1. Key trends in the Global Economy Federico Steinberg

2. Outline Economic Globalization Economic Globalization Economic impact Economic impact Political impact Political impact Social, economic and technological global trends Social, economic and technological global trends Governance of a multipolar global economy Governance of a multipolar global economy

3. A world in transition Convergence, interdependence and multipolarity Convergence, interdependence and multipolarity Societies are more democratic, older, more urban, more unequal Societies are more democratic, older, more urban, more unequal More civil wars and less wars between countries More civil wars and less wars between countries Increasing economic and geopolitical rivalry Increasing economic and geopolitical rivalry From a rules based multilateral international system to geoeconomic and political conflict From a rules based multilateral international system to geoeconomic and political conflict Crisis/transformation of global economic governance institutions Crisis/transformation of global economic governance institutions From the Atlantic to the Pacific From the Atlantic to the Pacific

4. What is economic globalization? “A dynamic process of global economic integration characterized by increasing freedom in the movement of labor, goods, services, technology, and capital” (De la Dehesa, 2000). (De la Dehesa, 2000). : Increase in international flows of: Goods Goods Services Services Capital Capital Information Information ¿Migration?

6. Trade to GDP Ratio

9. The transformation of international trade: MNCs, the breakdown of the production process and New Global Value chains

10. Total FX volumes

12. Immigration 3,5% of world population is migrant (220mn) 3,5% of world population is migrant (220mn) Causes: labor shortage and ageing in OECD, excess supply in developing countries Causes: labor shortage and ageing in OECD, excess supply in developing countries Impact: higher employment rate, higher mobility and low unemployment rate in OECD countries Impact: higher employment rate, higher mobility and low unemployment rate in OECD countries Elements of conflict in the EU: Elements of conflict in the EU: Direct competition for jobs and ▼ wages Direct competition for jobs and ▼ wages Fear over the sustainability of the Welfare State Fear over the sustainability of the Welfare State

13. Why did all this happen? Explanations: Explanations: - Ideas - interests - Institutions - Technology Is reflected in: Is reflected in: - Deep economic liberalization - Incorporation of millions of people to the world economy, especially in Asia - Change in the balance of power

14. In theory, Economic globalization should imply… Greater economical interdependence Greater economical interdependence Better allocation of resources Better allocation of resources Higher opportunities for growth Higher opportunities for growth Faster nort- south technological transfer Faster nort- south technological transfer Greater incentives for international cooperation Greater incentives for international cooperation But… But…

15. New costs and risks…  Less policy space for governments in economic policy:  The Welfare State under pressure in rich countries  Unequal opportunities in poor countries  Short run adjustment costs:  Higher unemployment/lower wages  Sectorial restructuring, relocation and outsourcing  Increased inequality (more on this later)  Greater economic insecurity:  Microeconomic level: personal economic risks  Macroeconomic level: higher markets volatility and greater exposure to external shocks

16. Is globalization something new? Ratios of commercial and financial integration similar to the ones in 1900…BUT: Ratios of commercial and financial integration similar to the ones in 1900…BUT: New role of trade in services New role of trade in services Intra-industrial trade Intra-industrial trade Role of MNCs Role of MNCs Higher financial interdependence: Higher financial interdependence: Importance of the portfolio investment flows Importance of the portfolio investment flows Frequency of crisis: México 1994/95, Asia 1997, Brazil/ Russia 1998, Argentina 2001, CURRENT Frequency of crisis: México 1994/95, Asia 1997, Brazil/ Russia 1998, Argentina 2001, CURRENT Role of emerging markets Role of emerging markets

18. The Catch up process … They are at the forefront of global growth They are at the forefront of global growth Leaders of a new virtuous narrative Leaders of a new virtuous narrative

19. Emerging markets re-emerge

20. Decline of the west / Rise of the Rest And especially of China And especially of China

21. A new world map

22. …and define a new international order? Which we tend to overestimate Which we tend to overestimate

23. They will keep growing Especially Asia Especially Asia An increasingly selective approach in investments will be needed An increasingly selective approach in investments will be needed

