Abstract
Since the rise of globalization which has abolished the role of nation-state gradually, the world has been increasingly dealing with world-wide pandemics and multi-regional financial crises. The nature of the Global Financial Crisis has made it clear that financially integrated and globalized markets which are poorly regulated with lax supervision, can pose significant risks, with disastrous economic consequences. Did global unfairness and loose monetary policy or lack of common fiscal policy deepen the crisis? Is globalization responsible from the loss of power of local governments on their economies? Finally, can “deglobalization” be an alternative solution for the emerging economies? The answers of these questions are even more crucial after the “FED tapering”. In this context, this chapter discusses the future of financial globalization with respect to its effects on the emerging economies during the global crisis.
TopIntroduction
Globalization can be described as a multidimensional process with its economic, political and cultural aspects. It refers to increasing international markets for capital, goods, labor and knowledge which aim to expend the network of international economic relations and transactions. The period 1998-2007 is described as “the Golden Decade”, because of the increasing globally integrated markets and innovation, drastically increasing financial flows. Technological innovation also supported the economic integration via the internet, fiber optics and mobile telephony. Despite derivative trading was inconsiderable before 1990s, in the last decade derivatives market reached US$ 100.000 billion which is the 10-fold of global gross domestic product and 16-fold of global equity market capitalization (BIS OTC, 2008). According to IMF and WTO reports, global foreign investment increased 18 folds and global import/export increased seven times with 32% increase in real world GDP between 1980-2005 period.
Population growth, urbanization and labor migration also supported international integration and interdependence. Between 1950-2010 the world population doubled. Urbanization improved 21% and reached to 50% in 2009 from 29% in 1950 (UN, 2005). Beside increasing population, changing management and production strategies like “Just-in-Time” and new accounting techniques which highly need computer applications accelerated global interaction and trade (Goldin & Vogel, 2010, p. 4).
However, at the turn of the 21st century, despite it was based on ideas of bringing global social justice which would make the world a “global village” and provide with finding new markets, increasing economic interdependence between developed and emerging countries has resulted an unexpected vulnerability which led global economic shocks. Especially emerging countries which were target of the growing integration of national economies, international flow of capital, goods/services both as FDI and portfolio flows were under great risk (Battiston, Delli Gatti, Gallegatti, Greenwald & Stiglitz 2009; Watts, 2002).
Actually, global financial instability takes its roots from Reagan and Thatcher’s fundamental neoliberal administrations and Washington Consensus. After thirty years of globalization, today, the US has a huge amount of budget deficit with US$ 600 billion per year and borrows US$ 1.5 billion per day (Stiglitz, 2004). The US government budget and current account deficits which has been funded by the current account surplus countries, net oil exporter countries and net capital export countries such as China and other South East Asian countries deepened the global economic instability. Especially in 2000s, the US, maybe because of its economic and political power, approached to globalization as unilateralism instead of multilateralism. As an example, the US has veto power at the IMF. This privilege gives right the US to shape the Fund’s policies. Thus the US made use of globalization a lot by leaning against its political and economic power.
Key Terms in this Chapter
European Monetary Union: Having a single/common currency in Euro Area countries which is monitored and controlled by European Central Bank. Monetary Union is considered as one of the most important steps of political union.
Deglobalization: Opposite of globalization. A process of reversing or decreasing interdependence and integration among the countries.
Global Financial Crisis: Destructive financial and economic problems and fluctuations which affect worldwide economy.
Fiscal policy: General policy design of government’s revenue and spending policies. Taxation is the main revenue source of government. To achieve low inflation, low unemployment and sustainable development, government decides revenue and spending policies, i.e. fiscal policies.
Protectionist Policies: It is a governmental policy that is launched to protect the local economy or a specific sector from the threats of foreign counterparts. Protection can be in different ways such as tariff barriers, quotas, quality regulations etc.
Globalization: The worldwide integration of economic, social, cultural, and financial activities. Since globalization increases the relationship among the countries, the perspective changes from local to global. It also increases the interdependence because of increasing transactions and free transfer of goods, services and capital.
Globalonelization: Combination of the words “globalization” and “loneliness” which implies global loneliness. Although there has been globalization all over the world since 1980’s, after the Global Crisis in 2008, every country had to deal with its own economic problems by itself.