Read more about the article The Middle-Income Trap

The Middle-Income Trap

The “middle-income trap” has become a broad designation trying to capture the many cases of developing countries that succeeded in evolving from low- to middle-levels of per capita income, but then appeared to stall, losing momentum along the route toward the higher income levels of advanced economies. We need to approach middle-income countries as being in a complex transition phase between accumulation and innovation-based economies. Individual middle-income country experiences of falling into a “trap” may be approached as cases of lack of or failing performance in footing the bill in terms of appropriate policies and institutions.

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Read more about the article Commodity Price Cycles

Commodity Price Cycles

Commodity prices go through extended periods during which prices are well above or below their long-term price trend. The upswing phase in super cycles results from a lag between unexpected, persistent, and upward trends in commodity demand, matched with a typically slow-moving supply. Eventually, as adequate supply becomes available and demand growth slows, the cycle enters a downswing phase. The latest super-cycle of commodity prices, starting in the mid-90s, reaching a peak by the time of the global financial crisis, and getting to the bottom by 2015, can be seen as associated to the developments of globalization that we have already dealt with in this series. More recently, some analysts have spoken that we might be on the verge of a new cycle, super-cycle or not.

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Read more about the article Global current account imbalances

Global current account imbalances

After peaking in 2007 at around 6% of world GDP, global current-account imbalances declined to 3% of world GDP in the last few years. But they have never left entirely the spotlight, albeit acquiring a different configuration from that which marked the trajectory prior to the global financial crisis (GFC). This is not because they threaten global financial stability, but mainly because they reveal asymmetries in adjustment and post-GFC recovery between surplus and deficit economies, and because of the risk of sparking waves of trade protectionism. They also reveal the sub-par performance of the global economy in terms of foregone product and employment, i.e. a post-crisis global economic recovery below its potential.

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Read more about the article Global inequality

Global inequality

The global trend towards increasing globalization since the 1990s seems to have had two different distributional consequences: income inequality between countries has declined, while economic inequality within countries has increased. However, technological progress has made the biggest contribution to rising income inequality over the past two decades. Domestic policies – fiscal policies, social protection - are the locus where inequality is to be tackled.

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Read more about the article China’s economic rebalancing

China’s economic rebalancing

China’s growth trajectory in the second decade of the century has been one of a rebalancing toward a new growth pattern, one in which domestic consumption is to rise relative to investments and exports, while a drive toward consolidating local insertion up the ladder of value added in global value chains also takes place. Services should also keep rising relative to manufacturing. Declining GDP growth rates from two digits in previous decades to 6% in 2019 - and likely lower ahead – would be the counterpart to rising wages and domestic mass-consumption, and to the transition toward higher weights of services and high tech. We point out two major challenges in the rebalancing. First, the transition toward a less investment- and export-dependent growth model has been taking place from a starting point of exceptionally low consumption-to-GDP ratios. Besides high profit-to-wages ratios, low levels of public social protection and spending lead to high household savings. An additional challenge comes from the lack of progress in rebalancing between private- and state-owned enterprises, something that is taking a toll on productivity.

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Read more about the article Trade globalization

Trade globalization

In the 1990s and 2000s, the world manufacturing production to a substantial extent moved from advanced countries to some developing countries. This was the result of the combination of an increase of the labor supply in the global market economy, trade opening, and technological transformations that allowed for fragmentation of production processes. As a result, foreign trade expanded, and world poverty diminished. Such trade globalization process stabilized in the 2010s and tends to be partially reversed by the new wave of technological changes.

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Read more about the article Climbing a High Ladder – Development in the Global Economy

Climbing a High Ladder – Development in the Global Economy

This book approaches the opportunities and challenges faced by developing countries to raise their per capita income levels during the recent phase of globalization. After dealing with the post-global financial crisis economic landscape in advanced economies, it deals with the windows of opportunity opened by trade and financial globalization for developing countries to climb the income ladder. Domestic preconditions for a developing country to benefit from those windows are then pointed out. China, Brazil, and Sub-Saharan Africa are presented as case studies. The book ends with an assessment of the impact of the coronavirus crisis on the global economy.

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Read more about the article Why a Weaker Dollar Might Be Good for Emerging Markets?

Why a Weaker Dollar Might Be Good for Emerging Markets?

