Tectonic Shifts in the Global Economy

The Power of Emerging Markets

By
Spices at Bazaar Road, Fort Kochi
Tectonic Shifts in the Global Economy : The Power of Emerging Markets - ÇİĞDEM AKIN

Abstract

In the last two decades, emerging markets have become important global economic players. This paper evaluates the implications of the structural economic changes and increased participation of emerging markets in the global trade and the financial system for growth dynamics and economic interactions of the world economy. Furthermore, the effects of the current crises and the role of the emerging markets in the global economic recovery are analyzed in conjunction with the areas of multilateral policy coordination that have to be fostered to manage an increasingly multi-polar world economy. The article concludes with a discussion of the reforms necessary to sustain the growth performance of the emerging markets in the future.

The Rise of Emerging Markets

The industrialized economies of the North, specifically the United States, Western Europe, and Japan, shaped the economic history of the 20th century. In the new millennium, the emerging market economies (EMEs) in developing parts of the world are starting to make their presence felt on the world stage thanks to the demographic, economic, social, political, and technological changes in their economies.

The EMEs in this study are primarily composed of 23 middle and upper-middle income developing countries, namely Argentina, Brazil, Chile, China, Colombia, Egypt, Hong Kong, India, Indonesia, Israel, Jordan, Korean Republic, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Singapore, South Africa, Thailand, Turkey, and Venezuela. The Eastern and Central European economies such as Hungary, Poland, Romania, Russia, and most recently Latvia and Estonia are also included in the list of emerging markets.Most prominent among these are Brazil, India, Russia and China, collectively referred to as the BRIC, which have been growing at an extraordinarily rapid pace as they become more integrated into the global economy. The remainder of the developing countries in the “South” continues to be characterized by poor economies with low levels of industrialization, commodity export dependence, and limited degrees of integration into the world markets.

The ascent of EMEs is best reflected in the distribution of total world gross domestic product (GDP) using purchasing power parity (PPP) exchange rates. In the Bretton Woods era (1960-1972), advanced economies constituted 80 percent of world production, with the U.S.A. leading at 33 percent. The globalization era started with the 1986 Uruguay Round negotiations on multilateral trade and financial liberalization. During this period from 1986 to 2009, the GDP share of advanced economies dropped to 66 percent in total, with the U.S.A. declining to 26 percent. At the same time, EMEs increased their share from 17 percent to 31 percent. Following the recent financial crisis in 2008-09, advanced economies dipped further, accounting for just 57 percent of the GDP share, while the EMEs augmented their share to 39 percent. Other developing economies did not experience such dynamism, accounting for only 3-4 percent of world GDP between 1960 and 2009. 2  

This remarkable rise was driven by extremely high growth rates in the EMEs. Their contribution to world growth collectively reached around 40 percent during the period of globalization. This changing growth distribution is due primarily to the rise of China, India, and Brazil. Between 2008 and 2009, their GDP alone made up 23 percent of world GDP, which was slightly less than the United States, and greater than the original 15 European Union countries. In the last two decades, China has grown at a rate of 10 percent annually. According to an IMF Report from April 2011, China's GDP, which was 3.3 trillion USD in 2009, is expected to surpass the GDP of the U.S. by 2016. The projections indicate that, collectively, emerging markets are expected to account for more than 60 percent of the global GDP in PPP exchange rates by 2025.3

Understanding the Growth Dynamics in Emerging Markets

Structural Change in the Economy

A large contributor to the rapidly increasing growth of the EMEs has been structural economic change. In the traditional North-South paradigm, developing economies have been characterized by an abundance of inexpensive labor and large agricultural sectors that supply commodities and raw materials to the manufacturing industries of advanced economies. This pattern has undergone a significant transformation. As a result of the export-driven industrialization policies of the EMEs, production has diversified from mostly primary commodities towards industry and services. From 1960 to 1972, agriculture in the EMEs made up 22 percent of GDP. Between 1986 and 2008, this figure dropped to 12 percent, with the share of industry growing from 28 percent to 34 percent and services from 50 percent to 54 percent.4EMEs are now producing a range of higher value-added and human capital-intensive products such as petro-chemicals, machinery, automobiles, electronics, and information technologies.  Diversification of production also had the added benefit of minimizing trade shocks coming from the outside world across different sectors, thus making their economies more resilient.

