Globalization and growth in emerging markets

Abstract

Not long ago, everyone was talking about the New Economy. Recent events — notably the global economic slowdown and a possible impending war — have crowded out discussions of the new economy. To be sure, some of the rosy scenarios portrayed at the time — most notably, that the new economy portended the end of the business cycle — seem curiously dated. Indeed, in terms of the gap between the economies potential and its actual performance, the current downturn is not only serious, it is prolonged. The current downturn is being widely described as the first global downturn of the new era of globalization, with Europe, Japan, and the U.S. all in slumps, and with truly serious ramifications for many of the emerging markets of the world. A few countries, including China, India, Korea, and Vietnam have been spared, and, as I shall comment later, this is no accident. But even as the global slowdown has set in, productivity growth, especially in the U.S., has remained robust, a two edged sword: with the economy’s output limited by aggregate demand, it has meant that unemployment has increased faster than it might otherwise. Even in its hey-day, the New Economy raised a question: if the New Economy meant an increased pace of growth in the developed world, if the developing countries could not take advantage of the new economy, then there would be increasing disparities in income. Rather than the convergence that was predicted