Archived Series > World Economic and Financial Surveys
Abstract
This paper presents the international financial markets aspects of the current turbulence in emerging markets. The ongoing international diversification of institutional portfolios, the return of flight capital, and the cyclical developments in industrial countries combined to generate a significant volume of capital flows into emerging markets in the developing world. In keeping with developments in global markets, these flows have increasingly been in the form of purchases of tradable bonds, equities, and money market instruments—securities that can readily be sold when sentiments change. The volume of financial wealth that can flee a developing country is now sufficiently large that it can overwhelm any attempt to maintain an exchange rate incompatible with fundamentals. Thus the possibility for investors—domestic and foreign—to exert discipline over policy has strengthened significantly. The resolution of sovereign debt-servicing difficulties has become more complicated with the changes in instruments and participants in international markets.
Abstract
This paper reviews the long-term growth performance of the major industrial countries and discusses some of the many factors that have been identified as possible sources of the marked slowdown in growth since the early 1970s. According to the view of different demographic developments across countries, it is useful to break the growth of output down into changes in tabor input and changes in labor productivity in order to obtain a basis for cross-country comparisons. Wage behavior in the face of energy price shocks appears to have differed considerably among the major industrial countries. Increased uncertainty, reflecting, in particular, changes in the international economic environment and the stop-go financial policies of several of the major countries during the 1970s, and is frequently cited as a possible reason for the slowdown in growth, mainly through its impact on private investment. Views on the contribution of slower net capital accumulation to the deceleration in growth depend upon assessments of whether the efficiency of investment declined significantly after 1973 and on assumptions made about technological change and the embodiment of technical progress.