Global Trade Linkages

The success of EMEs is often attributed to their rapid and extensive trade liberalization and integration into the world economy. During the 1986-2009 period, the trade openness ratio increased from 28 percent to 78 percent of their GDP due to aggressive industrialization policies based on export driven growth strategies. In fact, during this time EMEs provided the lion's share of growth for global exports. These changes have subsequently affected global trade flows. Although the dominant share of world trade continues to be destined towards the advanced economies, the EMEs have seen an increase in world trade flows during globalization, from 14 percent in 1985 to 27 percent in 2008.5

The development of transnational production networks by multinational companies has further helped expand intra-industry trade between the EMEs and advanced economies. Furthermore, the share of intra-group trade as the total trade of EMEs has increased from 9 percent in 1960 to 35 percent in 2005. Free trade agreements among EMEs have played a role in these trends. Concomitantly, the share of trade between the EMEs and other developing countries increased from 6 percent in 1960 to 25 percent in 2005.  Envisioning the future, the “South-South” trade interdependency is expected to increase. For example, Brazil, rich in natural resources, raw materials, and agricultural products such as petroleum, iron ore, and soy, exports precisely the materials China demands for its own manufacturing exports.6

Global Financial Integration

Although advanced economies have been the major source of financial integration since 1986, EMEs have developed greater financial linkages with both the North and other EMEs. Before globalization, the South in general had a unidirectional dependence on Northern capital markets because of the dominance of debt flows to the developing countries. The globalization period has marked a multifaceted interdependence between the EMEs and advanced economies because of the rising prominence of foreign direct investment (FDI) and portfolio equity flows. FDI flows have contributed to the productive capacity, technology, and skill spillovers in host countries while portfolio equity flows have helped deepen financial markets. Reduction in debt liabilities contributed to macroeconomic stability in EMEs. Pro-cyclical debt flows and interest payments indexed to business cycles provided fewer opportunities for risk sharing and were prone to sudden stops when external financial conditions changed in earlier decades.

South-South financial linkages have also intensified during the globalization period. For example, China's outward FDI reached 72 billion USD in 2009. Chinese investments in Africa are particularly notable and have been concentrated in areas such as manufacturing, resource extraction, construction, and services.7 Multinational companies from EMEs like TATA group from India, or the Brazilian aircraft manufacturer EMBRAER, have successfully increased their international investments by gaining competitiveness vis-à-vis advanced economies. In addition, official international reserves also make up a substantial amount of the foreign assets of the EMEs, a trend that is particularly evident in Asia. Many of these reserves have been invested worldwide as sovereign wealth funds in foreign equity and bond markets, companies, and infrastructure projects. In addition, sovereign wealth funds have been used strategically by governments to increase the political and economic ties between countries, promoting technology transfer and FDI to accelerate industrialization in the EMEs.8

The Changing Nature of Economic Interdependency

The aforementioned changes in the world economy have drastically altered the trends of interdependency and synchronization between advanced economies and the EMEs. The business cycles of the North have historically determined the business cycles of developing economies through demand for exports and the flow of capital. Changes during the globalization period, however, have brought the asymmetric nature of that relationship into question.  Akın and Kose (2008) showed that during the globalization period, Northern economies have continued to define global economic conditions. However, there has been a decrease in the association between the economic cycles of advanced countries and the EMEs, while the strength of spillovers of GDP growth rates within the group of advanced countries and the EMEs has increased. For other developing countries, the growth spillover effects of the North have not changed significantly. 9

These stylized facts in growth spillovers can be explained by the following reasons:

First, there have been few large common shocks since the oil crisis of the 1970s and the hikes in world interest rates following the disinflationary monetary policies of advanced countries in the early 1980s. Subsequently, the importance of global shocks in explaining the international business cycles started to decline.

