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NS4053 Winter Term 2014 Overview: Economic Development and Emerging Economies

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Title: NS4053 Winter Term 2014 Overview: Economic Development and Emerging Economies


1
NS4053 Winter Term 2014 Overview Economic
Development and Emerging Economies
2
Critical Questions I
  • The class will address a number of key questions
    involving the emerging economies
  • What is the meaning of economic development and
    economic growth how do these two concepts
    differ?
  • How have emerging economies and developing
    countries performed economically since the
    min-twentieth century?
  • What are economic institutions, and how do they
    shape problems of underdevelopment and prospects
    for successful development?
  • What are the sources of national economic growth?
    Who benefits from such growth and why? Why do
    some countries make rapid progress toward
    development while many others remain poor?
  • What are the most influential theories of
    development, and are they compatible? Is
    underdevelopment an internally (domestically) or
    externally (internationally) induced phenomenon?

3
Critical Questions II
  • What constraints most hold back accelerated
    growth?
  • What are the causes of extreme poverty, and
  • What policies have been most effective for
    improving
  • The lives of the poorest of the poor?
  • The least effective in this regard?
  • Is rapid population growth
  • Threatening the economic progress of developing
    nations? Or
  • Is it stimulating growth through providing a
    demographic dividend
  • Why is there so much unemployment and
    underemployment in the developing world
  • especially in the cities, and
  • why do people continue to migrate to the cities
    from rural areas even when their chances of
    finding a conventional job are very slim?

4
Critical Questions III
  • Do educational systems in developing countries
    really promote economic development? If not, how
    might they be improved
  • As more than half the people in developing
    countries still reside in rural areas
  • how can agriculture and rural development best be
    promoted?
  • Bottom up rural development?
  • Top down governmental infrastructure programs?
  • Encouragement of foreign agro-businesses?
  • Higher agricultural prices together with adequate
    credit programs?
  • What is meant by environmentally sustainable
    development? Are there serious costs of pursuing
    sustainable development as opposed to simple
    output growth?

5
Critical Questions IV
  • Are free markets and economic privatization the
    answer to development problems, or do governments
    in developing countries still have major roles to
    play in their economies?
  • Is expanded international trade desirable from
    the point of view of the development of poor
    nations?
  • Who gains from trade, and how are the advantages
    distributed among nations?
  • What has been the impact of International
    Monetary Fund (IMF) stabilization programs and
  • World Bank structural adjustment lending on the
    balance of payments and growth prospects of
    heavily indebted less developed countries?

6
Critical Questions V
  • What is the impact of foreign economic aid from
    rich countries?
  • Should developing countries continue to seek such
    aid?
  • If so under what conditions and for what
    purposes?
  • Should developed countries continue to offer such
    aid, and if so, under what conditions and for
    what purposes?
  • For the emerging economies, are there any clear
    combinations of factors that seem to assure
    economic success for countries on the verge of
    rapid growth?

7
Critical Questions VI
  • Suggested topics Jeremy Fischer
  • Economic aspects of US Foreign Policy towards the
    developing world (last 30-40 years and currently)
  • Effects of US-backed neoliberal economic reforms
    on the developing world from an economic
    perspective
  • Contemporary debates among historians,
    economists, political scientists, and
    sociologists over the consequences and merits of
    neoliberal reforms in the developing world
  • Role of international institutions in
    implementing US-backed reforms over the last few
    decades
  • Relationship between economic and value
    frameworks, and their role in conditional
    monetary aid

8
Crisis Has Accelerated Changes in World GDP
9
Decline of the G-8
10
Patterns of Future Pubic Debt
11
Industrial Recovery
12
Current Global Situation I
  • Six years after the 2008-09 crisis, economic
    performance still disappoints, failing to regain
    pre-crisis vitality
  • Emerging economies far from the dynamic miracles
    they once seemed
  • Rich countries still grappling with problems
    exposed by the crisis
  • Return to days of buoyant growth seems far away
  • Level of dissatisfaction summed up at September
    2014 G-20 meeting their summary statement
  • Growth in the global economy is uneven and
    remains below the pace required to adequately
    generate much needed jobs.
  • Worse -- they saw new threats in financial
    markets and deteriorating geopolitics
  • Little unity among the member countries who
    account for 85 of world output

