THE ECONOMICS OF GLOBALISATION
At first it seems difficult to grasp: global capital is flowing from poor to rich countries. Emerging-market countries run current-account surpluses, while advanced economies have deficits. One would expect fast-growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead?
China is a case in point. With its current-account surplus averaging 5.5% of GDP in 2000-2008, China has become one of the world's largest lenders. And China is not alone. Other emerging markets _ including Brazil, Russia, India, Mexico, Argentina, Thailand, Indonesia, Malaysia, and the Middle Eastern oil exporters _ have all increased their current-account surpluses significantly since the early 1990s. Collectively, capital-scarce developing countries are lending to capital-abundant advanced economies.
Many observers believe that these global imbalances reflect developing economies' financial integration, coupled with underdevelopment of domestic financial markets.
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About the author
- Writer: Keyu Jin
