Lim, Jamus JeromeBussolo, MaurizioMaliszewska, MarylaTimmer, Hans2014-08-152014-08-152014-07https://hdl.handle.net/10986/19385Aging 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.en-USCC BY 3.0 IGOACCELERATORACCESS TO CREDITACCOUNTINGAFFILIATED ORGANIZATIONSAGRICULTURAL SECTORAGRICULTUREBALANCE OF PAYMENTSBENCHMARKBIASESBIDBORROWERBUSINESS INVESTMENTCAPITAL ACCUMULATIONCAPITAL ALLOCATIONCAPITAL FLOWCAPITAL FLOWSCAPITAL FORMATIONCAPITAL INFLOWSCAPITAL MARKETCAPITAL STOCKCAPITAL STOCKSCAPITAL THEORYCHECKSCOMMODITYCOMMUNICATIONS TECHNOLOGYCONSUMER DEMANDCONSUMPTION FUNCTIONCONSUMPTION SMOOTHINGCORPORATE FINANCINGCORRUPTIONCOST OF CAPITALCOUNTRY CAPITALCOUNTRY RISKCREDIT NEEDCROSS-BORDER CAPITALCROSS-BORDER FLOWSCURRENT ACCOUNTCURRENT ACCOUNT BALANCESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNTSDEFICITSDEMAND FOR CAPITALDEMOCRATIC ACCOUNTABILITYDEMOGRAPHICDEMOGRAPHIC CHANGEDEMOGRAPHIC CHANGESDEMOGRAPHIC EFFECTSDEMOGRAPHIC PROFILESDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPING ECONOMIESDEVELOPMENT POLICYDISTRIBUTION OF WEALTHDOMESTIC FINANCIAL MARKETSDOMESTIC INVESTMENTDOMESTIC SAVINGDUMMY VARIABLESECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC MODELSECONOMIC OUTLOOKECONOMIC POLICYECONOMIC STRUCTUREELASTICITYELASTICITY OF SUBSTITUTIONENDOWMENTSEQUATIONSEQUILIBRIUMEXCESS DEMANDEXCHANGE RATEEXCHANGE RATESEXOGENOUS VARIABLESEXPECTED RETURNSFINANCIAL ASSETSFINANCIAL DEVELOPMENTFINANCIAL GLOBALIZATIONFINANCIAL INSTRUMENTSFINANCIAL INTERMEDIATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL PORTFOLIOSFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFINANCING OF INVESTMENTFIXED INVESTMENTFOREIGN ASSETFOREIGN ASSET POSITIONFUTURE RESEARCHGDPGLOBAL CAPITALGLOBAL CAPITAL FLOWSGLOBAL CAPITAL MARKETSGLOBAL ECONOMIC PROSPECTSGLOBAL ECONOMICSGLOBAL ECONOMYGLOBAL INVESTMENTGLOBAL OUTPUTGLOBAL TRADEGLOBALIZATIONGOVERNMENT EXPENDITURESGOVERNMENT SAVINGGROWTH RATEGROWTH RATESHOUSEHOLD SAVINGHOUSEHOLDSINCOMEINCOME GROUPINCOME GROUPSINCOME GROWTHINCOMESINDUSTRIAL COUNTRIESINFLOWS OF CAPITALINSTRUMENTINSURANCEINTEREST RATEINTEREST RATE DIFFERENTIALSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL CAPITAL FLOWSINTERNATIONAL CAPITAL MARKETSINTERNATIONAL INVESTORINTERNATIONAL TRADEINVESTMENT ACTIVITYINVESTMENT BEHAVIORINVESTMENT CLIMATEINVESTMENT FINANCINGINVESTMENT FLOWSINVESTMENT FUNCTIONINVESTMENT FUNCTIONSINVESTMENT GROWTHINVESTMENT NEEDSINVESTMENT OPPORTUNITIESINVESTMENT PATTERNSINVESTMENT PROJECTSINVESTMENT PURPOSESINVESTMENT RATEINVESTMENT RATESINVESTMENT SPENDINGKEYNESIAN ECONOMICSLABOR FORCE PARTICIPATIONLDCSLENDERLIFE CYCLE HYPOTHESISLIQUIDITYLIQUIDITY CONSTRAINTSLOANLOANABLE FUNDSLONG-TERM INTERESTLONG-TERM INTEREST RATESLOW INTEREST RATESMACROECONOMIC MODELSMACROECONOMICSMARGINAL PRODUCTMARKET DISTORTIONSMONETARY FUNDNATIONAL INCOMENATURAL RESOURCENET CAPITALPENSIONPENSION REFORMPENSION REFORMSPER CAPITA INCOMEPER CAPITA INCOMESPERMANENT INCOMEPOLITICAL ECONOMYPORTFOLIOPORTFOLIO ALLOCATIONPORTFOLIOSPOTENTIAL OUTPUTPRICE FLUCTUATIONSPRIVATE INVESTMENTPRIVATE SAVINGPRODUCTION FUNCTIONSPRODUCTIVE CAPITALPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC POLICYRAPID GROWTHRATE OF GROWTHRATE OF RETURNRATE OF RETURN TO CAPITALRATES OF RETURNRATES OF RETURNSREAL GDPREAL GROWTH RATEREAL INTERESTREAL INTEREST RATEREAL INTEREST RATESREAL RATE OF RETURNSAVINGSSOCIAL PROTECTIONSOCIAL SAFETY NETSOCIAL SECURITYTAXTAX POLICYTRADE BALANCESURUGUAY ROUNDUTILITY FUNCTIONWORLD DEVELOPMENT INDICATORSWORLD ECONOMYWORLD TRADEWORLD TRADE ORGANIZATION10.1596/1813-9450-6989