Brazil also has a rich endowment of ferrous metal resource reserves. In the case of Japan, its steel intensity is much higher than that of the United States with a lower level of urbanisation, despite the density of its population and its weak resource endowment McKay It is both theoretically and intuitively sound to include urbanisation rates in the empirical test. Yet a quick review of the country-level data highlights the differences between countries in the sample. The estimation results from the model presented above capture the interactive relationship between steel consumption per capita, GDP per capita and their common determinants, as summarised in Table 5.
The first implication of the test is that the KCS does indeed exist. Our estimation of Equation 5. As shown in Table 5.
Index of Countries
Further, the motorisation variable also behaves as expected, with a statistically significant positively signed coefficient estimated for the number of automobiles per people. This corroborates the view that consumer preferences have played an important role in determining steel consumption over time. Generally, the greater the degree of motorisation the higher steel demand per capita is likely to be. The time trend and its square term are significant at the 1 per cent level. So, with the consumer preference and leapfrogging views both validated simultaneously, the synthesis view is upheld Lohani and Tilton and extended, and a new concept, the KCS McKay , has been more rigorously identified.
For simplicity, we do not report the estimation results for Equation 5. The numbers in brackets are standard errors. Second, while these results are a major upgrade and extension of previous work in the field of metal demand, they do not enable us to proceed directly from Equation 5. To cast forward, we must also understand that there are many common factors related to the style of industrialisation driving both IU and GDP per capita. These common factors are well covered by Equations 5.
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Each of these factors can affect income per capita and metal consumption per capita. It is the combination of these factors that generates the apparent KCS. In our estimation results, not only do both investment per capita and urbanisation positively contribute to GDP per capita at the 1 per cent level , they explain the square term of GDP per capita positively related and significant at the 1 per cent level.
The substitution of these stylistic variables back into Equation 5. The data presented above, taken together with the econometric results and a working knowledge of economic history, lead to the conclusion that while a general relationship between development-related macro variables does exist, substantial national variations from the central path are common. This permits many potential degrees of steel demand per capita at a given level of income per capita. While the KCS is a good starting point for the discussion, it is not the end game.
We must also take account of the other factors underlying the macroeconomic dynamics, while factoring in how the institutional framework is most likely to evolve over time. China has defined its own trajectory in these contexts to form a unique economic history.
Its future will also be distinctive.
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Table 5. During the past three decades, investment, resource demand and openness to trade have all expanded at rapid rates. The urbanisation rate has been increasing, but at a slower rate, reflecting the institutional constraints imposed by policy. All these factors will contribute to the future course of income per capita and, combined with technological progress and changing consumption preferences, will determine the path of steel consumption per capita in the period ahead.
To begin, we present a scenario in which current trends persist through the projection period. Using the current growth rates in investment per capita, urbanisation and openness to trade indexes, an admittedly naive baseline , we project the relationship between income per capita and metal intensity for China over time shown in Figure 5. The method used for this projection is not based on the predetermined KCS relationship but on the contributions of our three core development factors related to GDP per capita and steel consumption separately.
Based on a leaping-off point, we assume that all three factors have a constant marginal impact on GDP per capita and steel consumption obtained from our simultaneous regressions. The sum of these products is then used to generate the forward trajectories of the two series: GDP per capita and steel consumption. Chinese GDP per capita grew at a compound rate of 7 per cent between and If the somewhat faster post pace of 7. The central tendency of the projection indicates that peak demand for steel will be in the upper half of a range of — kg per capita at this income per capita level.
This peak level of demand for steel in China will be higher than the one reached by the United States in the s or Europe, Canada and the CIS in the s. It would, however, be lower than those reached by Japan in the s and by Korea and Taiwan at the present time. The usual caveats apply to this projection, which is only as good as the chosen time path of the exogenous variables. The projection illustrated in Figure 5. The contours of the UN scenario are a decelerating rate of GDP per capita growth, a continuing rise in the urbanisation rate and motorisation that decelerates progressively as Chinese levels approach those of high-income economies, a reduced but still high emphasis on secondary industry in overall activity and a peak in steel demand per capita about kg by China and a sustainable future: towards a low carbon economy and society, China Translation and Publishing Corporation, Beijing, Annexes 3.
