The Gross Inequalities of Global Imbalances

Terry McKinley and Alex Izurieta write about global economic imbalances in UNDP International Poverty Centre's February one pager.

According to this paper, the US is running a deficit about 3.5 times larger than the deficits of all other OECD countries combined. The average US current account deficit in recent years has been one third higher than the total GDP of sub-Saharan Africa.

Source: UNDP - International Poverty Centre

Current global imbalances not only pose huge dangers; they also cause a grossly inequitable distribution of global resources. Capital is ‘flowing uphill’ to rich countries—overwhelmingly to one rich country, the US.

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The money that many middle-income countries are now investing in the US could make a major contribution to development if it were redirected to poorer countries, or even kept within these middle-income countries. Because more goods and services would become available domestically, the population in such countries would enjoy a higher standard of living.

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Since the US is enjoying the fruits of this inequitable imbalance in resource flows, it has limited motivation to correct it. An impending US economic collapse is probably the main factor that could impel national policymakers into action. An alternative solution, mutually beneficial to all, could be a coordinated effort by both developed and developing countries to stimulate domestic demand in regions other than the US.

This and other crucial issues will be discussed in WBI's Global Senior Policy Seminar on "Capital Flows, Financial Integration and Stability" to be held on April 23-26, Paris France.  For information and registration, please click here.