Second, since the mid-1980s, economic integration through financial and trade linkages within advanced countries and EMEs has increased. Combined with rising sectoral similarity, the business cycles within groups have converged, while inter-group ties have weakened as economies have begun to resemble those within their own group and have thus been affected less by common shocks. Researchers have also found that intra-group correlations of aggregate and sectoral output have been rising among EMEs and among advanced economies, whereas cross-group correlations between the two have been dropping. This has led many economists to conclude that the EMEs are in fact decoupling from the North, meaning their business cycles are no longer as linked to, and thus dependent on those of the advanced economies.10

The Performance of Emerging Markets during the Global Financial Crisis

The increasing interdependency between EMEs and decoupling from the advanced economies have undermined the old paradigm that when the advanced economies “sneeze”, the EMEs “catch a cold.” This new reality can best be seen in the performance of the EMEs during the recent global financial crisis of 2008-09. The economic activity in the EMEs was hit by the global recession because of the spillover effects from trade and financial integration. However, consistent with the decoupling hypothesis, as a group they have weathered the crisis better than the advanced economies and experienced the quickest and strongest recovery in growth rates. Although this resilience suggests that they were capable of revitalizing their economies better than the advanced countries, there was still substantial heterogeneity in the degree to which EMEs were affected.

Emerging markets in Asia performed the best during the crisis, with China and India leading the way. Excluding India, China, and Hong Kong, the rest performed less impressively due to their heavy dependence on export demand from advanced economies. Latin America also did relatively well in recovering from the crisis, although Mexico was heavily hit by the export collapse to the United States. The rest of the region, despite an initial contraction in economic growth, rebounded strongly, thanks to the Brazilian economy that led the recovery. Regions such as Africa and the Middle East also weathered the recession with minimal growth declines, probably due to their relatively modest exposure to trade and financial flows from advanced economies, which thus limited the extent of spillovers from the global shock. On the other hand, Eastern European economies experienced the harshest downturns in total output as a consequence of their tight financial and trade linkages with the Eurozone.11

The overall resilience of the EMEs can be attributed to several factors: First, greater trade linkages and increasing interdependence among EMEs enhanced their ability to withstand the recent financial crisis and were key factors that explained their quick rebound.12 The speedy recovery in EMEs was greatly encouraged by increased industrialization, diversification in production, and the rising demand from the middle class, which increased the size and absorptive capacity of domestic markets. These factors have made the EMEs less reliant upon the advanced economies. 

Second, the EMEs finally reaped the fruits of prudent macroeconomic policies that were implemented following the sovereign debt defaults, balance of payments crises, and currency devaluations of the 1990s. In particular, the central banks of the EMEs used their current account surpluses and high savings rates to accumulate foreign exchange reserves as a form of precautionary savings.13 As a ratio of GDP, such accumulation has been particularly rapid in China, Korea, India, Malaysia, Russia, Taiwan, and oil-exporting Middle Eastern economies. Thanks to the achievements in the macroeconomic discipline, EMEs like China, India, and Brazil could use aggressive countercyclical fiscal policy responses to withstand the shocks and downturns in the recent crisis, without the fear of deteriorating their fiscal positions or jeopardizing their debt service obligations. Similarly, they were able to relax their monetary policy and expand credit with lower interest rates to stimulate investment without the risk of inflation.

Third, policies that were designed to deepen capital markets, tighten financial sector regulation, and place limits on foreign bank financing relatively insulated domestic financial systems and prepared EMEs to better endure the shocks from the global capital markets. For example, EMEs in Asia continued to enjoy FDI and portfolio inflows because they were less exposed to the troubled segments of financial markets such as foreign currency denominated external debt and credit derivatives. Additionally, governments across Latin America previously undertook fiscal and monetary reforms to reduce the hyperinflation problem. Their debt management capabilities improved when they used windfall export revenues to improve their fiscal positions, repaid foreign currency denominated and short-term international debt, increased issuance of domestic currency debt, and reduced their exposure to interest rate fluctuations by issuing fixed-rate, longer maturity GDP or inflation indexed bonds.14 EMEs like Brazil have implemented capital controls that prevented capital flight. Many have also adopted flexible exchange rates that functioned better as shock absorbers.

In contrast, the European EMEs suffered a much harder blow after the sub-prime mortgage crisis in 2008 and the sovereign debt crisis in the Eurozone compared to their counterparts in Asia and Latin America. These economies were highly dependent on foreign finance and have had current account deficits with inadequate reserves. For example, Hungary avoided bankruptcy in 2008 with a bailout from the IMF and the European Union. In particular, countries with fixed exchange rate regimes exhibited higher vulnerability when their currencies depreciated and domestic currency payment obligations on Euro denominated loans rose. Their exposure to foreign banks and rapid credit expansion in the years preceding the crisis led to an economic contraction once foreign bank financing dried up in the European EMEs.

