Regional and Multilateral Efforts: Institution-Building

Developing countries are vulnerable to external economic volatilities. To accelerate economic growth, most developing countries have opened their economies to the world. Trade contributes to fostering domestic industry, and increases national income. Financial openness, on the other hand, provides better opportunities for reducing volatility by diversifying risk. The benefits from economic openness are even greater for developing countries that are intrinsically subject to higher volatility on account of having less diversified production structures than industrial economies. However, in reality, developing countries have shown macroeconomic volatilities associated with the boom-bust cycle and, moreover, they are prone to crises in extreme cases. In order to reduce these vulnerabilities, there have been tremendous efforts at the national, regional and global levels. However, as witnessed by the Asian crisis and other emerging market crises since the 1990s, current international institutions are not enough to mitigate their risks and volatilities when global economic turmoil is spreading.