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Note on the three Imbalances and on the need for Inclusive Growth. Brief prepared for the workshop on Lessons from Crisis and Prospects of Internally-driven Growth Organized by Economic Research Group and UN-ESCAP 26 June 2010, Dhaka. Outline. Macroeconomic (global) imbalance
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Note on the three Imbalances andon the need for Inclusive Growth Brief prepared for the workshop on Lessons from Crisis and Prospects of Internally-driven Growth Organized by Economic Research Group and UN-ESCAP 26 June 2010, Dhaka
Outline • Macroeconomic (global) imbalance • Socio-economic imbalance – inequity and poverty • Ecological imbalance – growth, poverty, and their impacts on relations within nature and between humans and nature • Where does consumption come in to redress imbalances? • Boosting consumption and inclusive growth • Inclusive and internally-driven growth Sajjad Zohir and Lamya Islam, Economic Research Group
Macroeconomic Imbalance • Confusing term – global imbalance, or imbalances in international flows between countries or regions • Flows in Goods, Labor & Capital = Δ in stock (NX + NR) + NFI = ΔR (1) ΔRA - NFIA = - (ΔRB - NFIB) (2c) S − I = G + Current Account Surplus [mistake in p. 121: (or increases in consumption)] • Balance of payments always balance – where is the imbalance? Sajjad Zohir and Lamya Islam, Economic Research Group
Where are the imbalances? • Relative size of deficit (or, surplus) exceeding some critical threshold? • The choice of ΔR and NFI differs from a desired mix of the two? • CA deficit was associated with high growth that reflected higher return to capital, NFI would match both direction of goods & services and the relative return to capital. When growth and CA surplus are found to co-exist; and yet one expects NC outflow from these countries in order to ensure balances in the international flows – there is surely an imbalance. • Is this the case in Bangladesh? • NX < 0, but the size of current account deficit is on decline; • Thus, need for NFI to meet deficit is on decline; • But, ΔR > 0; • And one observes external borrowing to continue at old pace. Sajjad Zohir and Lamya Islam, Economic Research Group
Last three issues • Increase in inequity does not necessarily reduce aggregate consumption demand; but increase in % of people below a poverty line income is expected to reduce aggregate consumption • Relation between the first two ‘imbalances’ • Is safety net the way out? • Inclusive growth will involve higher level of consumption demand compared to non-inclusive growth; but whether it will lead to sustenance of growth depends on the location of capital. • Growth and poverty are equally bad for ecological balance; and governance is critical. • What is green? Needs further ideas. Sajjad Zohir and Lamya Islam, Economic Research Group