2018. vol. 13. No. 2

There is a significant probability that the world economy is about to stumble into a period of financial dislocation. Exacerbated by political tensions partly as a consequence of an untethered American foreign policy, the unwillingness and/or inability of the major economic powers to confront the imbalances that led to the financial crisis of 2007–8 have laid the basis for a historical repetition. The danger is that the confluence of slow real growth, low productivity increases, inflated asset prices (notably real estate) and higher public debt in some of the major Group of 20 (G20) economies cannot be sustained much longer. The Bank for International Settlements (BIS), among others, has been expressing its concerns that collectively we have been unable to constrain the buildup of financial imbalances, leading to a progressive narrowing of policy options. Not only are debt levels higher but we have unwittingly helped to entrench the concentration and power of large banks, spurred the development of shadow banking, encouraged a massive misallocation of capital and exacerbated income inequality via financial repression and productivity-sapping bailouts to crippled firms, which have the side effect of perpetuating unsustainable asset bubbles. It hardly seems surprising that deglobalization has become a factor in the internal politics of too many countries. It could well be that in retrospect the past 10 years will seem like a lost opportunity to address serious crisis prevention. Despite efforts to strengthen global governance over these past 10 years, the economic foundation has little resilience. 

The Framework for Strong, Sustainable and Balanced Growth was adopted by the Group of 20 (G20) in 2009. It contains a wide range of commitments, including the use of fiscal, monetary and structural policies to support growth of gross domestic product (GDP), ensuring trade and investment openness and reducing global imbalances. The Framework’s target areas evolve according to global economic conjunctures and the priorities of the presidency. This article studies the main outcomes of the G20’s work in 2017 in the context of this evolution, accounting both for the German presidency’s Framework priorities (resilient and inclusive growth) and elements of agendas in recent years (fiscal strategies, growth strategies and the enhanced structural reform agenda — ESRA). The findings indicate that the G20 indeed increased its focus on resilient and inclusive growth after concentrating mostly on growth rates in recent years. This is confirmed by the adoption of resilience principles as well as by an increase in the number of corresponding measures in growth strategies. With respect to previous agendas, G20 members succeeded in reducing fiscal risks, implementing growth strategy commitments and ESRA priorities. Still, estimates by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) show that the G20 is unlikely to reach its goal of increasing collective GDP by 2% by 2018 through growth strategy measures. Another problem is that international organizations (IOs) do not fully capture the positive effects of G20 commitments on growth and inclusiveness. Overall, to reduce risks of a fall in the G20’s credibility, the Argentinian presidency should maintain a focus on resilience and inclusiveness, elaborate a communication strategy for the G20’s successes and intensify collaboration with IOs.

This article considers how the European Union (EU), as the most developed regional organization and as one of the strongest global economic players, deals with the global summitry of club-like entities such as the Group of 20 (G20) and the BRICS grouping of Brazil, Russia, India, China and South Africa. The EU, the G20 and the BRICS share similar ambitions, namely addressing global (or regional) cross-border challenges by increasing cooperation and coordination at the international level.  Even though the EU is a fond supporter of global decision-making bodies, the rise of these informal bodies challenges the EU’s approach to global governance, which relies heavily on effective multilateralism supported by a rules-based approach. Because several of the BRICS and G20 members favour a more relationship-based approach focused on consensus and coordination, these bodies challenge the European approach. While a clear European strategy to deal with informal bodies is thus needed, a coherent and consistent approach is missing.  This is evidenced by the lack of any reference to the BRICS and only a cursory reference to the G20 in the EU’s 2016 global strategy, and by the fact that the EU currently has only bilateral strategic partnerships with most of the G20 and BRICS members. This article argues that, given the particular challenges these bodies pose and their remarkable rise in recent years, a fully fledged EU strategy towards the G20 and the BRICS should be developed.

