Wednesday, November 02, 2011


IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor----------------------
Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau


World Bank



Prepared by Staff of the World Bank

[full-text, 15 pages]



Main Messages

 The global economy has entered a risky phase that threatens to stall economic recovery in advanced economies. Weaker growth in these economies and financial turmoil also threaten growth in developing countries that has been an engine driving the global economy. These developments call for a renewed G20 focus on growth. Actions to address immediate risks to financial stability must be complemented by efforts to strengthen the foundations for global growth.


 Large and persistent imbalances—a major focus of G20 discussions for much of this year—must be addressed. But rebalancing would be difficult to achieve and sustain in a context of faltering growth. What is needed, fundamentally, is a strategy for growth—and job creation. Rebalancing must be framed as part of a broader G20 strategy to ensure strong and sustainable growth in the global economy. The strategy must fully engage developing countries that are an increasingly important source of demand for the global economy, accounting for as much as two-thirds of global growth in GDP and imports in the last five years. In an increasingly multipolar global economy, the goals of rebalancing, growth, and development are more and more interconnected. The agenda for these interconnected goals needs to be addressed in an integrated way.


 A pro-growth approach to rebalancing will have two key elements: a strong focus on structural reforms that remove barriers to growth and address the underlying drivers of unsustainable fiscal and external imbalances; and leveraging of developing country growth in supporting strong and more balanced global growth.


 In advanced economies, structural reforms must now move center stage. With macroeconomic policy space narrowing, structural reforms provide the main instrument to boost growth in the coming years, while also helping to reduce fiscal and external imbalances. Besides ongoing financial sector reforms, priorities include removal of barriers to investment, competition, and job creation that can yield quick gains in growth, and tax and expenditure reforms to underpin fiscal consolidation. Fiscal policy needs to strike an appropriate balance between medium-term consolidation and short-term support for growth. Even where the fiscal space is limited, the impact of fiscal policy can be enhanced by changing the structure of taxes and expenditures without necessarily changing the total amount of spending or the fiscal balance. The composition quality of fiscal response matters.


 In emerging economies, building on structural reforms that helped unleash their growth potential will be important to sustaining their growth momentum. Economies with large and persistent external imbalances need to step up reforms (of product and factor markets, social safety nets, exchange rate policies) to rebalance demand and facilitate related structural shifts. This paper includes a special focus on structural reforms in emerging market members of the G20.


 Stronger growth in developing countries would benefit global growth and rebalancing at the same time as it advances development and poverty reduction. Returns on quality infrastructure investment can be particularly high in developing countries. For many developing countries, however, long-term financing for investment remains a binding constraint. Boosting infrastructure investment in developing countries can produce win-win global outcomes.


 Successful rebalancing would allow more of the surplus global savings to support investment in developing countries, such as in critical infrastructure and human capital. While about three-quarters of developing countries are net importers of capital, in the aggregate emerging and developing economies have been net exporters of capital to advanced economies over the past decade—a cumulative current account surplus of $3.8 trillion (―capital flowing uphill). Simulations show that a combination of fiscal consolidation in advanced economies and increase in infrastructure investment in developing countries could raise GDP in developing countries by about 25 percent and global GDP by 7 percent over a ten-year period and also significantly reduce global imbalances.




This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
Telephone: (607) 262-6041               
Fax: (607) 255-9641                       



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