. We have also treated a pessimistic scenario (Table 3) based upon the following hypotheses: (a) The official discount rate in the United States is raised by 2 percentage points above the "baseline forecast," with the result that very high interest rates prevail. (b) Success is not achieved in debt rescheduling, with the result that during the coming several years there is a sharp rise in the ratio of developing countries' debt service (repayment of principal and interest) to these developing countries' exports. (However, due to the increase in "country risks," possibilities for new loans will recede, with the result that the above ratio would probably in fact decrease toward the year 2000.) For a considerable time into the future, the major debtor countries will be forced to sharply curtail imports in order to manage their debt service, and will most likely suffer greater impediments to economic growth as a result of decreased investment accompanying the decrease in imports of machinery and other items needed for development. It is also possible that there could for a time be runs on banks and other panic situations delivery from defaults on debts and accompanying international financial crises. (c) The present level of trade protectionism will in the future continue to increase. It is hypothesized that real imports by the developed countries from the developing countries will be reduced by 10% compared with the baseline. (d) Although official development assistance (ODA) might increase in nominal terms, it is supposed that it would decrease as a percentage of the
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GDP of the donor countries. More precisely, it is hypothesized that ODA will be less by 10% compared with the baseline. (e) World trade will show an increased tendency to contract, prices of primary products will not rise by any substantial amount, and the developing countries' terms of trade will continue to worsen. (f) Although the level of South-South trade cooperation might rise somewhat, it would not be of a scale sufficient to cause any substantial change in developing countries' former patterns of growth and trade. However, information about the unusual computations related to the less desirable options is not presented here. Results are available to interested readers upon request.
ANALYSIS OF THE PROJECTION RESULTS Herein is a comparison of the simulation results for two scenarios outlined above.
(A) The Baseline Projection (1) According to the baseline projection (Table 4), oil prices will rise from a nominal $27 per barrel in 1985 to approximately $32 in 1990 and approximately $48 in 2000. The real price of oil may be expected to remain nearly constant when deflated by the OECD countries' weighted average export price indices. (2) The annual average growth rate of the world economy (including the centrally planned economies) is estimated at 3.7% during 1985-1990, 3.7% during 1990-1995, and 3.3% during 1995-2000. This represents an increase in the yearly average for the entire decade of the 1980s from 3.1% to a yearly average of 3.5% for the decade of the 1990s. The annual average real growth rate of GDP of the developed market economies as a whole during the 1980s would be expected to grow from 2.7% to 3.1% during the 1990s. In the case of the developing market economies, average 3.3% real growth during the 1980s would be expected to accelerate to 4.5% during the 1990s. Through the stabilization of the price of oil, one may expect an improvement in the real economic growth of the non-oil-producing developing countries, namely an increase of the yearly average growth of 3.3% for the 1980s to 5.5% in the following decade. In the centrally planned economies, one may expect a stable trend, namely an average yearly real growth of 4.4% in the 1980s, and 4.1% in the 1990s. During two decades the real growth rate of the economy of the People's Republic of China may be expected to maintain nearly 6%. Among the developed market economies, the highest rate of economic growth between the years 1985 and 2000 is forecast for Japan (the yearly average being 4.2% between 1985 and 1990 and 4.1% between 1990 and 2000), followed by the United States (3.6% between 1985-1990 and 3.2% between 1990 and 2000), Australia (3.4% between 1985-1990 and 3.1% between 1990-2000), and Canada (3.1% between 1985-1990 and 3.2% between 1990-2000), in descending order of magnitude. It is noteworthy that these countries are all in
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the so-called Pacific Basin Region. Looking at economic growth in the developing countries of the Pacific Basin Region, it appears likely that an average yearly growth of 6.4% (i.e., 2 percentage points higher than the 19852000 yearly average for developing market economics as a whole) may be expected in both the Asian NICs group (Republic of Korea, Taiwan, Hong Kong) and the ASEAN group (Singapore, Indonesia, Malaysia, Philippines, Thailand). The Pacific Basin Region, including the People's Republic of China, may be expected to account for 50% of the world economy as a whole by the year 2000, raising the curtain, so to speak, on an Asian and Pacific Age in the 21st Century. It is quite possible that the vitality of this region can spur revitalization of the w o r d economy as a whole. (3) World inflation, which, with the exception of the centrally planned economies, recorded an average annual rate of 13.7% during the first half of the 1980s, is gradually constricted, amounting to an average of 9.6% during the latter half of the 1980s. It may be expected to show a dampening to an average yearly level of 8.1% during the 1990s. The consumer price index in the developed