China has defined its own trajectory in a number of contexts to form a unique economic development path. Its future could also be distinctive if it were to define a path with respect to leapfrogging and consumer preferences that is out of the norm. In determining the likelihood that China will reach the peak level of its steel demand per capita in the time frame predicted by our naive projection, which of the upper or lower confidence intervals presents the most likely direction of error from the central tendency or whether China will or will not follow the path of Korea in terms of its long-term path of steel consumption, we need to leave aside empirics and trust judgment.
It is a legitimate question as our model provides empirical evidence supporting the mutual inclusion of each of these views. If, for example, the consumer preference dynamic operates so strongly that technological leapfrogging is hugely outweighed then there is a high probability that China will either prolong the period before it reaches the peak or it will increase the absolute peak level of steel demand per capita towards the upper confidence interval.
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Either or both possibilities will raise the chance that China might follow the metal intensity path of Korea. On the other hand, if the leapfrogging phenomenon operates so strongly that it cancels out a larger than usual portion of the consumer preference dynamic, this will increase the probability that China could either shorten the period leading up to the turning point of the KCS or reduce the peak level of its steel intensity towards the lower confidence interval.
According to its current level of per capita income, China is still at the mid phase of industrialisation characterised by the relatively high proportion of manufacturing in the total economy and a relatively high share of heavy industries in total industrial output Chenery et al. A key feature of this phase of industrialisation is the pattern of extensive growth in which factor inputs—especially physical capital—play an important role. As a result, metal consumption has been accelerating sharply Figure 5.
China is far from reaching the saturation point of consumption of durable goods, as illustrated by its low automobile penetration ratio, which is just 5 per cent of the US level. That is especially true if one considers the existence of the vast and untapped rural consumer market. This suggests that there is ample room for increasing the consumption of durable goods in China with the associated rise in demand for metals. On this evidence, we can safely assume that the consumer preference dynamic will play a strong role in the coming decades.
On the other hand, looking beyond the immediate horizon, China is now approaching the end of a long period of extensive growth and will be relying more on technological change and productivity to expand economic activity Wang ; He et al.
China is entering a period in which its pattern of growth will be dictated not only by those fundamental forces that have been working in recent decades, but by the strategies that China has been compelled to adopt at this juncture of its development in order to face the challenges of global imbalances, climate change and the ageing society.
Structural changes will be assisted by altered incentives brought about through institutional changes such as financial system reform and the reform of the pricing system for resources and other factors of production Huang and Tao The implementation of these new strategies will accelerate the pace of technological leapfrogging in China, moderating future increases in its metal consumption per capita.
This implies that the imperative for China to pursue resource-saving technological change in the future is greater than that of the individual economies in our historical sample. This short discussion highlights only that the consumer preference and leapfrogging dynamics will both be operating at high intensity in the coming decades in China.
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For now, it is not possible to prioritise one over the other. Finally, we should sound a further cautionary note with respect to the projection. We believe that our confidence intervals are a reasonable approximation of the likely upside and downside risks to the central KCS tendency for China.
Needless to say, if the underlying assumptions that generate the central tendency are over or underestimated, the accuracy of the projection will suffer. This chapter had two aims. The first was to make a contribution to the theoretical field that related economic development to metal usage by constructing a new analytical framework. The outcomes were as follows.
First, a new concept—the Kuznets curve for steel—was formally identified. Second, the synthesis view of IU—that sees a role for both technological leapfrogging and evolving consumer preferences—was validated and updated for the per capita framework we prefer. To accommodate this test, a broader set of data was brought into the discussion than in previous studies, along with a more advanced econometric technique that allowed for the endogeneity of steel demand and income per capita and the heterogeneous nature of individual economic histories.
The eventual accuracy of this projection will depend on a great many factors, chief among them the pace of global technological change and the developing preferences of the Chinese consumer. Bao, Q. Bruinsma, J. Center for International Comparisons n. Chenery, H. Etheridge, W. Garnaut, R. Garnaut and L. Grossman, G.
Haggard, S. He, J. Huang, Y. E, 25 February , Peking University, Beijing. Hwang, K. Kuznets, S. Leontief, W. Lohani, P. McKay, H. Garnaut, L. Song and W. McKibbin, W.