Kenneth Rogoff presentation to UN Second Committee · • The integration of India and China ......

Kenneth Rogoff, Harvard University

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Kenneth RogoffHarvard University

Globalization and Interdependence

Speech to the Second Committee of the UN General Assembly

New YorkOctober 9, 2006


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Overview• Introduction to major economic themes on

economic globalization and interdependence that the Second Committee of the UN General Assembly may wish to consider

• In conclusions, some areas where the UN has been particularly effective (including especially its emphasis on broader measures of well being), and other areas (including advocacy of unconditional aid) where more nuance may be helpful.


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Today’s globalization has much in common with previous eras

• Technological change– Laying of first transatlantic cable in 1858– Development of railroads– Improvements in shipping– More broadly, industrial revolution

• Mass migration of people and ideas• Inequality deepens

– Across countries– Within countries


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Figure 4. GDP (per capita, PPP weighted): 1970-2004

100

150

200

250

300

350

1970 1975 1980 1985 1990 1995 2000

Advanced Economies

Emerging Markets

Emerging (excluding China and India)

Other Developing Economies

Divergent global income trends

Top 10% Getting Rising Share of Income in US and elsewhere

25%

30%

35%

40%

45%

50%19

17

1922

1927

1932

1937

1942

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

Shar

e (in

%),

excl

udin

g ca

pita

l gai

ns

Source: Rogoff, 2006, from Piketty and Saez data set


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Parallels go back much earlier

• Roman empire (Bernanke)• Discovery of the New World• Rapid integration after

Napoleonic Wars


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How is modern era different?

• PACE of globalization unprecedented (global merchandise trade now over 20% of income vs. 15% in 1990)

• The integration of India and China• Developing countries have been

lending to the rich (Is US borrowing from China the world’s largest foreign aid program?)

-2

-1 .5

-1

-0 .5

0

0 .5

1

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Un ite d S ta te s Eu ro a re a J a pa n Eme rging As ia Oil e xporte rs

Global current account BalancesUS is borrowing 70% of world net savings

Sources: Lane and Milesi-Ferretti (2006); and IMF staff estimates.


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0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1999 2004 2009 2014 2019 2024 2029 2034

Will US fall off the Debt Ladder?

(Net foreign debt to GDP)

Projected U.S. Net Foreign Debt

Brazil 1980

U.S. 2004U.S. 1894

Mexico 1980

Norway 1977

Sweden 1994

Finland 1994

Australia 1996

Ireland 1983

Hypothetical U.S.Debt Trajectory

U.S. 2008

Argentina 2001


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Globalization has proceeded at an accelerated pace the last two

decades, especially post 1995, and especially financial globalization


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Source: Kose, Prasad, Rogoff and Wei, 2006


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Extraordinarily stable period parallel to gold standard era

1860-1913, but better


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-1

0

1

2

3

4

5

6

7

8

69 73 77 81 85 89 93 97 01 05

(percent change from a year earlier)

The Great Moderation

World

G7


Kenneth Rogoff, Harvard UniversityKenneth Rogoff, Harvard University 1414

Volatility decline is worldwide Volatility decline is worldwide (percentage (percentage std. dev.; medians for each group)std. dev.; medians for each group)

4.597.56Other Developing4.785.45Emerging1.912.54Industrial

Income (σy)

1990s1980s

4.796.34Other Developing4.103.43Emerging1.381.58Industrial

Consumption (σc)

Kose, Prasad, Rogoff and Wei, IMF working paper August 2006

Kenneth Rogoff, Harvard UniversityKenneth Rogoff, Harvard University 15150

200

400

600

800

1000

1200

1400

1600

2000 2001 2002 2003 2004 2005 20060

200

400

600

800

1000

1200

1400

1600

Global Compression: Emerging Market Bond Spreads

Non-Latin

EMBI+(ex. Argentina)

Latin

(basis points)


