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6. Conclusion

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For a small open economy, such as Australia, international trade is an important determinant of economic growth, so long-term growth projections typically rely on a considered view of the long-term outlook of its trading partners. This paper develops a framework for projecting GDP growth of Australia’s trading partners over the period from 2012 to 2050 that are suitable for that task. The projection framework draws heavily on the existing conditional growth literature, including long-standing estimates of key convergence parameters. It adds to the large amount of research in this area by providing estimates of the long-run relative productivity level for 155 countries. We use a novel non-parametric approach that combines the World Economic Forum ordinal measure of long-run relative productivity (that is, the Global Competitiveness Index) and actual observed productivity to produce a cardinal measure of long-run relative productivity.

Our analysis suggests that the economy of the emerging and developing region is currently larger than the economy of the advanced region. This reflects the rapidly shifting weight of global economic activity to the fast-growing economies of Asia. We project that Asia will become the world’s largest economic region by 2020. Underlying this is the expectation that the combined economies of China and India will become larger than the combined advanced economies by the middle of the 2030s. Furthermore, our analysis predicts the rising global share of Asia will be offset by declining shares for both the advanced and Latin America and Caribbean regional economies. Finally, we expect that four of the five largest economies in the world will be in Asia by 2050 (China, India, Indonesia and Japan).