Living in the Shadow of China's Economic Dominance

106 Pages·2011·1.3 MB·English

by  Arvind Subramanian

ECLipSE:
ECLIPSE
Living in the Shadow
Living in the
of China’s Economic Dominance
Shadow of
China’s Economic
Arvind Subramanian
Dominance
P e t e r s o n I n s t i t u t e f o r I n t e r n a t i o n a l E c o n o m i c s
Arvind Subramanian
P e t e r s o n I n s t i t u t e f o r I n t e r n a t i o n a l E c o n o m i c s
Praise for
Eclipse: Living in the Shadow of China’s
Economic Dominance

“Parts of Eclipse read like a wonky version of Rising Sun, Michael
Crichton's 1992 novel of Japanese dominance over the U.S. when
Tokyo was seen as speeding toward number one. But Mr. Subramanian
is a first-class economist who uses his book to discuss provocatively
U.S.-Chinese relations and the nature of economic power.”
—Wall Street Journal

“If you want to understand the true magnitude of the shift in economic
power that is currently changing the world, Eclipse is the book to read--
provocative, well argued and elegantly written.”
—Liaquat Ahamed, Pulitzer Prize winning
author of Lords of Finance

“Defying conventional wisdom, Eclipse not just vividly imagines, but
provides a plausible scenario for, the replacement of the United States
by China as the world's dominant economic power. It persuasively
underlines the need for Washington to get its act together.”
—Francis Fukuyama, Senior Fellow,
Freeman Spogli Institute for International Studies,
Stanford University and author of The End of History
and The Origins of Political Order

“Eclipse is an extremely well written and thought provoking book. It
must be read for a refreshing and deep analysis of what may lie ahead."
—Mohamed El-Erian, Chief Executive, PIMCO
and award winning author of
When Markets Collide

