Asia’s Rebalancing and Growth

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.