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The globalization era, especially the last fifteen years, has coincided with spectacular outturns for inflation (well

known) and output stabilization (less well known)


177.45.59.912.513.910.9Middle East

6.07.917.1264.2213.188.3Latin America

11.016.280.4675.81.42.9CIS and Mongolia

5.014.436.986.033.721.1Central/E. Europe

3.62.67.310.211.29.0Asia

9.211.019.436.517.416.7Africa

5.26.216.879.137.424.2Developing countries

2.41.92.03.84.08.8Advanced economies

3.83.87.929.216.214.5World

2005-0600-0495-9990-9485-8980-84

Global Fall in Inflation


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Globalization is a topic rich with misleading clichés

• “The World is Flat” (Thomas Friedman) great popular book, but– Is it? Inequality is increasing, not decreasing– Most of output is still very local. Services are

still mostly nontraded and account for 75% of income in rich countries


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Globalization as a polemic• “Globalization” tends to be a

Rorschach test for what ever one thinks about the world.


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No credible evidence to support polemic claims that capital account

openness causes deeper and more frequent crises

• E.g., Rodrik, 1998, Bhagwati, 1998, Stiglitz, 2002.

• Virtually all crises in 1990s, early 2000s could be attributed to fixed exchange rates

(due to the risks emphasized by Obstfeld and Rogoff, 1995)


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Countries cannot hide from economic globalization

• “Energy independence” a dangerous fallacy

• In today’s globalized world, diversity of supply is a better concept– Winston Churchill and decision to use oil

for Royal Navy in WW I (Yergin)


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Value of Unilateral Trade Liberalization

• Farm subsidies and agricultural tariffs in rich countries are a huge problem, costing developing countries billions of dollar each year

• But if one reads the fine print in IMF, WTO, and World Bank studies, one sees that most developing countries lose far more form the barriers they erect to foreign goods.


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What about financial globalization?

• Overwhelming weight of evidence suggests that trade integration is beneficial (Rodrik 2002 is a contrarian view)

• More debate on financial globalization• New view: Indirect POTENTIAL benefits

of financial globalization far outweigh direct benefits (Rogoff et al, 2006)– Macro stability, transparency, governance


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UN’s growing role

• World peace is the most important foundation of economic growth, although the two are self-reinforcing

• Globalization also leads to faster spread of disease, need for coordination, transparency

• Other externalities such as climate change


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War Deaths per Million Persons, 1820-2000

0

1000

2000

3000

4000

5000

6000

7000

8000

1820 -29

1830 -39

1840 -49

1850 -59

1860 -69

1870 -79

1880 -89

1890 -99

1900 -09

1910 -19

1920 -29

1930 -39

1940 -49

1950 -59

1960 -69

1970 -79

1980 -89

1990 -99

YearsNotes: Bars indicate total number of deaths from intra-, inter-, and extra-state war per decade, divided by world population mid-decade. (2004) for war dates and deaths and United Nations Population Division (1999) for population.

Rogoff, 2006, Okun lectures, Yale University


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Data, Statistics and Analysis

• Human Development Report and related regional publications are enormously helpful, also in emphasizing importance of measures of well being other than GDP

• Transparency is central to institutional development (central banks as a canonical example)


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Need to resist tempting but misleading polemics

• Trade: Most countries citizens suffer far more from the trade barriers their own governments have erected than from foreign barriers (Britain and repeal of the corn laws in the 1840s)

• Aid: Massive aid transfers are morally compelling but if they need to be intermediated by institutionally frail governments, they can be counterproductive. – Example of microfinance and why aid may work in the

small but less well in the large.


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Conclusion• Modern globalization is similar to earlier

eras but faster, and with some important differences, particularly relationships between rich and developing countries, explosion of finance

• Better global governance essential– Halcyon era of globalization from 1800-1913

did not end well because old security arrangements did not adjust to new economic realities.

Kenneth Rogoff presentation to UN Second Committee · • The integration of India and China ......

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