Author:Alex Izurieta, Terry McKinley
Subject: Global Economic Trends
" /> Abstract: DRESSING GLOBAL IMBALANCES: A DEVELOPMENT-ORIENTED POLICY AGENDA Abstract: This working paper uses a revived ‘world trade and income model’ to examine three markedly different scenarios of the world economy. It presents criticisms of the first scenario, the ‘Consensus Growth Forecast’, which is an optimistic scenario for future global growth utilized by U.S. policymakers and international financial institutions. This forecast assumes that the gross macroeconomic imbalances currently plaguing the world economy will be resolved, in due course, by market forces—without recourse to major policy interventions. The working paper maintains, instead, that a second scenario—namely, a recession in the U.S. economy (precipitated by a drop in unsustainable household spending) and a marked slowdown in global growth—is much more plausible. In order to avoid such an adverse outcome, the working paper examines the feasibility of a third scenario, a ‘Coordinated Growth Scenario’. The paper maintains that this scenario could launch the U.S. economy on a more sustainable economic path, increase growth in other developed countries and enable developing countries to benefit disproportionately, i.e., achieve rapid ‘catch-up’ rates of growth. This third scenario is based on more expansionary macroeconomic policies, increased investment in manufacturing capacities in developing countries, greater trade integration among developing countries and greater reliance on measures to promote energy savings. While the third scenario is both feasible and desirable, it will entail major structural changes and increased policy coordination across countries.

keywords: Globalization, Global imbalances, Development, Macroeconomic policies, Poverty
Date Publication: 07/10/2006 (All day)
Type/Issue: Working Paper / 23
JEL: D31
ISSN: 1812-108X
Language: English