The Role of Emerging Markets in the Global Recovery

If one takes a look at the state of the world economy through the lens of economic history, it is an incredible departure from the era of financial crises of the 1990s. The EMEs today remain relatively unscathed and sit in a position of economic strength as the dynamic engine of the world economy. On the other hand, the North is devastated by the meltdown of the financial markets in the United States and the risks of sovereign debt defaults in the Eurozone.

The recent economic crisis has left advanced economies with greater fiscal deficits than previously anticipated.15 While the United States is in no immediate danger of bankruptcy, sovereign governments in Greece and other European economies like Portugal, Ireland, Italy, and Spain have already reached the point that their debts are no longer sustainable.  Consequently, the European Union authorities have created massive rescue packages with taxpayers’ money under the European Financial Stability Mechanism. This debt overhang will have to be paid down through increased taxation and spending cuts, which will cause sluggish economic growth and stubbornly high unemployment rates in advanced economies of Europe for the next decade.

In this environment, there are two critical roles that EMEs could play in rebalancing the world economy:  First, the EMEs could help the readjustment of world financial markets if they pursue a gradual and coordinated approach in the investment portfolio allocation of their reserves. Reserves of EMEs have been invested primarily in U.S. Treasury bonds to help the U.S. economy finance its current account deficits and government debt. As of November 2011, China holds 1,132.6 billion USD of U.S. Treasury debt.

Chinese officials have recently expressed their interest in diversifying their holdings of U.S. government debt amid the weaknesses in the U.S. economy and the potential losses in the value of dollar-denominated assets. China has adjusted its foreign-exchange investment portfolio after the downgrade of the U.S.’ credit rating in August of 2011. China also supports expanding the use of renminbi as a means of payment in cross-border trade to start reducing the country's dependence on the U.S. dollar. Nevertheless, it continues to be the largest foreign owner of U.S. debt given the fact that dollar denominated assets still remain a safe and liquid investment option in the absence of alternatives in world markets.

In this context, the diversification of huge foreign exchange reserves, owned by China and other EMEs, without creating major disturbances in the international monetary system remains a challenge. In September 2011, Beijing held talks with Rome over a possible purchase of Italian debt. Likewise, Spain, Portugal, and Greece have all turned to China as a potential creditor. China has expressed interest in supporting the Euro as an alternative reserve currency against the dollar and has continued to buy euro-denominated bonds to support the efforts to contain a potential debt crisis in the Eurozone.16 These actions will clearly have stabilizing effects on the strength of the current international reserve currencies, as well as the public borrowing costs and sustainability of debt in advanced economies.

Second, in order to address the global imbalances in the distribution of savings and investment, economies with current account surpluses like China can shift their growth strategy towards the development of domestic markets. With rising standards of living, demand for goods and services, housing, urban infrastructure for energy, transportation, communication, food, education, health care, and social safety nets will increase.17 Until recently, China's tightly managed and undervalued currency has created substantial distortions in the resource allocation towards export-led industrialization. Accompanied by real exchange rate appreciation, catering the economic growth towards the needs of the rising middle class could help reduce the dependence of EMEs on foreign export markets and generate employment. This could be accompanied by deficit economies like the U.S. increasing their private and public savings while closing their current account deficits through a real depreciation of their domestic currency and exporting their products to fast-growing EMEs.18

New Areas for Multilateral Policy Coordination

The ascent of EMEs has brought them more power, influence, and thus more complex interdependence with the advanced economies, in contrast to their previous dependence. Unless there are new arrangements for international policy coordination or accommodations for the rising powers in existing global institutions such as the WTO, the IMF and the United Nations, disputes over territory, resources, access to international trade and financial systems, and climate change management could potentially challenge the hegemony of advanced economies. As a consequence, the Indian Prime Minister Manmohan Singh has made a vigorous case for a "multi-polar, equitable, democratic and just world order" at the recent 2010 BRIC Summit in Brasilia, Brazil.

