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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

NS4053 Winter Term 2014 Overview Economic
Development and Emerging Economies
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
  • 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?

Critical Questions II
  • What constraints most hold back accelerated
  • What are the causes of extreme poverty, and
  • What policies have been most effective for
  • 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?

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
  • 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?

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
  • 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?

Critical Questions V
  • What is the impact of foreign economic aid from
    rich countries?
  • Should developing countries continue to seek such
  • If so under what conditions and for what
  • 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?

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
  • 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
  • Relationship between economic and value
    frameworks, and their role in conditional
    monetary aid

Crisis Has Accelerated Changes in World GDP
Decline of the G-8
Patterns of Future Pubic Debt
Industrial Recovery
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

Current Global Situation II
Current Global Situation III
Current Global Situation IV
  • Although the global picture is disappointing
    there are signs of optimism along with
  • 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

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

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
  • 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
  • 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

China Signs of Economic Slowdown
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
  • The Fund has just downgraded many of their
  • Big question is why countries are struggling to
    sustain decent rates of growth
  • Much has to do with remaining hangover from the
    financial crisis.

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

Current Global Situation IX
Current Global Situation IX
Current Global Situation IX
  • In the emerging economies
  • Growth has slowed from 7 per year before the
  • 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.

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.

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.

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

IMF Forecasts October 2014 I
IMF Forecasts October 2014 II
IMF Forecasts October 2014 III
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

Assessment of Key Risks
  • The current consensus forecasts and scenarios are
    sensitive to a series of possible shocks/adverse
  • 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

Key Risk I EM Slowdown I
  • Range of factors will confront the emerging
  • 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
  • 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.

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
  • 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
  • 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.

Key Risk I EM Slowdown III
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