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Trade and Development Report 2015

Making the International Financial Architecture Work for Trade and Development

image of Trade and Development Report 2015
The Trade and Development Report (TDR), launched in 1981, is issued every year for the annual session of the Trade and Development Board. The Report analyses current economic trends and major policy issues of international concern, and makes suggestions for addressing these issues at various levels.

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Financialization and its macroeconomic discontents

The growing influence of financial markets and institutions, known as “financialization”, affects how wealth is produced and distributed (UNCTAD, 2011). Consequently, the increasing integration of developing and transition economies (DTEs) into the global financial system, and the acceleration of capital flows into these countries since the turn of the millennium, have fuelled discussion about the links between openness, financial deepening and economic development. Increasing financial integration has the potential to enhance access to external financing for development. However, this chapter argues that there has been only a weak link between the integration of most DTEs into global financial markets and their longterm development. This link has experienced further strains in recent years due to overabundant liquidity generated by central banks in developed countries. While several DTEs have exhibited strong growth and current account surpluses (or lower deficits) over the past decade, accumulating, in aggregate, considerable external reserve assets, their greater openness to increasingly large and volatile international capital flows, especially short-term speculative flows, has exposed them to the risks of financial boom-and-bust cycles. This chapter details the implications of such risks from a macroeconomic perspective.

English

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