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The monopoly of global capital flows: Who needs structural adjustment now?

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  • Terry McKinley

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    (International Poverty Centre)

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    Abstract

    The U.S. economy is monopolizing global net savings, i.e., about two-thirds of the total. Other rich countries, such as Japan and Germany, oil exporters, such as Saudi Arabia, middleincome countries, such as China, and even some low-income countries, such as India and Indonesia, export capital to finance yearly U.S. current-account deficits. The resulting global imbalances are neither sustainable nor equitable. Capital should be recycled to poorer countries, instead of funneled, overwhelmingly, to the world?s largest rich country. Low-income countries need a substantially higher injection of real external resources and should be allowed to pursue more expansionary, growth-oriented economic policies. Blaming capital-exporting developing countries, such as China, for global imbalances is not the answer. Such countries are merely succeeding in developing rapidly. Other rich countries, which account for most capital exports, have to take the lead in dramatically restructuring their expenditures. They will be able thereafter to absorb a greater share of developing-country exports. The danger of a recession in the U.S. is rising, threatening growth in the rest of the world. U.S. policymakers have to move aggressively to contain private consumption, especially real estate spending, in favor of productive private investment, and boost exports relative to imports. Without such a structural adjustment, the danger of a ?hard landing? for the U.S. economy?and, by implication, for the rest of the world?will escalate.

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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper12.pdf
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by International Policy Centre for Inclusive Growth in its series Working Papers with number 12.

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    Length: 24
    Date of creation: Mar 2006
    Date of revision:
    Publication status: Published by UNDP - International Poverty Centre, March 2006, pages 1-24
    Handle: RePEc:ipc:wpaper:12

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    Related research

    Keywords: Global capital flows; world economy; structural adjustment; poverty;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "Direct investment, rising real wages and the absorption of excess labor in the periphery," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    2. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2014. "Prospects and Policies for the Greek Economy," Economics Strategic Analysis Archive sa_feb_14, Levy Economics Institute.
    3. Thomas I. Palley, 2005. "External Contradictions of the Chinese Development Model: Export-led Growth and the Dangers of Global Economic Contraction," Working Papers wp101, Political Economy Research Institute, University of Massachusetts at Amherst.
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    Cited by:
    1. Francis Cripps & Alex Izurieta & Terry McKinley, 2007. "Developing a Global Model for Trade, Finance and Income Distribution," Publications 1, International Policy Centre for Inclusive Growth.
    2. Gerald Epstein & Ilene Grabel, 2007. "Financial Policy," Publications 3, International Policy Centre for Inclusive Growth.
    3. Gerald Epstein, 2009. "Rethinking Monetary and Financial Policy: Practical suggestions for monitoring financial stability while generating employment and poverty reduction," Published Studies ilo_epstein11_09, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Dimitri B. Papadimitriou & Edward Chilcote & Gennaro Zezza, 2006. "Can the Growth in the U.S. Current Account Deficit Be Sustained?: The Growing Burden of Servicing Foreign-Owned U.S. Debt," Economics Strategic Analysis Archive sa_may_06, Levy Economics Institute.
    5. Epstein, Gerald, 2009. "Rethinking monetary and financial policy : practical suggestions for monitoring financial stability while generating employment and poverty reduction," ILO Working Papers 434439, International Labour Organization.

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