Trade growth has slowed since the global financial crisis. In 2016, growth in the volume of world tradewas1.9%, down from the 2.8% increase registered in 2015. Imports to developed countries will be moderate in 2017, while demand for imported goods in developing Asian economies could continue to rise. Despite rising imports into Asia, the ratio of trade growth in the world has been lower than the ratio of global economic growth since 2013. Therefore, many countries have tried to create bilateral, multilateral, regional and mega free trade agreements (FTAs) in order to boost their trade volumes and economic growth. East Asian countries try to build regional FTAs and participate in different mega FTAs such as the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). As a result, their economic interests are rather deeply divided and are related to political and security issues in the East Asian context. At the same time, the protectionism led by the Trump administration in the U.S. stands in contrast to the approach taken by East Asian countries. This paper deals with this development and explores why the U.S. has turned from free and open trade toward so-called fair trade based on a policy of “America first.” It also offers an analysis of the reasons for trade imbalances between the U.S. and Northeast Asian countries. Finally, it evaluates how U.S. protectionism will affect mega FTAs as well as East Asian economic cooperation.

The new global agenda, with Agenda 2030 at its core, is ambitious, comprehensive, and universal. The three central goals now are to reignite growth, deliver on the sustainable development goals (SDGs), and meet the ambitions of the Paris climate agreement aimed at mitigating climate change and adapting to its effects. Achieving these goals will require a significant scaling up and reorientation of investments, especially for sustainable infrastructure and human development.Implementing this agenda is urgent, as the world is witnessing the largest wave of urban expansion in history and more infrastructure will come on stream over the next 15 years than the world’s existing stock. This is also the last opportunity to manage remaining significant demographic transitions.

 The capital investments and technological choices made in the coming two decades will lock-in carbonization, urbanization, and demographic trends that will determine the future of humanity and our planet for the rest of the century and beyond.

 The backdrop for achieving these ambitions is challenging. In many countries, investment and productivity growth have decelerated, there is growing inequality and persistent unemployment, fragility and tensions are rising, and the incidence and vulnerability to shocks has grown. At the same time, major opportunities exist to tap the potential of new technologies and the growing capacity of the private sector. Today’s hyper-connected world requires a mix of activities spanning private goods, national public goods, and regional/global public goods to meet the challenges of sustainable development.

 The agenda requires government intervention to reach adequate scale, to take social and environmental sustainability seriously, and to manage spillovers across sectors and borders. It also requires stepped up international cooperation to drive transformative change and mobilize financing on an unprecedented scale.

 With their highly effective capacity to help countries strengthen policy and institutional foundations and to leverage finance, multilateral development banks (MDBs) have a central role to play. They are trying to respond, but human and financial constraints and unclear and expanded mandates from shareholders are holding them back. Clarifying their mandates and addressing the constraints are essential to enable them to scale up and make more effective their support for the new global agenda.

 The unique financial structure of the MDBs allows them to leverage contributions from MDB shareholders and multiply them into financing at low cost. This financial capacity can in turn further crowd-in other sources of finance, especially from the private sector. With better system-wide coordination, MDBs can scale up their impact to deliver for increasingly differentiated clients, but this requires shareholder consensus on, and financial support for, expanded efforts.

 Independent evaluations suggest that each MDB is individually performing well, but the system as a whole is not delivering enough.

This paper suggests ways to improve policy and operational coherence among MDBs and outlines how better shareholder governance could bring this about. It focuses on the need for stepped-up financing of investments in developing countries, but should be viewed in the broader context of managing globalization, especially with regard to trade and financial stability.

The digital economy is growing fast, especially in developing countries.  Yet the meaning and metrics of the digital economy are both limited and divergent.  The aim of this paper is to review what is currently known in order to develop a definition of the digital economy, and an estimate of its size.  The paper argues there are three scopes of relevance.  The core of the digital economy is the ‘digital sector’: the IT/ICT sector producing foundational digital goods and services.  The true ‘digital economy’ – defined as “that part of economic output derived solely or primarily from digital technologies with a business model based on digital goods or services” – consists of the digital sector plus emerging digital and platform services.  The widest scope – use of ICTs in all economic fields – is here referred to as the ‘digitalised economy’.   Following a review of measurement challenges, the paper estimates the digital economy as defined here to make up around 5% of global GDP and 3% of global employment.  Behind this lies significant unevenness: the global North has had the lion’s share of the digital economy to date, but growth rates are fastest in the global South.  Yet potential growth could be much higher: further research to understand more about the barriers to and impacts of the digital economy in developing countries is therefore a priority.