13
Current Global Situation II
14
Current Global Situation III
15
Current Global Situation IV
  • Although the global picture is disappointing
    there are signs of optimism along with
    underperformance
  • The growth surge in the in the UK along side
    economic weakness in France
  • Recent optimism in India together with the
    disappointing performance of Russia and Brazil
    exposing their weaknesses.
  • Across the world recovery can not be easily
    characterized as V-shaped or L-shaped
  • Instead OECD feels there is a growing degree of
    divergence between the major economies
  • U.S. economy appears to be expanding at a
    moderate pace with unemployment falling
  • U.K and Canada are also growing above their
    normal rates of expansion

16
Current Global Situation V
  • Most of the current concern is with the Eurozone.
  • With inflation falling close to zero, demand in
    the region
  • Appears insufficient to bring down an 11.5
    unemployment rate
  • May not prevent bloc from sliding into deflation
  • The loss in economic momentum may
  • Dampen private investment and
  • Heightened geopolitical risks populist
    governments that have a further negative impact
    on business and consumer confidence.
  • In Japan early optimism over Abenomics economic
    policies of the prime-minister is now
  • Tempered with the fear that rising taxes are a
    major drag on growth
  • Facing the need for major, but politically
    unpopular structural reforms resulting in
    questions over whether Japan would continue on
    its path

17
Current Global Situation VI
  • In todays global economy
  • No longer the advanced world that is most
    important for global trends
  • Fully 30 percent of global growth in 2014 will
    occur in China about twice the share of the
    U.S.
  • Clearly the success of Chinas economy is now
    vital for the rest of the world. However there
    are problems.
  • For the medium-term, there is not much evidence
    that the Chinese economy has made much progress
    in its critical rebalancing efforts
  • In the short-term, are fears of a housing crash
    and bank failures
  • Housing prices have dropped 9.3 over the last
    year with
  • Sales registering the deepest contraction since
    2008
  • Moodys estimates that a 10 fall in both
    property transactions and prices would reduce
    growth by 1.5 to 2 bringing it to 5 or 6

18
China Signs of Economic Slowdown
19
Current Global Situation VII
  • At October 2014 Conference, even the IMF showing
    increased pessimism
  • The IMF feels there are many emerging concerns
  • Geopolitical tensions from the Middle East and
    Russia could
  • trigger large spillovers of activity in other
    parts of the world through a renewed bout of
    increased risk aversion in global financial
    markets.
  • The Fund has just downgraded many of their
    forecasts
  • Big question is why countries are struggling to
    sustain decent rates of growth
  • Much has to do with remaining hangover from the
    financial crisis.

20
Current Global Situation VIII
  • Factors continuing to limit the return to growth
    and job creation
  • High levels of public and private debt act as
    constraints on
  • Government fiscal policy and
  • Consumer spending
  • Work to suppress aggregate demand below levels
    needed for steady growth
  • Increased income inequality also tends to reduce
    consumer spending
  • Policy uncertainty in many countries has resulted
    in falling investment rates
  • Slowing world economy makes export-led growth
    more difficult
  • Situation made worse by signs that productivity
    growth is slowing, limiting the potential for
    sustainable growth revival

21
Current Global Situation IX
22
Current Global Situation IX
23
Current Global Situation IX
  • In the emerging economies
  • Growth has slowed from 7 per year before the
    crisis
  • To a forecast of 5 between 2014 and 2018
  • Moreover the decline is not just due to the
    slowdown in China and India
  • Growth rates are now lower than pre-crisis
    average in 70 of emerging economies.
  • The slowdown in emerging economies is due to
  • The prolonged weakness of high income economies,
  • Failure to sustain economic reforms and
  • The exhaustion of policy induced post-crisis
    boosts to domestic demand.

