Recent data show that poverty is falling around the world. Today, 43 percent of people are considered to be living in “poverty” (on less than $2 per day), compared to 30 years ago when almost three-fourths of the developing world’s population was doing so.
Macroeconomics and Economic Growth
Imagine a low-income country in the developing world suddenly discovering a large endowment of natural resources within its borders. Perhaps a large oil reserve is found just offshore, or a deposit of valuable natural minerals is uncovered just below the earth’s surface. Surely, such a discovery would be a blessing, as it would expand the country’s total stock of capital.
Trade logistics, or the capacity of countries and companies to ship goods to international markets, is a key ingredient for economic competitiveness, growth, and poverty reduction. Poor logistics performance creates a deadweight loss for producers and consumers alike, and results in a net waste of resources. Improved trade logistics, on the other hand, would give a welcome boost to the economy at a time of fragile recovery from the global recession.
First, the good news: The world has become considerably less poor. Today, 43 percent of people are considered to be living in poverty—that is, living on less than $2 per day—compared to 30 years ago when almost three-fourths of the developing world was doing so. Even more heartening is that extreme poverty—that is, living on less than $1.25 per day to meet the most basic human needs—has declined even more.
One of the most distressing aspects of the frail economic recovery from the global crisis has been lagging job creation. In developed and developing countries alike, millions of people remain unemployed (some 200 million by ILO estimates), and many who still have jobs live in fear of losing them or seeing their incomes and benefits stagnate. Fortunately, the worst may be over in several parts of the world.
Perhaps it is not surprising that trade with emerging economies is often more complicated, time consuming, and costly than one would want. In addition to lacking some of the necessary physical infrastructure to transport goods, emerging economies frequently have complex and opaque regulatory requirements that create additional delays and increase transaction costs at their borders.
In over 70 countries, from financial centers in Malaysia to the Middle East, Islamic finance has been growing rapidly around the world. In fact, Shariah-compliant financial assets have increased from about US$5 billion in the late 1980s to about US$1 trillion in 2010.
In a world in economic turmoil, calls for greater fiscal austerity, leaner social entitlements, and smaller government expenditures are seemingly ubiquitous. From the United States to the Euro Zone, the size and role of government are being questioned. Yet, at the same time, the recent financial crisis has highlighted the importance of the state as a regulator of the financial system.
The state of the global economy is now more troubled than what most pundits had predicted. The great recession of 2007-09 has left permanent scars and the global recovery has lost steam. In the industrialized world, the Eurozone is struggling to save its common currency and avert an even larger debt crisis. Across the Atlantic, although things are looking slightly better, the United States still faces damaged household balance sheets, depressed consumption, and persistent unemployment. In the developing world, the remarkable role that emerging markets have played as alternate engines of global growth is no longer certain. And this is truly worrisome because in the years that followed the recession, developing countries came to the global economy’s partial rescue, helping advanced economies from slipping into an even deeper recession.
In 2010 and 2011, developing countries grew 7.3 and 6 percent respectively, compared to the 3 and 1.6 percent growth of high-income countries, according to the World Bank’s latest Global Economic Prospects. Nevertheless, growth in several major developing countries like Brazil, China and India is significantly slower than earlier in the recovery, mainly reflecting a tightening of monetary policy to combat rising inflationary pressures but also the low-growth path in advanced economies. As a result, developing countries are now expected to grow only 5.4 percent this year.
After the Second World War, advanced economies began an ambitious process toward capital account liberalization, which prioritized the liberalization of trade, the maintenance of fixed exchange rates, and a commitment to current account convertibility.