An important area that requires multilateral cooperation is the continuation of WTO reforms in the direction of trade and FDI liberalization. Prevention of protectionist measures in both advanced economies and EMEs is necessary to guarantee equitable access to global markets. In WTO negotiations, the EMEs and developing countries have been insisting on the elimination of agricultural subsidies in advanced economies because of their distortionary effects on world prices. Similarly, reductions in textile quotas and tariff rates on manufacturing imports from developing countries are other areas of reform that EMEs have been pushing for. In return, advanced economies are seeking cooperation in order to liberalize trade in the services sectors. This could also benefit EMEs like India through the expansion of outsourcing activities. Another area of cooperation could be on the immigration of high-skilled workers in professional service sectors, which could help alleviate the problems of aging in advanced economies. Following China’s WTO accession, further market economy oriented reforms in the role of state economic enterprises and liberalization of product and financial markets are necessary. Russia's WTO membership is also conditional upon compliance with WTO rules regarding the elimination of trade and FDI barriers.19

The structure of international financial institutions should also reflect the changes in the world economy by increasing the voice and representation of EMEs. The recent push for candidates from the emerging and developing world to replace Dominique Strauss-Kahn as the director of the IMF, and Robert Zoellick as the president of the World Bank, have reflected the willingness of the EMEs to take leadership positions in the global economy and break the monopoly of Europe and the U.S. over the management of international organizations. Recognizing this change in the locus of power, the IMF Board of Governors has already adopted a large-scale quota and voice reform in favor of fast-growing EMEs.

Another main argument behind giving EMEs greater influence in the international monetary system is that advanced economies today often ignore the effects of their domestic policy decisions on the rest of the world economy. For example, in response to the crisis in the United States, the Federal Reserve has pursued unconventional monetary policies, such as Quantitative Easing (QE).  The QE works by increasing the size of the central bank’s balance sheet through purchases of toxic private-sector debt, through capital injections in the financial system, and purchases of longer-term securities. The underlying premise behind this policy is to prevent debt deflation and create inflationary expectations to prevent a liquidity trap in the United States. These anti-deflationary monetary policies in the U.S., however, have had serious harmful effects on the EMEs. The prospect of low returns in the United States and the depreciation of the dollar have pushed investors into higher-yield emerging markets. The recent resurgence in capital inflows has intensified several concerns: First, significant appreciations in EMEs’ currencies could hurt export competitiveness. Second, increases in commodity prices and asset price bubbles could aggravate the risk of inflation. Third, the possibility of a sudden stop of capital flows could increase the risk of default and threaten financial sector stability. Several EMEs have preemptively adopted a variety of domestic measures such as capital controls and macro-prudential regulations to address these potential risks.20

In this context, there is a greater need for multilateral policy coordination so that the domestic policy decisions of advanced economies take account of the risks their policies pose for global financial stability. With further representation in the IMF’s decision making, EMEs could actively enhance the role of the IMF as an international lender of last resort in times of crisis and voice their priorities, which include the strengthening of institutional capabilities of the EMEs to withstand global economic shocks.

Following the financial crisis, a consensus has emerged that a comprehensive framework is needed to better coordinate the oversight of large international banking organizations, to close regulatory and supervisory gaps, and to promote the implementation and enforcement of international standards of quality, quantity, and international consistency of capital, liquidity, and leverage positions. In this respect, collaboration of national authorities with the Bank for International Settlements and the IMF to assess financial vulnerabilities, monitor market developments, conduct early warning exercises, and enhance the prospects for cross-border crisis management are of paramount importance.21

Conclusion

The rising prominence of the EMEs has blurred long-standing distinctions between the North and South. One should view this transition as a “win-win” situation. A larger world economic pie, combined with billions of people escaping poverty, is mutually advantageous for everyone. Increased diffusion of global economic power raises the importance of collective management and shared leadership as the most viable mechanism for addressing the challenges in a globalized, interdependent and multi-polar world.

