World Energy Outlook 2007

Figure 3.7: Potential Economic Impact from High GDP
Growth in China and India
Type of exports (goods and services)
Predominantly
low-tech
Predominantly
high-tech
Depends on mix of
exports/imports and resource
price effects
Positively affected
Negatively affected in short
term
Possibly negatively affected in
long term
Depends on mix of
exports/imports and resource
price effects
3
Exporter
Natural resource trade
Importer
Simulating the Impact of Faster Growth in China
and India
To determine how the economy in each region may be affected by the rise of
China and India in the future, we made use of a general equilibrium model of
the world economy to simulate the effect of faster growth in those two
countries on the rest of the world. That model was integrated into the IEA
World Energy Model (WEM) – the primary tool for generating global energy
projections in all the scenarios in the Outlook – to capture energy-market effects
and interactions (Box 3.2) The integrated model, WEM-ECO, ensures
internal macroeconomic consistency with energy trends and allows constraints
on the supply of major resources – including energy – to be taken into account
explicitly.
In the Reference Scenario, GDP is assumed to grow by an average of 6% per year
in China and 6.3% in India over the projection period (see Introduction). But
the future rate of GDP growth and the evolution of the structure of the
economies of China and India are inevitably uncertain. This is reflected in the
wide range of projections made by various organisations, and their frequent
revision. Recent projections have often significantly underestimated growth rates.
For example, the IMF’s short- and medium-term projections of China’s and
India’s GDP have been revised upwards significantly over recent years. For China,
the projected growth rate for the year ahead was 7.5% in 2003; the actual rate of
growth in 2004 turned out to be 10.1%. In its 11 th Five-Year Plan, the Chinese
government currently targets 7.5% GDP growth in 2006-2010. Yet China’s
National Bureau of Statistics recently revised the estimated growth rate in 2006
Chapter 3 - International Trade and the World Economy 149