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 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.

Bibliographic Details

Main Authors:	Bussolo, Maurizio, Lim, Jamus Jerome, Maliszewska, Maryla, Timmer, Hans
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-07
Subjects:	ACCELERATOR, ACCESS TO CREDIT, ACCOUNTING, AFFILIATED ORGANIZATIONS, AGRICULTURAL SECTOR, AGRICULTURE, BALANCE OF PAYMENTS, BENCHMARK, BIASES, BID, BORROWER, BUSINESS INVESTMENT, CAPITAL ACCUMULATION, CAPITAL ALLOCATION, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL INFLOWS, CAPITAL MARKET, CAPITAL STOCK, CAPITAL STOCKS, CAPITAL THEORY, CHECKS, COMMODITY, COMMUNICATIONS TECHNOLOGY, CONSUMER DEMAND, CONSUMPTION FUNCTION, CONSUMPTION SMOOTHING, CORPORATE FINANCING, CORRUPTION, COST OF CAPITAL, COUNTRY CAPITAL, COUNTRY RISK, CREDIT NEED, CROSS-BORDER CAPITAL, CROSS-BORDER FLOWS, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCES, CURRENT ACCOUNT DEFICIT, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNTS, DEFICITS, DEMAND FOR CAPITAL, DEMOCRATIC ACCOUNTABILITY, DEMOGRAPHIC, DEMOGRAPHIC CHANGE, DEMOGRAPHIC CHANGES, DEMOGRAPHIC EFFECTS, DEMOGRAPHIC PROFILES, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPING ECONOMIES, DEVELOPMENT POLICY, DISTRIBUTION OF WEALTH, DOMESTIC FINANCIAL MARKETS, DOMESTIC INVESTMENT, DOMESTIC SAVING, DUMMY VARIABLES, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC MODELS, ECONOMIC OUTLOOK, ECONOMIC POLICY, ECONOMIC STRUCTURE, ELASTICITY, ELASTICITY OF SUBSTITUTION, ENDOWMENTS, EQUATIONS, EQUILIBRIUM, EXCESS DEMAND, EXCHANGE RATE, EXCHANGE RATES, EXOGENOUS VARIABLES, EXPECTED RETURNS, FINANCIAL ASSETS, FINANCIAL DEVELOPMENT, FINANCIAL GLOBALIZATION, FINANCIAL INSTRUMENTS, FINANCIAL INTERMEDIATION, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL OPENNESS, FINANCIAL PORTFOLIOS, FINANCIAL SECTOR, FINANCIAL SECTOR DEVELOPMENT, FINANCING OF INVESTMENT, FIXED INVESTMENT, FOREIGN ASSET, FOREIGN ASSET POSITION, FUTURE RESEARCH, GDP, GLOBAL CAPITAL, GLOBAL CAPITAL FLOWS, GLOBAL CAPITAL MARKETS, GLOBAL ECONOMIC PROSPECTS, GLOBAL ECONOMICS, GLOBAL ECONOMY, GLOBAL INVESTMENT, GLOBAL OUTPUT, GLOBAL TRADE, GLOBALIZATION, GOVERNMENT EXPENDITURES, GOVERNMENT SAVING, GROWTH RATE, GROWTH RATES, HOUSEHOLD SAVING, HOUSEHOLDS, INCOME, INCOME GROUP, INCOME GROUPS, INCOME GROWTH, INCOMES, INDUSTRIAL COUNTRIES, INFLOWS OF CAPITAL, INSTRUMENT, INSURANCE, INTEREST RATE, INTEREST RATE DIFFERENTIALS, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL FLOWS, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL INVESTOR, INTERNATIONAL TRADE, INVESTMENT ACTIVITY, INVESTMENT BEHAVIOR, INVESTMENT CLIMATE, INVESTMENT FINANCING, INVESTMENT FLOWS, INVESTMENT FUNCTION, INVESTMENT FUNCTIONS, INVESTMENT GROWTH, INVESTMENT NEEDS, INVESTMENT OPPORTUNITIES, INVESTMENT PATTERNS, INVESTMENT PROJECTS, INVESTMENT PURPOSES, INVESTMENT RATE, INVESTMENT RATES, INVESTMENT SPENDING, KEYNESIAN ECONOMICS, LABOR FORCE PARTICIPATION, LDCS, LENDER, LIFE CYCLE HYPOTHESIS, LIQUIDITY, LIQUIDITY CONSTRAINTS, LOAN, LOANABLE FUNDS, LONG-TERM INTEREST, LONG-TERM INTEREST RATES, LOW INTEREST RATES, MACROECONOMIC MODELS, MACROECONOMICS, MARGINAL PRODUCT, MARKET DISTORTIONS, MONETARY FUND, NATIONAL INCOME, NATURAL RESOURCE, NET CAPITAL, PENSION, PENSION REFORM, PENSION REFORMS, PER CAPITA INCOME, PER CAPITA INCOMES, PERMANENT INCOME, POLITICAL ECONOMY, PORTFOLIO, PORTFOLIO ALLOCATION, PORTFOLIOS, POTENTIAL OUTPUT, PRICE FLUCTUATIONS, PRIVATE INVESTMENT, PRIVATE SAVING, PRODUCTION FUNCTIONS, PRODUCTIVE CAPITAL, PRODUCTIVITY, PRODUCTIVITY GROWTH, PUBLIC POLICY, RAPID GROWTH, RATE OF GROWTH, RATE OF RETURN, RATE OF RETURN TO CAPITAL, RATES OF RETURN, RATES OF RETURNS, REAL GDP, REAL GROWTH RATE, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, REAL RATE OF RETURN, SAVINGS, SOCIAL PROTECTION, SOCIAL SAFETY NET, SOCIAL SECURITY, TAX, TAX POLICY, TRADE BALANCES, URUGUAY ROUND, UTILITY FUNCTION, WORLD DEVELOPMENT INDICATORS, WORLD ECONOMY, WORLD TRADE, WORLD TRADE ORGANIZATION,
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19899048/capital-not-more-expensive-world-ages http://hdl.handle.net/10986/19385
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