While the EMEs have a promising future, there are several prevailing structural and institutional impediments that must be addressed in order to ensure their sustained economic growth.22 Domestically, many EMEs still lack the liberal democratic institutions and efficient legal systems required for the protection of property rights, rule of law, and the prevention of corruption. There still exist excessive bureaucratic red tape and a lack of access to credit in the financial markets. These conditions have been identified as major hurdles for entrepreneurial activity. Additionally, there will have to be continued reforms in the areas of taxation, price controls, entry barriers, and labor market flexibility. A vital component of ensuring productivity growth is the improvement of education systems with a strong emphasis on the implementation of gender-neutral policies. Higher education combined with research and development infrastructure needs to be strengthened to foster innovation within the EMEs, more so than adoption or transfer of existing technologies from abroad. There is also a great need for privatization of state-owned enterprises and banks, which tend to slow growth by creating market distortions and inefficiencies in capital allocation. In addition, countries like Brazil are greatly weakened by their large informal economies, which hinder the productive allocation of resources and harm government fiscal health through tax evasion.23

The slower economic growth and aging population in advanced economies will likely lead to a decline in global savings in the future. Current inflows of FDI and capital from advanced economies may not be sufficient to meet the appetite for investment in the EMEs. The combination of higher demand for capital and lower global savings will likely raise the price for capital, and make investment more costly in the future. Therefore, the EMEs should continue to work towards promoting domestic savings and efficiency of capital allocation while improving the supervision and regulation of their capital markets.24 In tandem, social cohesion needs to be strengthened in the EMEs through more accessible and higher quality public services, and through safety nets, which address the poverty, income inequality, health care and pension needs of an aging population.

