Economic Expansion and Financial Prosperity: Forging a Route to Sustainable Affluence

Muhammad Sahija^*
*Correspondence: Muhammad Sahija, Department of Economics, University of Faisalabad, Faisalabad, Pakistan, Email:

Keywords

Economy • Financial globalization • Inflation

Introduction

The most recent Global Economic Prospects report from the World Bank sheds light on a discernible downturn in the global economy, stemming from a multitude of risks, including COVID-19 variants, surging inflation, escalating debt and growing income disparities. The persistent proliferation of the Omicron variant signifies that the pandemic's disruptive impact on economic activities is likely to endure in the foreseeable future. Moreover, the significant deceleration experienced by major economies such as the United States and China is poised to reverberate through emerging and developing nations, influencing their external demand. The presence of new waves of COVID-19 outbreaks, ongoing challenges in the supply chain, inflationary pressures and pronounced financial vulnerabilities across various regions accentuate the looming threat of a severe economic downturn. The integration of financial markets and the diversification of global finances can enable countries to shift income-related risks to the global stage, thereby enhancing their capacity for risk management and overall stability. Developing nations, characterized by their distinct output and resource endowments, stand to gain even more from international risk sharing in the domain of consumption. This risk is particularly concerning as numerous emerging nations face constraints in policy flexibility, which could hinder their ability to sustain economic activity should the need arise [1,2].

Literature Review

The global economy currently finds itself entangled in a complex web of challenges, simultaneously contending with the impacts of COVID-19, inflationary pressures and heightened policy uncertainties. This confluence of factors has compelled governments to traverse uncharted territory as they grapple with fiscal expenditure and monetary policies. The President has underscored the adverse consequences of mounting inequality and security concerns, with a particular focus on their repercussions for less affluent nations. To pave the way for greater prosperity in multiple countries, it is imperative that a concerted international endeavor and comprehensive state policy solutions are pursued. Although the global economy is gradually convalescing from the depths it plummeted to during the height of the Great Lockdown in April, the continued spread of the COVID-19 pandemic has prompted numerous governments to exercise caution by halting reopening efforts and, in some instances, reinstating partial lockdowns to safeguard vulnerable populations. Despite China's relatively fasterthan- anticipated recovery, the journey toward reinstating pre-pandemic levels of economic activity remains rife with formidable challenges [3,4].

Discussion

Even though the global economy is gradually recovering from the Great Lockdown, the outbreak of the pandemic has triggered partial lockdowns and impeded efforts to resume normal economic activity. While China has experienced a relatively swifter recovery, reaching pre-pandemic economic activity levels remains an arduous task. In this scenario, financial globalization presents potential advantages for developing countries in managing fluctuations in production and consumption. Financial globalization carries the potential to aid developing nations in achieving more effective management of the oscillations in both output and consumption. Various theories posit that as financial integration becomes more profound, the swings in consumption concerning output should diminish. The concept of global financial diversification opens avenues for countries to transfer a segment of their income-related risk to global markets.

Given the distinctive nature of output and resource endowments in many developing nations, they could potentially secure even more significant advantages through international risk-sharing in the realm of consumption. This involves the exchange of a stake in their domestic output for a stake in global output, thereby heightening their capacity for risk management and overall stability. However, recent research, as outlined in this article, has cast doubts on the anticipated benefits of controlling consumption volatility. While the average volatility of output growth decreased in emerging market economies, the relative consumption growth volatility increased concerning income growth volatility. This shift coincided with the rapid surge in financial globalization, indicating a paradoxical effect of pro-cyclical access to international capital markets on the relative consumption volatility within financially interconnected emerging nations. Further examination of this phenomenon is essential to gauge the extent to which financial integration has shielded emerging nations from consumption volatility amid output fluctuations stemming from financial crises [5,6].

Conclusion

It is of paramount importance to ascertain the extent to which the expected advantages of more effectively managing consumption volatility have been actualized, especially when evaluating whether financial integration has shielded emerging nations from such volatility amid output fluctuations triggered by financial crises. In particular, this analysis underscores a noteworthy trend: while average output growth volatility witnessed a decrease during the last three decades when compared to previous periods, the same timeframe saw an increase in consumption growth volatility relative to income growth volatility for emerging market economies. This trend coincided with a rapid upswing in financial globalization. The subsequent examination will delve into the intricate details of this paradoxical impact of procyclical access to international capital markets on the relative consumption volatility of financially interconnected emerging nations, providing a more comprehensive understanding of this phenomenon later in the article.

Acknowledgement

None.

Conflict of Interest

The authors declare that there is no conflict of interest associated with this manuscript.

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