market economies may be expected to rise somewhat from a yearly average of 3% during the latter half of the 1980s to 5.9% during the 1990s. On the other hand, in the developing market economies, the inflation rate is expected to show a downward tendency, dropping from an average yearly 32.3% during the 1980s to 15.1% during the 1990s. This declining tendency is largely due to the gradual falling off of Latin American inflation, dropping from an average yearly rate of 93% during the first half of the 1980s to 60% during the latter half of the 1980s, and further to 27% during the decade of the 1990s. In East Asia and the ASEAN countries, average yearly inflation during 1985-2000 will most likely be somewhere between 6% and 9%. Among the developed market economies, the greatest stability of consumer prices is forecast for Japan (an average yearly rise of 3.3% between 1985-1990 and of 3.5% between 1990-2000) and West Germany (an avreage yearly rise of 3.0% between 1985-1990 and of 3.2% between 1990-2000). In the United States, the inflation rate will probably rise from a yearly average of 4.5% during the latter half of the 1980s to a yearly average of 5.9% during the 1990s. (4) The ratio of industrial activities to GDP in the developed market economies will fall slightly, from 32.1% in 1985 to 30.8% in 2000. The proportion of the GDP in the developed market economies represented by services will probably rise slightly from 64.0% in 1985 to 66.0% in 2000. Conversely, the industrialization rate in the developing market economies is predicted to rise from 29.8% (of which 18% accounts for manufacturing industries: in 1985 to 35.2% (22.1% for manufacturing in 2000. Although the ratio of manufacturing industry to GDP in the developing market economies will not come to equal by 2000 the developed market economies' corresponding figure of 26.3% in that year, their overall industrialization rate is seen as catching up with and surpassing that of the developed market economies. In the year 2000, the world's highest ratio of manufacturing industry to GDP will be found in the East Asian NICs (47.7%). By 2000, this ratio in the East Asian NICs will have far surpassed the corresponding ratio for Japan, which
194
A. Onishi
has already peaked at 40.5% in 1985 and is expected to follow a declining course, to stand at about 34.1% in 2000. Though not as spectacular as in the case of the East Asian NICs group, there is also a noteworthy rise in the ratio of manufacturing industry to G D P in the ASEAN group, most likely growing from 20.3% in 1985 to 25.6% in 2000. (5) If we adopt an index of "1" for average real per capita G D P in the developing market economies as a whole (calculated in 1980 U.S. dollars), the developed market economies had a level that was 10.1 times greater in 1980, and will in 2000 have a level that is 11.8 times greater. It should thus be noted that the North-South income gap will tend to increase rather than decrease. The above-defined per capita G D P index in the oil-producing developing market economies will fall from 2.4 (6.5 for those in the Middle East only) in 1980 to 2.0 (5.1 for Middle East countries in 2000. While the index for non-oilproducing developing countries as a group records the same figure (0.7) in 2000 as in 1980, in the case of the Asian NICs the index may be expected to rise from 2.2 (2.1 in the case of the "East Asian NICs" only) in 1980 to 4.6 (4.4 for East Asian NICs) in 2000. Among the developed countries, a rise in the above-defined index is especially noteworthy in Japan, going from 9.8 in 1980 to 14.9 in 2000, within a relatively small margin of equaling the corresponding figure of 15.4 for the United States in the latter year. Looking at real per capita income calculated in 1980 U.S. dollars, the 912 dollar figure for the developing market economies as a whole will increase to 1190 dollars by 2000, while the 9,180 dollar figure for the developed market economies as a whole in 1980 is expected to increase to 14,013 dollars in 2000. In the latter year, 4 countries constitute a group having per capita incomes in excess of $20,000, namely, Switzerland, Norway, Sweden, and West Germany. They are followed by the United States ($18,399), France ($18,295), and Japan ($17,764). OI) The Optimistic
Projection
In the above baseline projection, the North-South income gap will follow an expanding course. What, however, are the results of the optimistic projection (Table 5)which presupposes greater North-South cooperation aimed at additionally encouraging economic development in the developing countries? (1) According to the optimistic projection the oil price will in 1990 be $35 per barrel, or a nominal $3 higher than in the baseline projection. In the year 2000, it will be $54 per batre!i or $5.7 higher than in the baseline projection. It is seen that although the oil price rises, this is in keeping with improved conditions for real growth in the world economy. (2) The average yearly growth rate of the world economy as a whole is 0:8 percentage point above that of the baseline projection for the period 1985~90. It is higherby an average 0.7 percentage point during 1990"95, and also by an average 0.7 percentage point for the entire decade of the 1990s. Thus, the average yearly economic growth rate is increased to 4.4%, 4.4%, and 4.2%, for
