Global Economics and Financial Growth: A Path to Sustainable Prosperity

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

Keywords

Global economics • Financial globalization • Inflation

Introduction

The latest Global Economic Prospects report by the World Bank reveals a noticeable downturn in the global economy, driven by multiple risks such as COVID-19 variants, mounting inflation, increasing debt, and income inequality. The persistent spread of the Omicron variant indicates that the pandemic will continue to disrupt economic activities in the foreseeable future. Additionally, the significant slowdown experienced by major economies like the United States and China will have repercussions on the external demand of emerging and developing nations. With new waves of COVID-19 outbreaks, ongoing supply-chain bottlenecks, inflationary pressures, and considerable financial vulnerabilities across various regions, the risk of a severe economic downturn looms large. This risk is particularly concerning as many emerging countries lack the policy flexibility to sustain economic activity if the need arises [1,2].

Literature Review

The global economy is currently grappling with the simultaneous challenges of COVID-19, inflation, and policy uncertainty, leading governments to navigate uncharted territory in terms of fiscal expenditure and monetary policies. President of the emphasizes the detrimental impact of rising inequality and security concerns, particularly on impoverished nations. To set more countries on a path to prosperity, a coordinated international effort and comprehensive state policy solutions are imperative. While the global economy is gradually recovering from the depths it plunged into during the Great Lockdown in April, the spread of the COVID-19 pandemic has prompted several governments to pause reopening efforts and reimpose partial lockdowns to protect vulnerable populations. Despite China's relatively faster recovery than anticipated, the journey back to prepandemic levels of economic activity remains fraught with obstacles [3,4].

Discussion

Financial globalization holds the potential to assist developing nations in better managing the volatility of output and consumption. Various theories suggest that as financial integration deepens, the fluctuations in consumption relative to output should decrease. The concept of global financial diversification allows countries to transfer a portion of their income risk to global markets. Given the specialized nature of output and factor endowments in many developing countries, they could potentially achieve even greater gains through international consumption risk sharing. This entails effectively exchanging a stake in their domestic output for a stake in global output, thereby enhancing their capacity for risk management and stability. However, new research presented in this article raises concerns about the anticipated benefits of managing consumption volatility. While average output growth volatility decreased during the consumption growth volatility increased relative to income growth volatility for emerging market economies. This coincided with a rapid surge in financial globalization, indicating a paradoxical effect of procyclical access to international capital markets on the relative volatility of consumption for financially interconnected emerging nations. Further exploration of this phenomenon is essential to assess the extent to which financial integration has shielded emerging nations from consumption volatility amid output fluctuations caused by financial crises [5,6].

Conclusion

Determining the extent to which the anticipated benefits of better managing consumption volatility have been realized is crucial, especially in assessing whether financial integration has shielded emerging nations from such volatility amidst output fluctuations caused by financial crises. Specifically, it reveals that while average output growth volatility decreased during the compared to the preceding three decades, consumption growth volatility increased relative to income growth volatility for emerging market economies in the same period, coinciding with a rapid surge in financial globalization. This paradoxical effect of procyclical access to international capital markets on the relative volatility of consumption for financially interconnected emerging nations will be explored in greater detail 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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