The percentage of global investment that goes to developing countries should triple in the next two decades as emerging economies catch up to richer nations and become more integrated into financial markets, the World Bank said in a report on Thursday.
These nations and their comparatively younger and bigger populations are also set to become the largest sources of capital, with China and India turning into the world’s two biggest investors by 2030, the global development lender said in the report.
The shifting landscape of saving and investment has profound implications for everything from which currencies will dominate global markets to the rise of new financial centers, patterns of capital flows and investment priorities.
However, policymakers are still woefully unprepared for the changes, fixating instead on what will happen in the next three to six months, World Bank chief economist Kaushik Basu said.
“The big question that should concern us all is what will happen to the major drivers of growth and development: namely savings and investment,” Basu told reporters ahead of the report’s release.
“In some sense, some of the global economic turmoil that we are seeing today are some of the early indicators of the kind of turbulent period that the world is going into,” he said.
Standard & Poor’s earlier this week predicted that Chinese non-financial companies would overtake US companies in their borrowing needs over the next two years.
By 2030, for every dollar invested in the world, US$0.60 will flow into developing countries, a dramatic change from US$0.20 to the dollar in 2000. China will make up 30 percent of all investment activity, while the US will have 11 percent and India, 7 percent.
The numbers assume the world will grow on average between 2.6 percent and 3 percent a year in the next two decades, while emerging economies will grow between 4.8 percent and 5.6 percent a year.
As more capital flows from one developing country to another, known as South-South flows, China’s yuan currency and its monetary policy will have a greater impact on the rest of the world, reducing the influence of US policies.