24. Interdependence is still key Developed Economies Fiscal Consolidation Weak financial systems Unemployment Emerging Economies Exports Uncertainty Lack of trust Political Tensions Debt purchase

25. Political effects of Globalisation Diffusion of power in the global economy: Nation States loose power vis a vis: Diffusion of power in the global economy: Nation States loose power vis a vis: – Markets – International economic institutions – Non-state actors (MNCs, NGOs, mafias,...)  sovereignty is reduced But : – Nation States remain the key actors of the international system – Power losses by states are asymmetrically distributed

26. Social trends (I) Demography

27. Demographic giants end up becoming economic and political giants GDP PPP, 2014 Datos: FMI

28. SOCIAL TRENDS (II) AgeingUrbanization AgeingUrbanization

29. social trends (III): inequality

30.  Due to trade or technological change?  It speeds up opposition to globalization

31. Poverty is rapidly falling

32. Social trends (IV): FALLING OF POVERTY AND NEW MIDDLE CLASSES  New opportunities for MNCs  Important! Products must be tailored

33. In sum More global markets + National economic policies + Unequal distribution of the gains + Reduction in sovereignty Reduction in sovereignty = CONFLICT CONFLICT Need for new global rules Need for new global rules  Global Economic Governance  Global Economic Governance

34. The governance problem Enormous economic interdependence due to globalization, especially financial integration and global value chains Enormous economic interdependence due to globalization, especially financial integration and global value chains Need for higher economic cooperation (global problems require global solutions) Need for higher economic cooperation (global problems require global solutions) Decline of the west/rise of the rest Decline of the west/rise of the rest Divergent views of how to govern the global economy Divergent views of how to govern the global economy Rising discontent with globalization in advanced countries Rising discontent with globalization in advanced countries

35. Global Governace “ “ Global governance refers to the creation of rules and the exercise of global power [...] As there is no global government, global governance involves strategic interaction between entities that are not distributed in a hierarchical manner. "Robert Keohane : Economic perspective: global governance focuses on the provision of global public goods: No rival in consumption Not excludable through the price system With positive externalities and transboundary effects In a multipolar world, without a hegemonic power, international cooperation is needed to provide global public goods WHICH?

36. Problems and challenges (I) Global governance could be democratic or not Global governance could be democratic or not Even if it is democratic, it has accountability problems and often a democratic deficit Even if it is democratic, it has accountability problems and often a democratic deficit Therefore, the challenge is to establish a democratic global economic governance able of: Therefore, the challenge is to establish a democratic global economic governance able of: Taking advantage of the benefits of globalization and reducing its adverse effects Taking advantage of the benefits of globalization and reducing its adverse effects Distributing more equally material benefits in order to avoid a backlash against globalization Distributing more equally material benefits in order to avoid a backlash against globalization

37. Problems and challenges (II) Global governance requires transfering sovereignty Global governance requires transfering sovereignty States resist this. Above all: - US (Post Kyoto, ICC, ODA, etc.). - Emerging countries (irresponsible stance?) States resist this. Above all: - US (Post Kyoto, ICC, ODA, etc.). - Emerging countries (irresponsible stance?) The European Union as a model for supranational governance? The European Union as a model for supranational governance?

38. Problems and challenges (III) A legitimate (and efective) leadership A legitimate (and efective) leadership Long run vision

39. How to manage interdependency Domestic problems Domestic problems+ No risk of global collapse = Difficult international economic cooperation (G20)

40. Gradual accumulation of: Protectionist and monetary tensions Protectionist and monetary tensions Currency wars? Currency wars? Regional trade agreements which give rise to rival blocs (TPP, TTIP) Regional trade agreements which give rise to rival blocs (TPP, TTIP) Slight deglobalization Slight deglobalization Low-intensity conflicts Low-intensity conflicts

41. Conclusion A world in transition A world in transition The relative decline of The West The relative decline of The West A multipolar economy A multipolar economy Risks and opportunities associated to globalization Risks and opportunities associated to globalization