Capital Will Not Become More Expensive as the World Ages
Aging of populations and convergence between developed and developing countries in per capita incomes are shaping the evolution of saving, investment, capital flows, and, in particular, the cost of capital. When considering these trends, the existi...
| Main Authors: | , , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/07/19899048/capital-not-more-expensive-world-ages http://hdl.handle.net/10986/19385 |
| Summary: | Aging of populations and convergence
between developed and developing countries in per capita
incomes are shaping the evolution of saving, investment,
capital flows, and, in particular, the cost of capital. When
considering these trends, the existing literature argues for
either continued, low interest rates, or sharply rising
ones. This paper presents an alternative view: modest rises
in interest rates, which result from a combination of
increases in the global weight of high-saving developing
economies (limiting declines in global saving), and
decelerations in the rate of growth in developing countries
(constraining upward pressure in global investment). For the
majority of countries, slowing capital demand resulting from
decelerating growth, coupled with structural changes that
influence its attractiveness as a destination for capital,
moderate increases in interest rates. Changes in key
assumptions do not alter this view. More specifically, the
small rise in interest rates persists even in a scenario
where growth in developing countries decelerates more
slowly, or when elasticities governing the behavior of
saving and investment are varied. |
|---|