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Managing Economic Policy in a Multipolar World

Otaviano Canuto's picture

It’s no secret that current account imbalances exist around the world. In many cases, these imbalances may be benign and merely reflect market-driven differences in savings and investment or differences in stages of development. In other cases, persistent global imbalances may be unsustainable and may threaten growth in the long-run. Thus, it’s no surprise that addressing imbalances has been a key focus in recent G-20 discussions. Nor is it surprising that the World Bank and IMF are working with key partners such as the OECD, ILO, WTO, and UNCTAD to provide technical inputs to help coordinate economic policy among the G-20 members.

Despite a brief decline during the global financial crisis, current projections show that imbalances could widen again as the world economy recovers. In the most recent Economic Premise, the World Bank’s research series on good practices and key policy findings, author Zia Qureshi explores the relationship between global imbalances and growth. In his note, “Rebalancing, Growth, and Development in a Multipolar Economy,” Qureshi argues, “In a progressively multipolar world economy, the goals of global growth, rebalancing, and development are increasingly interlinked.” He continues, “Looking ahead, developing countries will likely continue to lead growth in the global economy.”

Indeed, the increasing role of developing countries in fueling global growth is precisely what Marcelo Giugale and I highlight in our recent book, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World. In the near future, we can expect to see a switchover in the drivers of global growth, with developing countries emerging as the new locomotives of growth. To be sure, in 2010, developing countries and emerging markets contributed close to one-half of global growth.

Against this background of global imbalances and the increasing economic power of developing countries, Qureshi highlights key policy recommendations that will ensure a win-win result for rebalancing and development. By investing in infrastructure in developing countries, ensuring consistent capital flows to emerging markets, pursuing financial sector reforms under the Basel III framework, and supporting open trade, policy makers can better manage imbalances and augment development.