24
Current Global Situation X
  • Policy makers are in a bind in many countries
  • In the Eurozone and Japan they are still trying
    to find ways to stimulate demand
  • In the U.S. and U.K interest rates are about to
    increase, but there is widespread concern that
    any movement back to normal might trigger
    financial turmoil
  • However leaving monetary policy loose will
    encourage excessive borrowing which may create
    bubbles and another financial crash
  • In emerging markets the need is to push forward
    on structural reforms to labor and product
    markets as well as education and social security
    to enable more secure and rapid growth
  • Not easy and mistakes are certain to happen.
  • The economic environment in many parts of the
    world is thus quite fragile with forecasts
    increasingly pessimistic.

25
October 2014 Markets Sending Bad Signals VII
  • Adding it up
  • Markets arent anticipating on a catastrophe yet
  • If they were stock prices would be down more
  • They are betting that central banks and other
    policy makers arent going to be able to control
    global deflationary forces
  • Means world economy could be in for a slow grind
    in which both global growth and inflation both
    stay below normal levels
  • Situation much better than fall of 2008, but much
    worse that it should be six years after a crisis.

26
Implications for the Future
  • The slowdown will mean
  • Weaker growth in world trade
  • Lower commodity prices and
  • The possibility of unexpected losses in the
    financial sector
  • Increasing burdens on debtors
  • With growth in high income economies constrained
    by inadequate domestic demand, a risk of feedback
    effects exist
  • The channels go from
  • slowing emerging economies to
  • high income economies especially the more export
    dependent ones and
  • back again

27
IMF Forecasts October 2014 I
28
IMF Forecasts October 2014 II
29
IMF Forecasts October 2014 III
30
Risks and Concerns
  • IMF October 2014 Message
  • Risks have increased
  • Uneven Fragile growth
  • Risks from protracted low inflation
  • Financial sector excesses
  • Simmering geopolitical tensions
  • Emerging markets slowing
  • Surprises in monetary policy normalization

31
Assessment of Key Risks
  • The current consensus forecasts and scenarios are
    sensitive to a series of possible shocks/adverse
    developments.
  • Adverse developments in one or more areas might
    result in increased instability and/or negative
    linkages leading to lower growth rates
  • Emerging Economies Slowdown
  • Eurozone Crisis -Stagnation
  • China Hard Landing
  • Backlash Against Globalization
  • Asian Tensions
  • Declining Defense Expenditures in the West

32
Key Risk I EM Slowdown I
  • Range of factors will confront the emerging
    economies
  • Weak financing, currency overvaluation or policy
    missteps will likely have major negative impacts
    on many
  • Considerable differentiation in the emerging
    world. For some
  • A policy-induced slowdown after some overheating
    Many Ems tightened monetary policy in 2011
  • A lack of full decoupling from hobbled DMs (EZ)
  • State capitalism is now distorting economic
    activity and leading to a fall in potential
    growth
  • A fallout from the Chinese slowdown China is
    negatively affecting growth across Ems
    (especially in Southeast Asia, Latin America,
    metals exporters
  • The end of the commodities supercycle.

33
Key Risk I EM Slowdown II
  • The end of QE and easy money Will slow, in for
    reverse, trillions in EM capital flows
  • Increasing frequency of large current account
    deficits many financed in ever-riskier ways
  • Rising political risk in many EMs Busy electoral
    cycle in 2014 including Brazil, Turkey and South
    Africa
  • Macro and financial fragilities in some EMs A
    handful of EMs have high and unsustainable debt
    ratios that will require coercive debt
    restructurings, particularly if a sudden stop
    occurs
  • The risk of a middle income trap Many running
    out of easy sources of growth
  • In the case of Asia, exports have failed to
    maintain sustained growth as they did after
    previous economic crises.

34
Key Risk I EM Slowdown III
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