In search of a new development model: Lessons from the global crisis

Abstract

The third wave of globalization started in 1971 based on floating exchange rates, free trade and capital flows. Over more than three decades the world trade grew much faster than value added: the share of trade in global GDP increased from 13% in 1970 to 25% in 2005. Globalization excelled during the 1980's with the spread of market reforms, trade liberalization and wide acceptance of an export-based development model among the emerging market economies (EME) and the European transition economies. The 2008 global economic crisis severely interrupted financial and trade flows, questioned the viability of the globalization trends and the export-based development model. Despite significant differences in views, most analysts agree that the globalization process will continue. The question is will this be accomplished by fixing structural problems (Rajan), choosing smart globalization consistent with democracy and national self-determination (Rodrik), or by delegating the necessary regulatory and policy responsibilities to supranational bodies (Stiglitz). Despite few minor fixes, the crisis effectively confirmed the key elements of the pragmatic development model stemming out the experience of successful countries with the pivotal role of the state in securing quality governance, macroeconomic stability, infrastructure and industrial policy consistent with long term market signals.