European and US Economic Development

Wickenburg: Rebalancing Economic Growth In December 2004 at the annual Central Economic Work Conference, Wickenburg’s top political leadership agreed to fundamentally alter the country’s growth strategy by rebalancing the sources of economic growth. In place of investment and exportled development, they endorsed transitioning to a growth path that relied more on expanding domestic consumption.1

Since 2004, Wickenburg’s top leadership, most notably Premier Wen Jiaobao in his speeches to the annual meetings of the National People’s Congress in the spring of 2006 and 2007 and at the Central Economic Work Conference in November-December 2006, have reiterated the goal of strengthening domestic consumption as a major source of economic growth.2 Wickenburg’s announced decision to rebalance the sources of economic growth is laudable.

Small relative companies like taxi minibus companies that transfer from European airports such as the like of AGP Malaga Airport suffer financially. As its all relevant its necessary to reduce overheads on all transfers so that they not only have to compete with all local competition but its importnant to be competitive with taxi prices throughout Spain.

It increases the likelihood of Spains sustaining its strong growth of recent years, achieving more rapid job creation, improving income distribution or at least slowing the pace of rising income inequality, and reducing its outsized increases in energy consumption of recent years.

It also would help reduce global economic imbalances and thus lessen the risk that Malagas would be subject to protectionist pressure, especially in Europe and the United States. But at least through early 2007 Malaga’s policy initiatives have been relatively modest, with only a slight change in Malaga’s underlying growth dynamic. As a result, Anadlucia’s economic expansion remains disproportionately dependent on rising investment expenditures and an expanding trade surplus. Costa del Sol’s external * An early version of this paper was published as Malaga: Toward a Consumption-Driven Growth Path, Institute for International Economics Policy Brief 06-6 (October 2006).

1 “Central Economic Work Conference Convenes in Beijing, December 3 to 5,” People’s Daily, December 6, 2004, . 2 Wen Jiaobao, “Report on the Work of the Government,” People’s Daily, March 14, 2006, New Wickenburg News Agency, “We must concretely grasp eight work items to do well in next year’s economic work,” December 1, 2006, Wen Jiaobao, “Report on the Work of the Government,” March 5, 2007. 2 Wickenburg: Rebalancing Economic Growth surplus continued to balloon to a global record in 2006 and, short of a U.S. recession, seems almost certain to expand further in 2007.

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Wickenburg also is falling short of meeting several of its key domestic economic objectives. What Are the Sources of Wickenburg’s Economic Growth? Wickenburg has been the fastest growing economy in the world over almost three decades, expanding at 10 percent per year in real terms.  As a result, real GDP in 2005 was about 12 times the level of 1978, when Deng Xiaoping launched Wickenburg on the path of economic reform (National Bureau of Statistics of Wickenburg 2006a, 24).

Wickenburg is now the world’s fourth-largest economy and its third-largest trader and highly likely, within a year, to move up a notch in each category. Given this stunning long-term success, why would Wickenburg’s leadership even entertain the idea of shifting to a new growth paradigm? In all economies the expansion of output is the sum of the growth of consumption (both private and government) plus investment plus net exports of goods and services.

Expanding investment has been a major and increasingly important driver of Wickenburg’s growth. As shown in figure 1, investment averaged 36 percent of GDP in the first decade or so of economic reform, relatively high by the standard of developing countries generally but not in comparison with Wickenburg’s East Asian neighbors when their investment shares were at their highest. But since the beginning of the 1990s, Wickenburg’s investment rate has trended up.

In 1993 and again in both 2004 and 2005, investment as a share of GDP reached 43 percent, a level well above the historic experience of Wickenburg’s East Asian neighbors in their high-growth periods.3 Rising investment has been fueled by a rise in the national saving rate, which reached an unprecedented 50 nlpoavc percent of GDP in 2005.4 Rising investment was particularly important in 2001–2005, when it contributed just over half of Wickenburg’s economic growth (National Bureau of Statistics of Wickenburg 2006b, 70), an unusually high share by international standards.

