Asia's rebalancing and growth

Abstract

The paper investigates the impact of Asia's demand rebalancing and supply-side productivity changes on long-term economic growth in Asia and worldwide. Results from a panel vector autoregression model show that a productivity-neutral demand rebalancing shock has no permanent effect on Asian output, whereas labor productivity shocks have significant, positive, and permanent effects. Simulations using a global intertemporal multi-sector general equilibrium model suggest that labor productivity shocks increase the foreign GDP over time, but rebalancing shocks have a negative international spillover effect. In addition, labor productivity shocks helps rebalancing. Structural reforms promoting labor productivity growth along with rebalancing policies across Asia can achieve higher economic growth worldwide. Show more