There is currently a convergence of views that, gradually or not, US current account deficits and insufficient domestic savings tend to slide down the relative value of the dollar. Four “channels of dollar transmission” explain why there is a negative correlation between the dollar's strength and economic growth of emerging market economies. A dollar depreciation against a wide basket of currencies in 2021 would likely be welcome by emerging economies.

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Read more about the article Quantitative easing in emerging market economies

Quantitative easing in emerging market economies

The pandemic global financial shock has sparked the inclusion of QE as a policy tool also available for central banks of EME. Nonetheless: - QE targets are on the yield structures of interest rates. If there are fragilities leading to high basic, short-term interest rates, QE will not get much in terms of results. - QE should not raise concerns about “fiscal dominance”, because otherwise it will be self-defeating. Capital outflow pressures may exacerbate. - A prolonged stay of central banks as buyers in local currency bond markets may distort market dynamics. A permanent role of the central bank as a market maker, especially in primary markets, will impair the development of the domestic financial market. Consideration should also be given to the effect of asset purchase programs on possible overvaluation of assets, as well as on collateral availability in the banking system and its impact on the policy rate transmission

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Read more about the article Pour Otaviano Canuto, le coronavirus a plongé les pays en développement “en pleine tempête” (inc. English version)

Pour Otaviano Canuto, le coronavirus a plongé les pays en développement “en pleine tempête” (inc. English version)

Le Covid-19 a précipité l’économie mondiale dans un Grand Confinement, pour reprendre l’expression du FMI. En peu de temps, les pays ont été touchés les uns après les autres par la pandémie, chacun d’entre eux étant confronté à un triple choc : épidémiologique, économique et financier. Les explications de Otaviano Canuto, Senior Fellow au Policy Center for the New South, ex-vice-président de Banque mondiale et ex-directeur exécutif au FMI. Covid-19 has submitted the global economy to a Great Lockdown, as the IMF called it. In a short time, country after country has suffered outbreaks of the new coronavirus, with each facing a three-fold shock: epidemiologic, economic, and financial. In addition to dealing with their own local coronavirus outbreaks, emerging market and developing countries have faced additional shocks from abroad. It may be said that a perfect storm has fallen on them.

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Read more about the article Channels of transmission of coronavirus to developing economies from abroad
Photo by Edwin Hooper on Unsplash

Channels of transmission of coronavirus to developing economies from abroad

In a previous article, we highlighted how developing economies have faced simultaneous shocks from their external environment, as pandemic and recession curves have unfolded abroad. In addition to financial shocks, there have been declines in remittances, tourism receipts, and commodity prices . The combination of these shocks with the hardships related to flattening domestic infection curves has configured what we have called a ‘perfect storm’ for developing countries, brought by COVID-19. Recent World Bank and United Nations World Tourism Organization reports have given us a view of how serious these shocks have been. We assess here the falls in remittances, tourism receipts, and commodity prices, particularly in oil markets (with accompanying video at bottom).

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Read more about the article Coronavirus brought a perfect storm to developing countries

Coronavirus brought a perfect storm to developing countries

Coronavirus brought a perfect storm to developing countries - Flattening coronavirus curves of infection and recession will be harder in developing countries - Developing countries have faced foreign capital outflows - A boosted IMF may provide liquidity buffers for developing countries, but debt relief will be necessary to help vulnerable countries manage the coronavirus crisis

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Read more about the article More than one coronavirus curve to manage: infection, recession and external finance

More than one coronavirus curve to manage: infection, recession and external finance

The global reach of COVID-19 is now clear. In a short time, country after country has suffered outbreaks of the new coronavirus, with each facing a three-fold shock: epidemiologic, economic, and financial. In addition to dealing with their own local coronavirus outbreaks, emerging market and developing countries have faced additional shocks from abroad.

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Read more about the article Lost in Transition – Developing Countries in the Global Economy

Lost in Transition – Developing Countries in the Global Economy

The growth and productivity performance of emerging market and developing economies (EMDEs) in the last 10 years failed to repeat the achievements of the previous decade. Besides frustrating expectations that they might become the new growth pole in the global economy, their convergence to per capita incomes of advanced economies has suffered a setback. Nonetheless, the path of policies and reforms to be pursued in that direction remains the same.

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