Opportunities and Challenges for the Global Economy (Part 3)

Article Submitted By Dr. Zia-Ur-Rehman | 30-Nov-2012 | Views: 823

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Even by the early 1960s, though, some developing countries had started to grow rapidly. After the Second World War many developing countries had pursued economic policies that relied heavily on state intervention and import substitution: instead of opening up to trade they favored closed economies and sought to satisfy their needs by domestic production.

Some of these countries managed periods of growth and during some of those periods growth was relatively rapid. But it was not sustained over a long period. This was in sharp contrast to the much more durable improvements in growth performance experienced by those countries, especially in Asia, that began to pursue more outward-oriented policies and embarked on ambitious policy reforms aimed at increasing growth potential. For these economies, opening up at the same time as pursuing other economic reforms made possible growth rates that made those of the industrial world look tame.

Growth accelerated rapidly in the group of countries that eventually became known as the Asian tigers—Korea, Hong Kong, Taiwan province of China, Singapore and, later, Malaysia, Thailand and Indonesia. In the four decades from 1960, for example, Korean real per capita income grew roughly tenfold. With exports growing in excess of 40 percent a year over an extended period, employment and real wages grew rapidly as well. More recently we have seen high rates of growth over more than two decades in China and a significant acceleration of Indian growth once reforms were begun there in 1991.

The rapid post-war growth transformed the lives of millions as living standards rose and progress was made in reducing poverty in the industrial and many developing countries. The World Bank estimates that some 200 million people escaped poverty in the 1990s, mainly as a result of the rapid growth of China and India. And across the world we have seen dramatic improvements in the quality of life for most people.

Infant mortality rates fell sharply in most developing countries. In the examples here, we see that in Egypt the infant mortality rate fell from 186 deaths per 1000 live births in 1960 to 33 deaths per 1000 births in 2003. Even in Bangladesh, one of the world's poorest countries, infant mortality rates has fallen, from 149 deaths per 1000 births in 1960, to 46 in 2003.

It's a similar story with literacy rates. In 1970, 53% of Chinese adults were literate; by 2000, that figure had risen to 91%. Over the same period, India's adult literacy rate rose from 33% to 61%.
Perhaps the most telling statistic is life expectancy. In general, life expectancy in developing countries has risen at an astonishing pace. In the early 1950s, life expectancy in Korea, for example, was 48 years: by early years of this century that had risen to 77 years. Over the same period, life expectancy in India has risen from 39 years to 63 years.

Since 1960 life expectancy in the developing countries has risen at roughly double the rate in the richest. The gap between life expectancy in industrial and developing countries has narrowed from around 30 years in 1950, to around 10 years today—a visible result of rising living standards. Unfortunately, progress of late has not been universal: life expectancy has declined in Russia and some parts of Eastern Europe and in those countries in Sub-Saharan Africa that have been blighted by HIV/Aids infection. And many low income countries have yet to experience the full benefits of globalization. I will return to this point later.

Economic Lessons

The rising living standards that accompanied the rapid growth experienced in so many countries in the past few decades are tangible benefits of globalization. This is not a new process, of course—the integration of the world economy can be traced right back to the early traders of the Mediterranean; to Marco Polo who helped foster economic links between Europe and Asia; to the industrial revolution of the 18th and 19th centuries when we witnessed a sharp rise in world trade. But the multilateral economic framework established in 1945 provided the basis for the sustained and rapid integration of the world economy that has been broader and more inclusive than in previous periods.

As the process of globalization has continued, and has been accompanied by changes in the structure of the global economy, we have learned valuable lessons about macroeconomic policy and about the ways in which the benefits of globalization can be extended still further. By us in this context I mean academic economists, national policymakers, and the policy community in general and, of course, the IMF itself. Indeed, many of the global economic changes that have taken place have, in turn, had a significant impact on the work of the Fund and the other multilateral institutions.

As the global economy evolved over the years, the Fund adapted. In the early 1970s, for example, the end of the Britton Woods system of fixed exchange rates among the major industrial countries led to a fundamental shift in the role and work of the IMF.

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