The future of developing countries lies in services, as manufacturing has become skill-biased and less labor-intensive due to automation and new technologies. Enhancing productivity in labor-absorbing services is crucial for growth and equity. Four strategies for expanding productive employment in services are outlined: incentivizing large firms to expand employment, providing public inputs to enhance small enterprises, offering digital tools and technologies to low-skilled workers, and combining vocational training with additional assistance programs for less educated workers. Scaling up these initiatives will be challenging but necessary for service-oriented development strategies.
The United Nations Department of Economic and Social Affairs has raised its global economic growth forecast for this year to 2.7 percent. The growth forecast for developed economies was raised from 1.3 percent to 1.6 percent, and for developing economies from 4.0 percent to 4.1 percent. The International Monetary Fund (IMF) also raised the growth prospects for advanced economies, emerging markets, and developing economies. Despite challenges such as high inflation, higher borrowing costs, exchange rate pressures, and political instability, developing economies have shown resilience and improved their growth prospects. They have leveraged the recovery of developed economies, tapped into their large population and market demand, and hedged the negative spillover effects of US and European monetary policies. Developing economies, represented by China, have strengthened cooperation, promoted trade and investment liberalization, ensured the resilience and stability of global industry and supply chains, and enhanced the resilience of global economic growth. The continuous progress of later-developing countries is expected to contribute more to the sustained and healthy development of the world economy.
Emerging markets, including Mexico, Brazil, Indonesia, Vietnam, South Africa, and Turkey, have shown economic resilience and avoided a debt crisis despite global economic and geopolitical challenges. Factors contributing to this resilience include loose fiscal policies in the US, soaring deficits in China, loose monetary policies in Japan and China, accumulation of foreign-exchange reserves by emerging-market countries, adoption of prudent policies advocated by the IMF, central-bank independence and inflation targeting, early policy interest rate hikes by emerging-market central banks, and new regulations to reduce currency mismatches. Emerging markets have also rejected the notion that debt is a free lunch. However, the future resilience of emerging markets is uncertain in the face of high global interest rates, rising defense spending, the green transition, populism, high debt levels, and deglobalization.
Middle-income countries, including India, Indonesia, Malaysia, Brazil, Sri Lanka, Argentina, Nigeria, South Africa, Morocco, and Algeria, are facing economic challenges such as heavy debt burdens, recurrent natural disasters, rising inflation, and political upheavals. These countries represent close to one-third of global GDP and are major engines of global growth. However, vulnerabilities are not solely based on income level, as middle-income countries are also home to 62 percent of the world's poor. The Covid-19 pandemic has further exacerbated these challenges, leaving millions without jobs and livelihoods and driving millions into poverty. Recurrent natural disasters and mounting economic losses hinder economic recovery and investment. Thirty-nine middle-income countries have net interest payments that account for more than ten percent of government revenue. The recent monetary tightening by the Federal Reserve and the European Central Bank has led to adverse spillovers for many developing countries, including middle-income countries, resulting in currency depreciation, increased import bills, and inflation. The impact of right-wing politics on middle-income countries is also highlighted, with the election of public officials with integrity and a commitment to the public good being crucial for addressing challenges. The international financial and development institutions, such as the World Bank and the International Monetary Fund, should be reformed to reflect the interests of the Global South. The United Nations Secretary-General, Antonio Guterres, emphasizes the need for a united global economy and institutions that represent today's global economy. He calls for a serious conversation between developed and developing countries to address global challenges and achieve sustainable development goals.
In the age of great-power competition between the United States and China, developing countries face additional challenges. The introduction of import tariffs by the US on Chinese goods has led to trade tensions between the two largest economies, which could have negative consequences for developing countries. The erosion of comparative advantages, such as cheap labor and land, poses a challenge for these economies. The article emphasizes the importance of investing in digital infrastructure, education, and projects related to the United Nations Sustainable Development Goals to achieve technological upgrading. It also highlights the need for skillful economic statecraft to navigate the challenges. The article mentions Europe's need to rethink its business model and boost productivity through the development of high-tech industries. It compares the research and development (R&D) spending of different economies, with the US leading in this area. The US's high-tech success is attributed to its large and dynamic capital market, which allows for funding high-risk R&D and attracting talent. China, on the other hand, has focused on mid-tech areas of engineering and operational production and distribution. Developing countries face difficulties in competing in mid-tech industries due to limited capacity to finance investment and dependence on access to global or regional markets. The article suggests that developing countries should invest in digital infrastructure, education, and projects related to the United Nations Sustainable Development Goals. They may also increase support for domestic industries to cope with rising protectionism. The article concludes by stating that developing countries will likely experiment with different development strategies and hope for a grand bargain between the US and China to avoid escalating competition into conflict.
The article by Andrew Sheng titled 'Should finance lead the real sector?' discusses the question of whether finance should lead the real sector in emerging and developing economies (EMDEs). Sheng highlights the current narrative of choosing sides between the rich West and the rising BRICS countries. He argues that the free market order is in retreat and that there are serious imbalances in terms of social injustices and planetary injustice. Sheng explores the dilemma of promoting the real economy over finance or vice versa and discusses the impact of financialization on global growth. He also examines the national financial condition perspective and the importance of the return on total assets exceeding the cost of funding. Sheng compares the US stock market model to the Chinese, European, and Japanese models and emphasizes the importance of a strong real economy story funded by the right type of risk capital. The article uses the example of Islamic finance to illustrate the benefits of equity-based and ethical funding. Sheng concludes that in a world of higher risks, funding development through equity and ethical values is a demonstration of practicing sustainable goals. He suggests that focusing on the real sector is the realistic approach to avoid existential disaster.
The article 'Globalization and development' discusses the benefits of globalization for the developing world and the importance of trade for continued development. It highlights the need to revitalize services trade for global growth and the impact of US restrictions on Chinese technology investments. The article also mentions several publications, including articles on the myth of deglobalization, the future of free trade agreements, rising shipping rates, changes in services trade, and the consequences of US controls on Huawei. It notes that China continues to subsidize companies, with a focus on high-priority tech sectors. The Hinrich Foundation is mentioned as an Asia-based philanthropic organization that supports research and education programs in global trade.
[9a0d7f3b]