L. Alan Winters Chief Economist Department for International Development, London, and

1. Where does the crisis leave globalisation? L. Alan Winters Chief Economist Department for International Development, London, and Professor of Economics, University of Sussex, UK

2. Disclaimer The opinions expressed in this work are the author’s alone and may not represent those of his employers. University of Nottingham

3. Globalisation • In principle – the extent to which one’s fate is determined abroad • In practice: simple pragmatic definition • Extent of commercial intercourse with RoW • Also, loosely, the policy stance associated with achieving relatively high levels of intercourse. University of Nottingham

4. Trade Source: World Development Indicators, Online University of Nottingham

5. Foreign Direct Investment University of Nottingham

6. Portfolio Investment University of Nottingham

7. Remittances University of Nottingham

8. Economic Growth University of Nottingham

9. The Financial Crisis • Financial stress since August 2007 • Northern Rock • Wholesale creditors’ problems • Crash September 2008 • Lehman Brothers • AIG, etc • Solvency, not just liquidity • Followed by ……… University of Nottingham

10. Recession • Worst for 80 years • ¾% off world GDP for 2008 • About 5% in 2009, • Stock markets 40-60% off • Citi, BoA, RBS need rescuing • Oil price from $147 to $40 • Diamond prices fall by 80% • World trade falls by 12% in 2009 University of Nottingham

11. How Deep, How Long? • 2009 was less bad than expected in March • 2% GDP growth for developing economies • India 5.6%; China 8.5% • LICs in Africa > 4% growth • 2010 recovery to 3.9% (DCs 6%) – IMF • World trade growth resumes - 6% • Strong policy response • But not all over – by a long way The opinions expressed in this work are the author’s alone. University of Nottingham

12. A Global Crisis Emerging & developing economies Advanced Economies Source: IMF University of Nottingham

13. Significant Regional Variation Source: IMF University of Nottingham

14. University of Nottingham

15. The Causes of the Crisis Two necessary conditions Global imbalances Regulatory laxness University of Nottingham

16. Whence it came (I) Global Imbalances • Huge labour force growth • Asian Crisis 1997-8 • Export led recovery; Reserves for insurance • Structural challenges • Export led growth; Lack of social protection • Accommodating policy in advanced economies • Saving the world • Hedonism • Hubris University of Nottingham

17. Whence it came (II) Regulation & Policy • Loose monetary & fiscal policy • In response to previous crises; • Financial innovation to boost returns • Weak risk management; Perverse incentives • Strong lobbying & political connections • Regulatory failures • Unwarranted confidence; wrong model? • Political weakness – unwillingness to hear University of Nottingham

18. Developing Countries are Coupled • the direct impact of the financial collapse • the tightening of credit, • Trade credit, investment • Aid flows • the effects on the real economy • Exports, commodity prices (terms of trade), remittances, • knock-on effects: fiscal, financial University of Nottingham

19. Transmission channels • Trade: -12.3% (volume) 2009 y-o-y • Remittances: 6.1% fall in 2009 • Net Capital Flows: • Peaked at $1.2 trillion in 2007. Expected to fall to $460 bn in 2009 • Official Development Assistance: • Ireland; Italy; Sweden; Netherlands; Denmark University of Nottingham

20. Policy Responses • Stimulus packages: • US, UK, China, India, …. • Bangladesh, Vietnam, …. • Many others maintained expenditures – benefits of sound fiscal positions • Monetary expansion in advanced econ.s • International • Swap arrangements with Fed • IMF resources • Other IFIs University of Nottingham

21. What lies ahead (IMF analysis) • Optimistic projections still not encouraging • Rebalancing: long drawn out process • China’s consumption is only ¼ of that of US and EU deficit countries • Germany and Japan have to increase S (not C) to deal with ageing populations • Weak adjustment by surplus countries • Because surpluses largely intentional • Low income countries too small to matter University of Nottingham

22. Projected Imbalances (IMF) University of Nottingham

23. Trade did boost growth pre-crisis • Many pieces of evidence • Cross-country regressions • Time series – except perhaps in poorest Africa • Growth Commission narratives • Conditional on other policies/conditions • Not sufficient, probably necessary University of Nottingham

24. Trade and GDP pc growth 1960-1995 Source: Feyrer, 2009 University of Nottingham

25. Did capital flows stimulate growth? • Balance in favour of FDI and bank lending • Little general evidence for portfolio inv. • ODA: mixed but on balance favourable • But: • Sudden stops disruptive (unjustified?) • Poor regulation or poor policy • E.g. unmatched balance sheets, bubbles University of Nottingham

26. How damaging was the crisis? • So far, ……. • East Asia Pacific – 4 months growth • Africa 10 months (less for LICs) • CEE about 2 years; CIS 2.5 years • Strongly related to quality of previous policy and financial exposure University of Nottingham

27. Did trade transmit the crisis? First Hit Low VS – below median of sample (approx 43%) Early: 2008, late 2009 Jan-Mar; not yet – no residual < -2σ University of Nottingham

28. Average Depth of First Hit Residual of log(exports) from trend University of Nottingham

29. Crises and Migration: 1860-1913 De-trended emigration rates Hatton and Williamson, 2007 University of Nottingham

30. Migration now • Net immigration to US:1m p.a. in 2000-6 to 0.5m 2006-7. • Emigration from Mexico 1m Feb 06-07 to 0.8m Feb 07-08. • A8 emigration to the UK, down 54% between Q1’08 and Q1’09, down 57% to Ireland. • Outflows from Bangladesh – down by about 40% yr-on-yr. University of Nottingham

31. Capital Flows 2008-11 (IIF) University of Nottingham

32. Should we scale back globalisation? • Nearly all markets worked well • financial markets didn’t • Commodity markets? • Imperfect, but what alternative? Seize it. • Financial markets • Regulate • Structure • Be cautious University of Nottingham

33. THANK YOU University of Nottingham