Bruno S. Otto G. The following is taken from excerpts from the text of the hearing of Manfred Holthus, op.
Peter B. On this see C. Essays in International Finance, No.
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According to Peter B. Kenen, op. Mentioned in John Williamson ed. David Finch, op. Mayer 1 1. This Working Paper examines the nature of the problems to be addressed by financial sector policies in low-income countries.
Markets and governments in agricultural and industrial adjustment Working and discussion papers March Tony Killick. This Working Paper discusses the appropriate balance between market forces and state policy interventions. Exchange rates and structural adaptation Working and discussion papers January Tony Killick. There is, however, a second way of answering the question, for what was normal even in the calm years of the early to mids may not necessarily have been desirable. Since that time, there has been a reappraisal of the case for cross-border finance.
For one thing, some of its theoretical advantages appear to be just that: theoretical.
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In principle, financial globalization allows savers in rich countries to reap high returns in fast-growing emerging market economies, thus easing the rich-country challenge of paying for retirement. Meanwhile, it supplies foreign capital to emerging market economies, allowing them to invest more and thereby catch up faster with the rich world. But in reality, many large emerging markets have grown by mobilizing domestic savings, exporting capital rather than importing it. The textbook case for financial globalization exists mostly in textbooks.
If the upside of financial globalization has been elusive in practice, the downsides have grown more obvious. First, global capital tends to rush into small open economies during good times, aggravating the risk of overinvestment and bubbles; it flees in bad times, exacerbating recession. That has led middle-income nations to experiment with capital controls. Second, cross-border banking involves large, complex, and hard-to-regulate lenders, which poses risks to society that became evident during the bust.
Because of those risks, regulators in the rich world have discouraged banks from foreign adventures, which has added materially to deglobalization. Forbes, Reinhardt, and Wieladek show that, in the case of Britain, regulatory discouragement of foreign lending can be remarkably powerful, accounting for about 30 percent of the attrition in cross-border lending by U.
Now consider the second form of globalization: trade. Here, there is less doubt about the benefit of cross-border activity. The great development success stories of east Asia were built on exports. From Africa to Latin America to south Asia, autarky, in which states prefer self-sufficiency to trade, has fared badly as a formula for poverty reduction.
Although it is true that trade, like technological advances, can skew the distribution of income, the benefits of globalization to the overall economy far outweigh the losses to workers hurt by imports. So the right response to inequality is not protectionism. It is taxing and spending policies that redistribute some of the overall gains to those who are hurt by trade. That this redistribution has so far been inadequate is a failure of politics rather than of globalization.
Because trade is so beneficial, the current backlash against it is damaging. The Doha Round of global trade talks has failed; the Trans-Pacific Partnership faces an uncertain path to ratification; efforts to conclude the Transatlantic Trade and Investment Partnership have stalled.
In the United States, the recent presidential campaign showed how support for trade has withered. Republican presidential candidate Donald Trump promised to impose punitive tariffs on trading partners. Democratic candidate Hillary Clinton abandoned her support for the Trans-Pacific deal.
This backlash mirrors a sharp deceleration in the growth of trade relative to GDP. Between and , global trade grew at about twice the rate of global output; since , it has lagged global growth.
Policy dialogue between multilateral institutions and developing countries
As with financial globalization, this setback has outlasted the immediate aftermath of the Lehman crisis. Measured as a share of global GDP, trade crashed in , then recovered sharply in — But starting in , it drifted sideways and then down see Chart 3.
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And yet, as with finance, this seeming shock to the project of constructive globalization is not as bad as it looks. Some part may even reflect shifts that prove how effectively globalization is working. A good chunk of this decline is a statistical illusion: the dollar was stronger and commodity prices were lower, so the dollar value of trade went down.
This effect alone explains a fifth of the shortfall in trade relative to GDP in Meanwhile, the price of iron ore was down 43 percent, and wheat was down 24 percent. These price adjustments make trade look anemic, but they tell us nothing about the health of globalization. Trade can also be affected when production moves closer to consumers, even when this is not prompted by protectionist impediments to cross-border commerce.
For example, a breakthrough in drilling technology, called fracking, has reduced the U. The maturation of manufacturing supply chains in Asia may be having a similar effect. China used to assemble products such as the iPhone, importing such complex components as semiconductors.