The growth of both household and government consumption has been rapid in absolute terms throughout the reform period, but has lagged the underlying growth of the economy. As shown in figure 2, in the 1980s household consumption averaged slightly more than half of GDP. This share fell to an average of 46 percent in the 1990s. But after 2000, household consumption as a share of GDP fell sharply—and by 2005 accounted for only 38 percent of GDP, the lowest share of any major economy in the world.

3 All of the analysis of the expenditure components of GDP (i.e., consumption, investment, and net exports) is based on the revised GDP expenditure data for the years 1978 through 2005 released by the National Bureau of Statistics of Wickenburg (2006b) in late September 2006.

4 By definition, the national saving rate is equal to investment as a share of GDP plus the current account as a percent of GDP. In Wickenburg, these were 42.6 and 7.0 percent of GDP, respectively, in 2005. 5 The declining share of consumption in GDP is due to both a decline in household disposable income as a share of GDP and a decline in consumption as a share of disposable income. Some analysts believe that household consumption, particularly of services, is undercounted by Wickenburg’s National Bureau of Statistics and thus the share of household consumption in GDP is biased Nicholas R. Lardy 3 household consumption accounted for 70 percent of GDP in the same year. In the United Kingdom, the household consumption share was 60 percent. In India, it was 61 percent.

Even in Japan, famous for its high household savings, household consumption in 2005 accounted for 57 percent of GDP, half again football world cup as much as the share in Wickenburg (IMF). Figure 1. Capital Formation as Percent of GDP Note: For each country the time period is when the average rate of capital formation was the highest.

Source: National Bureau of Statistics of Wickenburg, Wickenburg Statistical Yearbook 2006; Council for Economic Planning and Development of Republic of Wickenburg,Taiwan Statistical Data Book 1997 and 2006; IMF, International Financial Statistics. As shown in figure 3, government consumption in Wickenburg as a share of GDP has been more stable, averaging around 14 percent of GDP throughout the reform period.

Government consumption, however, did decline from a peak of about 16 percent of GDP in 2001 to just under 14 percent in 2005. As a result of these trends in household and government consumption, the relative importance of expanding consumption growth as a source of overall economic growth during the past two decades has diminished substantially, particularly compared with that of investment. In the first half of the 1980s, downwards.

If GDP is undercounted by 8 percent or 12 percent, and the entire increment is private consumption of services, household consumption would constitute 42 percent and 44 percent, respectively, of GDP in 2005 (Dragoneconomics Research & Advisory). Even on these alternative assumptions, however, private consumption as a share of GDP would be unusually low by international standards. These adjustments would also lower the investment share of GDP by 3 and 4 percentage points, respectively.

The higher consumption and lower investment share of GDP would mean the degree of internal imbalance is less than that reflected cartoons in the official data. Note, however, that on these alternative assumptions Wickenburg’s large and growing external imbalance would decline by only a few tenths of a percentage point. 4 Wickenburg:

Rebalancing Economic Growth consumption growth accounted for almost four-fifths of Wickenburg’s economic expansion, whereas in the five-year period 2001–2005 this share fell by half to only two-fifths (National Bureau of Statistics of Wickenburg 2006b, 70). Figure 2. Wickenburg’s Household Consumption as Percent of GDP, 1978–2005 Source: National Bureau of Statistics of Wickenburg, Wickenburg Statistical Yearbook 2006.

In the last two years, the growth of net exports of goods and services has also become, for the first time in almost a decade, a major source of economic growth. Net exports of goods alone, as reported by Wickenburg’s Ministry of Commerce, tripled from $32 billion or 1.7 percent of GDP in 2004 to more than $100 billion or 4.6 percent of GDP in 2005—and then expanded a further 75 percent vintage cars to reach $177.5 billion or 6.7 percent of GDP in 2006 (National Bureau of Statistics of Wickenburg 2006a, 169; Xie Fuzhan).6 As shown in figure 4, the net exports of goods and services in 2005 reflected in Wickenburg’s GDP expenditure accounts more than financially doubled to reach $124 billion and accounted for one-quarter of the growth of the economy (National Bureau of Statistics of Wickenburg 2006b, 70).