Globalization and the shifting balance in the world economy
Global trade trends
Since the Second World War, global merchandise trade has generally grown faster than global income, but the global crisis has left its mark on trade dynamics: Recovery in global trade remains unfinished and uneven, while the trend toward greater trade openness of economies came to a halt. The global crisis and uneven trade recovery have reinforced the ongoing shift in balance in the world economy, featuring the relative decline of developed countries and rise of developing countries. The shifting global balance is also visible in the changing distribution of exports by destination, marked by the rising importance of trade among developing countries. While developing countries as a whole have become the key driving force behind global trade dynamics in the 2000s, performance varies considerably between regions and countries. Commodity price developments since 2002 came along with sizeable changes to terms of trade.
Global capital flows trends
Global capital flows have grown even faster than global trade. While the share of relatively more stable foreign direct investment has increased since the 1990s, private capital flows have proved both highly cyclical and spectacularly fickle over and over again. In many developing countries, financial openness has increased significantly in terms of both capital flows and cross-border holdings, raising countries’ exposure to external financial shocks correspondingly. While widely turning towards defensive macroeconomic policies in response to the emerging market crises of the late 1990s and keeping their own house in order, especially financially integrated developing countries at large were caught up brutally in the global crisis of 2008–2009.
Migrations and migrant's remittances
While far less advanced than trade and financial integration, migration flows and the cultural intermingling of populations too has increased in many countries and regions. Rising migration flows have come along with a marked increase in the role of private remittances. Remittances have become an important source of foreign exchange earnings for many developing and transition economies. Remittances may serve to support various developmental ends. The global crisis had an immediate and sizeable impact on migration flows and migrant remittances.
Policy recommendations
Recent decades saw an acceleration of economic globalization processes that ran well ahead of existing global governance arrangements. The resulting tension, together with an unwarranted faith in the self-regulation of markets, created a hazardous global environment that ultimately ushered in the cataclysmic events of 2008–2009. While the epicentre of the financial meltdown was in the developed world, developing countries, which have increasingly integrated into the global economy, got hit as innocent bystanders as global contagion unfolded. Yet, the crisis also marked an acceleration regarding the secular shift in the balance of the global economy, while the share of developing countries in the global economy increased significantly. The message is clear: Global governance reform needs to catch up with globalization – or risk a backlash. Globalization is at the crossroads: in order to continue in a safe manner, the process needs to be controlled and managed more wisely.