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 labour productivity shocks have significant, positive and permanent effects. Simulations using a global intertemporal multisector general equilibrium model suggest that labour productivity shocks increase the foreign GDP over time, but rebalancing shocks have a negative international spillover effect. In addition, labour productivity shocks help in rebalancing. Structural reforms promoting labour productivity growth along with rebalancing policies across Asia can achieve higher economic growth worldwide.