Official development assistance (ODA) has been the standard measure of foreign aid for 45 years, but its creation was largely accidental, and followed no plan.  Its origins lie with efforts by the OECD’s Development Assistance Committee (DAC) in the early 60s to soften and harmonise the terms of aid to developing countries.  The DAC agreed a first Recommendation on aid terms in 1965, but its targets were complex and its quantities not adequately defined.  An underlying difficulty was identifying which loans were soft enough to count as aid and thus be subject to the disciplines.  Among metrics for valuing the concession embodied in loans, the “grant element” methodology proved the most fruitful, and it was used to refine the targets in a 1969 Supplement to the Recommendation.  That Supplement introduced the idea of “official development assistance”, but without defining it.  It was not until the 1972 revision of the Terms Recommendation that ODA was fully defined.  This included setting a minimum grant element for an ODA loan and a single target for the overall “softness” of aid programmes.  Special terms targets were agreed for a new category of Least Developed Countries.  Though not perfect, the 1972 decisions created an integrated and fully specified system for monitoring aid volume and softening aid terms.  The process that produced this result turned on interactions between the OECD and the UN system that helped generate the required innovations in concepts and techniques.  

The Group of 20 (G20) was launched as a leaders’ forum in the midst of the 2008 financial crisis and quickly agreed to undertake coordinated economic stimulus efforts. While those early measures helped stabilize the global economy, the negative impacts of the crisis on employment continued to mount through 2009. The leaders turned their attention to labour market issues; labour and employment ministers met in 2010 and thereafter. However, the G20 and a number of other countries erroneously reversed the stimulus approach beginning in Toronto in 2010, leading to weak recovery, entrenchment of unemployment and stagnation of wages. Labour ministers increasingly advocated more robust labour market policies, but were resisted by finance ministers. The leaders themselves agreed to increasingly strong statements on wages, inequality and social issues but most G20 countries did not implement them. When the political backlash against globalization emerged in 2016 the G20 was seen by many as part of the out-of-touch elite that failed to address the difficulties and economic anxiety suffered by many G20 member households. The G20 should adjust course by implementing, in a coordinated manner, policies that can increase employment and incomes and reverse growing inequality. This paper lays out two practical examples of such policies. The first is a coordinated increase in minimum wages across the G20 to provide direct support to low-wage workers, restart overall wage growth and increase demand. If implemented by the entire G20 this would provide a serious stimulus to global demand, which still remains weak, and avoid competitive undercutting among G20 members. The second is a coordinated increase in financing for programmes to help those who have lost as a result of globalization. Losers often suffer very harsh economic effects and few G20 countries compensate them adequately. A well-advertised, coordinated effort including policies such as these could demonstrate the relevance of the G20 to populations that have benefited little from the group’s efforts to date.

The review covers WTO World trade report 2017 aimed at comparing impact of main drivers of economic growth – trade and technology – on labour market. General labour market trends over the last 25 years are observed. It is shown that both trade and technology have positive effect on labour market however benefits are distributed unevenly and cause polarization. The report argues more profound impact of technological progress on employment structure alongside with less impact on number of jobs, whereas international trade increases significantly number of jobs of different skills and tasks. Because of skill- and routine-biased technical change and trade openness the report appeals to sound labour market government policy of three types to mitigate adverse effects for labour market. 

The review of the IMF Working Paper “The Global FDI Network: Searching for Ultimate Investors” provides a detailed overview of three types of problems identified by the authors when using international institutions’ data on foreign direct investment as a proxy for real economic integration between economies: bilateral asymmetries between inward and outward FDI for most country pairs; FDI overestimation caused by special purpose entities that do not carry out real economic activities; and complexities of determining ultimate investing economies. In addition, the review describes an approach proposed by the IMF experts to construct a global FDI network eliminating these problems, as well as FDI estimates within the network.