Notes & References

  1. The list of the EMEs is based on the Morgan Stanley Capital International (MSCI) index.
  2. M. Ayhan Kose and Eswar Prasad, Emerging Markets Resilience and Growth Amid Global Turmoil (Washington, D.C.: Brookings Institution Press, 2010), 30.
  3. "The New Titans," The Economist, 14 Sept. 2006. http://www.economist.com/node /7877959.
  4. Kose and Prasad, 2010, op. cit.: 37.
  5. M. Ayhan Kose and Eswar Prasad, "Emerging Markets Come of Age," Finance & Development 47.4 (2010): 7-10. http://www.imf.org/external/pubs/ft/fandd/ 2010/12/pdf/kose.pdf.
  6. Brazilian exports to China as a share of Brazil’s total exports surged from 2.7 percent in 1994 to 7.5 percent in 2007. China was the origin of only 1.8 percent of Brazilian imports in 1994, but in 2007 this figure had expanded to 11 percent. See: Enestor Dos Santos and Soledad Zignago, “The impact of the emergence of China on Brazilian international trade,” BBVA Research Working Paper 10.22. http://www.bbvaresearch. com/KETD/fbin/mult/WP_1022_tcm348-231940.pdf?ts=192010.
  7. In 2008, Africa accounted for 9.8 percent of China’s aggregate overseas investments, up from 3.2 percent in 2004. See: "Dancing on the Stage of a Multi-Polar World: The Path to Globalization for Chinese Enterprises." http://www.accenture.com/cn-zh/Documents/PDF/Accenture-Globalization-Report-2010.pdf.
  8. Raymond J. Ahearn, "Rising Economic Powers and the Global Economy: Trends and Issues for Congress," Congressional Research Service R41969 (2011): 21-23. http://www.fas.org/sgp/crs/misc/R41969.pdf.
  9. Çiğdem Akın and M. Ayhan Kose, “Changing Nature of North-South Linkages: Stylized Facts and Explanations,” Journal of Asian Economics 19.1 (2008), 1-28.
  10. M. Ayhan Kose, Christopher Otrok and Eswar Prasad, "How Much Decoupling? How Much Converging?" Finance & Development 45.2 (2008): 36-40. http://www.imf.org/external/pubs/ft/fandd/2008/06/kose.htm.
  11. "Country and Regional Perspectives" in the IMF World Economic Outlook October 2010 Recovery, Risk and Rebalancing, Chapter 2. http://www.imf.org/external/pubs/ft/weo/2010/02/ pdf/c2.pdf
  12. During the crisis, commodity exporting countries, particularly in Latin America, were partly shielded from the global recession due to the continuing demand from China. Without a doubt, China and other EMEs have the potential to become large engines of growth for the rest of the world. Because of China’s size and level of integration, shocks to its economy now affect the rest of the globe, which has been the case for the United States for many decades. In fact, IMF estimates indicate that a one percentage point increase in GDP growth in China results in a 0.4 percentage point increase in growth of other countries within four years. See: Vivek Arora and Athanasios Vamvakidis, “Gauging China’s Influence,” Finance & Development 47.4 (2010):11-13. http://www.imf.org/external/pubs/ft/fandd/2010/12/pdf/Arora.pdf
  13. In 1999, developed countries’ foreign exchange reserves represented approximately 1.1 trillion USD (62 percent) of the 1.8 trillion USD of global foreign exchange reserves and developing countries’ reserves the remaining 38 percent. One decade later, developing and emerging economies held approximately 5.4 trillion USD (66 percent) of the total global reserve stock of 8.1 trillion USD as of end-2010. See: "Multipolarity in International Finance" in World Bank Global Development Horizons Report 2011, Multipolarity: The New Global Economy: 143.http://siteresources.worldbank.org/INTGDH/Resources/GDH_CompleteReport2011.pdf.
  14. International Monetary Fund, “Structural Changes in Emerging Sovereign Debt and Implications for Financial Stability,” Global Financial Stability Report (2006). http://www.imf.org/external/pubs/ft/gfsr/ 2006/01/pdf/chp3.pdf.
  15. According to IMF estimates, the debt-to-GDP ratio for 2014 is projected to be 36 percentage points above the 2007 level (78 percent vs. 114 percent) as a result of massive government stimulus packages and financial sector bailout programs. See: “Fiscal Implications of the Global Economic and Financial Crisis,” IMF Staff Positions Note, 9 June 2009. http://www.imf.org/ external/pubs/ft/spn/2009/spn0913.pdf.
  16. Li Wei, "How China Can Save the Eurozone," The Guardian, 30 October 2011. http://www.guardian.co.uk/ commentisfree/2011/oct/30/china-global-financial-crisis-g20-cannes.
  17. If trends in GDP and population growth continue, EMEs will become large consumer markets. The size of the rich and the middle class in the developing G-20 countries (BRIC, Mexico, Argentina, Indonesia Turkey, and South Africa) is projected to increase from 739 million in 2009 to 1.3 billion in 2030. See: Uri Dadush and Shimelse Ali, “The Transformation of World Trade,” Carnegie Endowment for International Peace Policy Outlook, February 2010. http://carnegieendowment.org/files/Transformation_of_World_Trade.pdf.
  18. “OECD Economic Surveys, China,” 2010.6 (2010): 65. http://browse.oecdbookshop.org/oecd/pdfs/product/1010061e.pdf
  19. “Globalization and Emerging Economies: Brazil, Russia, India, Indonesia, China and South Africa,” March 2009, OECD. http://browse.oecdbookshop.org/oecd/pdfs/product/5108061e.pdf
  20. Ana Nicolaci da Costa and David Chance, "Emerging Market Policymakers Slam Federal Reserve Move," Reuters, 4 Nov. 2010. http://www.reuters.com/article/2010/11/04/us-usa-fed-reaction-idUSTRE6A30PY 20101104.
  21. Douglas Warner and Ross P. Buckley, "Redesigning the Architecture of the Global Financial System," Melbourne Journal of International Law 11 (2010): 1-55.
  22. "Changing Growth Poles and Financial Positions" in World Bank Global Development Horizons Report 2011, Multipolarity: The New Global Economy: 13-65. http://siteresources.worldbank.org/INTGDH/Resources/ GDH_CompleteReport2011.pdf.
  23. Rodrigo Couto, et. al., "How Brazil Can Grow," McKinsey Global Institute (2006). http://www.mckinsey. com /Insights /MGI/Research/Productivity_Competitiveness_and_Growth/How_Brazil_can_grow.
  24. Richard Dobbs et. al., "Farewell to Cheap Capital? The Implications of Long-term Shift in Global Investment and Savings," McKinsey Global Institute (December 2010). http://www.mckinsey.com/locations/ swiss/news_publications/pdf/Farewell_to_cheap_capital_report.pdf
Çiğdem Akın is an assistant professor of economics at The Johns Hopkins University's SAIS Bologna Center in Italy. She completed her Ph.D. in economics at the George Washington University in Washington D.C., after which she worked as a research assistant at the Financial Studies Division of the International Monetary Fund. She obtained her M.A. degree in international development from the International University of Japan as a Monbusho scholar, while simultaneously working as an intern at the Toyota Motor Corporation, and as a research associate at the Asian Development Bank Institute in Tokyo. She holds a B.A. degree in political science, international relations and sociology from the Boğaziçi University in Istanbul, Turkey.