From Global Imbalances to Effective Global Governance

The current credit crisis has led to scaled-back projections for growth around the world. It has also exposed the severe mismatch between our vulnerability to global imbalances of the type that fueled the crisis and our ability to coordinate policies internationally to ensure that such imbalances are addressed before it is too late.

STANFORD, CALIFORNIA – The current credit crisis has led to scaled-back projections for growth around the world. Governments and central banks are responding to damaged balance sheets and credit lockups in an attempt to limit extreme harm to their economies outside the financial sector.

In the United States, the financial sector is undergoing a high-speed but permanent structural transformation, the effects of which could be severe for developing countries’ economic growth. Indeed, these countries are already experiencing large relative price increases for food and oil, a food emergency for the poor, and higher rates of inflation induced by commodity price shifts. While rapid growth in developing countries has been an important factor in the rising commodity prices, much of this is beyond their control.

For the past two years, my colleagues and I on the Growth Commission have sought to learn how 13 developing countries managed to record growth rates averaging 7% or more for 25 years or longer. In The Growth Report , published in May, we tried to understand why most developing countries fell far short of this achievement, and explored how they might emulate the fast growers.

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