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

Author

Listed:
  • Terry McKinley

    () (International Poverty Centre)

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.

Suggested Citation

  • Terry McKinley, 2006. "The monopoly of global capital flows: Who needs structural adjustment now?," Working Papers 12, International Policy Centre for Inclusive Growth.
  • Handle: RePEc:ipc:wpaper:12
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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper12.pdf
    File Function: First version, 2006
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    References listed on IDEAS

    as
    1. 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.
    2. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2007. "Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 103-132 National Bureau of Economic Research, Inc.
    3. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Epstein, Gerald., 2009. "Rethinking monetary and financial policy : practical suggestions for monitoring financial stability while generating employment and poverty reduction," ILO Working Papers 994344393402676, International Labour Organization.
    2. 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.
    3. Gerald Epstein & Ilene Grabel, 2007. "Financial Policy," Publications 3, International Policy Centre for Inclusive Growth.
    4. 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.
    5. 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.
    6. repec:ilo:ilowps:434439 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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