30  By changing the distribution of income, the global integration of labour markets may also lower global R*. The changes in relative wages in advanced economies have shifted income towards skilled workers, who have a relatively higher propensity to save. Rising incomes in emerging market economies may be reinforcing that effect as saving rates are structurally higher in emerging market economies, reflecting a variety of factors including different social safety regimes. 31  The high mobility of capital across borders means that returns to capital will move closely together across countries, with any marked divergences arbitraged. 32  As a consequence, global factors are the main drivers of domestic long-run real rates at both high and low frequencies (Charts 9 and 10). For example, Bank of England analysis suggests that about 75% of the  29  Lisack, N, Sajedi, R and Thwaites, G, ‘Demographics and the real interest rate’, forthcoming. Although retirees dis-save, they also tend to retain relatively high wealth during their retirement, so as the share of the population in retirement increases the stock of savings will remain elevated even as the flow of savings falls. 31 As Ben Bernanke noted, a ‘savings glut’ from emerging economies developed in the run-up to the crisis (see remarks on ‘The Global saving glut and the US current account deficit’, 10 March 2005).
This is well exemplified by the recent emphasis on the need for regular stress testing to understand the effects of shocks on the solvency of individual banks, the stability of the entire financial system, the broader economy and, more importantly, the feedback effects. The roles of granular statistics and sound stress testing methodologies have become vital. While the recent global financial crisis has necessitated a substantial policy focus to address short-term challenges, policymakers also need to keep sight of the economy’s long-term vision. Continuous structural reforms are needed to strengthen fundamentals and improve economic resilience. This involves measures to remove structural bottlenecks, improve productivity and promote innovation and enhance competitiveness. Formulating such structural policies to improve growth prospects hinges on rigorous empirical research in these areas. For Malaysia, the economy is currently undergoing a transition towards becoming a higher value added economy. This has involved setting clear, time-bound and measurable targets, to allow for the policy approach to be focused. This has depended heavily on the availability of good data and statistics that capture developments across all sectors. It also enables us for the monitoring of the progress and the effectiveness of the policies. It is also now widely recognised that economic growth can only be sustainable if it is inclusive. Growth will only slow as income disparities widen. It is also recognised that financial inclusion is an important contributor towards achieving such a more inclusive economic development.