“Eclipse is a fascinating read. Controversial, but meant to be, it has the
potential to set the terms of our ongoing discussion on what is perhaps
the hottest issue in the global economy—China’s role. Its quantification
of power alone will attract considerable interest.”
—Dani Rodrik, Professor of Economics,
Harvard University and author of
The Globalization Paradox
© Peterson Institute for International Economics | www.piie.com
ECLIPSE
Living in the Shadow
of China’s Economic Dominance
Arvind Subramanian
P e t e r s o n I n s t i t u t e f o r I n t e r n a t i o n a l E c o n o m i c s
W a s h i n g t o n , D C
S e p t e m b e r 2 0 1 1
i
fpo
© Peterson Institute for International Economics | www.piie.com
ECLIPSE
Living in the Shadow
of China’s Economic Dominance
Arvind Subramanian
P e t e r s o n I n s t i t u t e f o r I n t e r n a t i o n a l E c o n o m i c s
W a s h i n g t o n , D C
S e p t e m b e r 2 0 1 1
fpo
© Peterson Institute for International Economics | www.piie.com
ECLIPSE
Living in the Shadow
of China’s Economic Dominance
Arvind Subramanian
P e t e r s o n I n s t i t u t e f o r I n t e r n a t i o n a l E c o n o m i c s
W a s h i n g t o n , D C
S e p t e m b e r 2 0 1 1
fpo
© Peterson Institute for International Economics | www.piie.com
Arvind Subramanian is senior fellow Copyright © 2011 by the Peter G. Peterson
jointly at the Peterson Institute for Institute for International Economics. All
International Economics and the Center rights reserved. No part of this book may
for Global Development. He was assistant be reproduced or utilized in any form or
director in the Research Department of by any means, electronic or mechanical,
the International Monetary Fund. He including photocopying, recording, or by
served at the GATT (1988–92) during the information storage or retrieval system,
Uruguay Round of trade negotiations and without permission from the Institute.
taught at Harvard University’s Kennedy
School of Government (1999–2000) and For reprints/permission to photocopy
at Johns Hopkins University’s School for please contact the APS customer service
Advanced International Studies (2008–10). department at Copyright Clearance
He advises the Indian government in Center, Inc., 222 Rosewood Drive,
different capacities, including as a member Danvers, MA 01923; or email requests to:
of the Finance Minister’s Expert Group
To
Parul
Mrigaya (Tia), Kartikeya, and Rohan
© Peterson Institute for International Economics | www.piie.com
© Peterson Institute for International Economics | www.piie.com
Contents
Preface xiii
Acknowledgments xvii
Introduction 1
1 A Brief History of Economic Dominance 13
Systemic Manifestations of US Economic Dominance 16
Defining Dominance and Power 25
2 Quantification and Validation of Economic Dominance 27
Identifying the Potential Attributes of Economic Dominance 29
Occam Razorization: Narrowing the List 36
Measuring the Three Determinants 39
Validating Economic Dominance 42
Weighting and Constructing the Index of Economic Dominance 44
Results: Economic Dominance in the Past 46
3 Quantifying Currency Dominance 51
Definition 53
Benefits and Costs to the Country Issuing the Reserve Currency 54
Short History 57
What Determines Reserve Currency Status? 60
Appendix 3A A Regression Analysis of Reserve Currency Status 63
vii
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4 F o r c e s D r i v i n g D o m i n a n c e : C o n v e r g e n6c9e a n d G r a v i t y
C o n v e r g e n c e o f t h e P r e v i o u s l y P o o r 7 0
C o n v e r g e n c e o f t h e P o p u l o u s , P r e v i o u s l y P o o r7 6
P r o j e c t i n g N u m b e r s : B a c k g r o u n d A n a l y t i c s 7 8
R e s u l t s 8 1
C a v e a t 9 0
B a c k t o H i s t o r y : E c o n o m i c s C a t c h e s U p w i t h 9D2e m o g r a p h i c s
C o n c l u s i o n 9 4
A p p e n d i x P4 rAo j e c t i n g G D P G r o w t h B a s e d o n P u r c h a s i n g
P o w ePra r i t y a n d M a r k e t E x c h a n g e R a9t5e s
A p p e n d i x T4 rBa d e P r o j e c t i o n s B a s e d o n t h e G r a 9v i7t y M o d e l
5 P r o j e c t i n g E c o n o m i c a n d C u r r e n c y D o9m9 i n a n c e
E c o n o m i c D o m i n a n c e i n t h e F u t u r e 1 0 0
T h e F u t u r e o f t h e D o l l a r a n d t h e R e n m i n b i 1 0 6
T h e R e n m i n b i W h e n t h e C h i p s A r e D o w n 1 1 4
C o n c l u s i o n 1 1 4
A p p e n d i x R5 Ao b u s t n e s s o f t h e I n d e x o f E c o n o m1i1c 7 D o m i n a n c e
6 A H i s t o r i c a l P e r s p e c t i v e o n C h i n a ’ s D i s t i n c t i v e
D o m i n a n c e 1 1 9
P r e c o c i o u s o r P r e m a t u r e : C a n a N o t - t h e - R i c h e s t C h i n a
B e D o m i n a n t ? 1 1 9
C h i n a ’ s T r a d e a n d O p e n n e s s O u t c o m e s i n H i s t o r i c a l P o w e r
P e r s p e c t i v e 1 2 1
C h i n e s e M e r c a n t i l i s m i n H i s t o r i c a l P e r s p e c t i1v2e4
7 G u a r d i n g A g a i n s t R a s h P r o p h e s y i n g 1 3 5
C h i n a ’ s G r o w t h : R e p e a t i n g M i s t a k e s ? 1 3 8
L o o k i n g B a c k 1 3 9
R e a l i s m o f T r a d e P r o j e c t i o n s 1 4 4
C o n c l u s i o n 1 4 6
8 E c o n o m i c C o o p e r a t i o n w i t h a R i s i n g1 C4 h9 i n a
H o w M a n y C o u n t r y G r o u p i n g s A r e T h e r e i n 2 0 1 1 ?
H i s t o r i c a l P a r a l l e l s 1 4 9
P r o s p e c t s f o r C o o p e r a t i o n L e a d i n g U p t o C h 1i n5e4s e H e g e m o n y
9 C h i n a a s t h e N e w R a i s o n d ’ Ê t r e f o r R e v i v i n g
M u l t i l a t e r a l i s m 1 6 9
L i m i t s t o t h e E f f i c a c y o f T r a d e R e c i p r o c i t y w i t h a
D o m i n a n t C h i n a 1 7 1
A l t e r n a t i v e A p p r o a c h e s : P r o m i s c u o u s a n d H o1s7t 5i l e B i l a t e r a l i s m
A s i a n - C e n t e r e d R e g i o n a l i s m a s a M e d i u m 1 7 7
I m p e d i m e n t s t o R e v i v e d M u l t i l a t e r a l i s m 1 7 8
viii
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