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each of these periods, respectively. During the 1980s as a whole, the baseline projection's average yearly growth rate of 3.1% will improve to 3.5%, while the baseline projection figure of 3.5% for the decade of the 1990s as a whole will be upgrade to 4.2%. The average yearly growth rate for the developed market economies as a whole is 3.5% during the latter half of the 1980s and 3.3% for the decade of the 1990s. Although this is during both periods only 0.2 percentage point higher than in the baseline forecast, in the case of the developing market economies (taken as a whole) average annual growth may be expected to be 2.6 percentage points higher than in the baseline projection for the latter half of the 1980s (reaching 6.8%) and 1.9 percentage point higher for the decade of the 1990s (registering 6.4%). Since average yearly economic growth in the developing market economies is estimated at only 2.6% during the first half of the 1980s, even with the optimistic scenario's predicted improvement during the latter half of the decade, average annual growth during the decade as a whole will be only 4.7%, falling short of the 7% goal set for the United Nations Third Development Decade, 198 I - 1990. The yearly average growth of 4.0% in the economies of the oil-producing countries during the 1980s increases to 5.4% during the 1990s, and an average 5.0% growth rate in the non-oil-producing developing countries during the 1980s rises to 6.9% during the subsequent decade. The only countries which may be expected to achieve the 7% yearly goal for the 1980s (as well as for the 1990s are the Asian NICs. With yearly average growth prospects of 7.9% during the 1980s and 7.4% during the 1990s, these are seen as contributing to a revitalization of global economic development. (3) As a result of increased growth rates for the world economy as a whole. the w o r d trade will definitely follow a path of expansion and is seen to be greater than in the baseline forecast by approximately 324 billion nominal dollars in 1990 and greater by approximately 1.285 billion dollars in the year 2000. In real terms (calculated in constant 1975 dollars), this represents an improvement, i.e., expansion in the world trade figures (over the baseline forecast) of approximately 84.4 billion dollars in 1990 and of approximately 358.1 billion dollars in 2000. (4) Although price increasing rates in the world economy as a whole will be somewhat higher than in the case of the baseline projection due to a higher rate of growth in the world economy as a whole together with somewhat higher prices for oil and other primary products, this rise in costs will probably not be so great as some people might imagine since it will be to a considerable extent adsorbed by improvements in productivity that will accompany appropriate currency management. With the exception of the centrally planned economies. the average yearly increase in the wholesale price index for the rest of the world economy as a whole in project, for example, to rise from 8.0% in the baseline projection 1985-90 to 8.8%, and from 7,0% for 1990-2000 to 7.4%. The average yearly growth of the developed market economies (OECD) will grow from 4.2% in the baseline forecast for 1985-90 to 4.6% (i.e., an increase of 0.4 percentage point, and during the 1990s is expected to remain at the same level as in the baseline projection. In the developing countries too. there would not
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198
A. Onishi
seem to be any great danger that global inflation might be rekindled due to the acceleration of global economic growth. (5) Because of the relatively higher growth rate of the economies of the developing countries, it should be noted that in terms of the previously discussed index which assigns the value of ' T ' to the average real per capita GDP of the developing economies as a whole, there is a clear improvement in the North-South income gap compared with the baseline projection. While in the baseline projection there is a tendency for this North-South income gap to widen as we approach the year 2000, the optimistic scenario emphasizing greater international cooperation shows a tendency for a shrinkage in this gap from a ratio of 10.2 to 1 in 1990 to 9.1 to 1 in 2000. Among the developing countries as a whole, the real per capita GDP (in 1980 dollars) is 1,102 dollars in 1990 and 1,597 dollars in 2000, which represents an improvement over the baseline projection of 131 dollars and 406 dollars, respectively. The respective figures for the Asian NICs group are 3,749 dollars in 1990 and 6,759 dollars in 2000. This in effect means that these countries are expected to lead the group of the developing countries and join the developed countries. The average per capita income in the countries in the Pacific Basin Region is predicted to be 7,642 dollars in 1990 and 10,014 dollars in 2000. Japan's per capita income is seen as rising from 12,881 dollars in 1990 to 18,576 dollars in 2000. approximately on a par with the 18.817 dollar figure forecast for the United States. CONCLUSION As seen from the forecasts discussed above, the future perspectives for the w o r d economy in the year 2000 become brighter or darker through human behax~ior and are by no means determined in a fatalistic way. Also, if each courttry should decide on its behavior in the sphere of international cooperation on the basis of this type of global information, the future of the global economy wilt probably improve. On the other hand, if each country should opt for behavior of a type that blindly seeks only its own national !nterest without taking optimum benefit from this type of global information, it is not unlikely that a pessimistic scenario (Table 6) for the world economy could become the future reality. The essential point is that whether or not we can succeed in entering the 2]st century that will be a century of peace and life will depend on whether or not each of our various countries opts for cooperative attitudes and actions.