Increased role of emerging economies in global governance (full text)

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List of figures and tables


Chart 1 Unemployment rate in the United States – Seasonally Adjusted………….. 3


Figure 1 Real GDP growth in Poland during 2000 to 2011 (estimation included) 5

Figure 2 Top 10 Least Affected Countries: Sept. 2008–May 2009………………….. 6


List of contents

List of figures and tables………………………………………………………………………………….. 1

1.     Post-crisis global economy………………………………………………………………………….. 3

1.1           International recovery……………………………………………………………………. 3

1.1.1     Economy recovery in the United States…………………………………….. 3

1.1.2     Economy recovery in the Central European Countries…………………. 5

1.2           Emerging economies……………………………………………………………………… 6

1.2.1     Promising future and dominance of the emerging economies……….. 7

1.2.2     Challenges to the emerging economies………………………………………. 8 Asset bubble……………………………………………………………………. 8 Volatile flow of external capital…………………………………………. 9

2.     Global governance – emergence of the emerging economies…………………………… 9

2.1           Introduction of global governance…………………………………………………. 10

2.2           Importance of global governance…………………………………………………… 10

2.3           Disparities of global governance……………………………………………………. 10

2.4           Increased role of emerging economies in global governance……………… 11

2.4.1     Emerging economies in UN and WTO…………………………………….. 11

2.4.2     Contribution to the global security governance…………………………. 12

2.4.3     Contribution to the global economic governance………………………. 13

Reference……………………………………………………………………………………………………… 15


Assignment I


1.        Post-crisis global economy


Although the shape of the post-crisis world is still unclear, in general based on view of the United Nations, it will probably be a slower growth overall because of a contraction in aggregate demand in the developed countries (United Nations 2010, p18). And by closely monitoring the post-crisis global economy, some phenomenon could be witnessed. One phenomenon is recovery of the developed economies but with lower or nonexistent growth for some years to come (Spence & Leipziger 2010, p.134); while the advanced countries have slower growth which is a bad new, the other phenomenon is the continual fast growth sustained in emerging economies where the impacts of the financial crisis seem to be well controlled and offset by the positive fiscal policies and other measures.


1.1    International recovery


1.1.1            Economy recovery in the United States


Chart 1 Unemployment rate in the United States – Seasonally Adjusted

Source: U.S. Bureau of Labor Statistics

With the weakening business activities, the global financial crisis at its beginning created a progressively turned down of the employment growth in the OECD area in 2008. In the United States where the global financial crisis began, in the first year the unemployment rate has reached 6.5 percent and the rate of monthly job losses hit a five year high (OECD 2008). To make it worse, the unemployment rose to over 10.2 percent in October 2009 (International Labour Office 2010). This is the second time when the unemployment rate reached again as more than 10 percent since 1950, meaning to say that millions of productive people are out of work which has great impacts on the social and economy stability (Sexton 2011, p261). The US economy regained momentum in the fourth quarter of 2010, boosted by buoyant exports and the strongest consumer spending in more than four years. Between October and December, according to the US Commerce Department the economy grew at an annualized rate of 3.2% giving people high hope for 2011 (Kollewe 2011). In 2010, The United States posted its strongest growth since 2005, up 2.9 percent in 2010 following a 2.6-percent decline in 2009 ( 2011) and Unites States is walking out of the difficulties of the financial crisis that happened in the country before escalating to a global economic crisis through the close financial and business link to the rest of the world. But in 2011, the recovery is slowing down again. According to the revised Commerce Department figures, Gross domestic product climbed at a 1 percent annual rate from April through June, down from a 1.3 percent prior estimate ( 2011). Other reports also hint that the performance of banking, consumer confidence, employment numbers, durable goods and the housing industry and other key indicators all suggest that slower or half-speed recovery is anticipated. According to FDIC failed bank list on Aug 6th 2011, 63 US banks have failed so far this year. In 2010, 157 banks failed compared to 140 banks that failed in 2009 ( 2011).




1.1.2            Economy recovery in the Central European Countries


The performance of Central European Countries is better and more cheerful to the consumers and investors in these countries. As analyzed by Evan (2011), Countries in Central Europe have shown remarkable resilience to recover at a rather quick pace. Estonia and Slovakia are swiftly moving ahead with estimated growth rates of nearly 4 percent this year. Another best performer in this financial crisis is Poland; the strong trend of forging ahead can be witnessed in the real GDP growth released by Global Finance magazine.


Figure 1 Real GDP growth in Poland during 2000 to 2011 (estimation included)

Source: 2011


The strong recovery of Poland could be witness from the nearly 4 percent real GDP growth in 2010 following a only 1.7% GDP growth in 2009 when the world economy was badly affected by the world economy crisis. And Poland is more resilient than the United States during this crisis because it maintains the growth even in 2011 when the recovery of US and many other economies turning to a slower growth. In regards to the reasons of Poland’s growth, the success has been attributed to the solid consumption, deep integration with European Union markets, and the efficient use of European Union funds. And economist also analyzed that the healthy private sector which contributes to the 76 percent of gross domestic product and employs 74 percent of the labor force is the most solid fundamental base for Poland’s resilient performance. This view corresponds with the fact that Poland’s economic growth sustains even in 2011 when the ambitious public spending could no longer be sustained. According to the estimation of World Bank, Central Europe as a region is forecast to achieve average growth of 3 percent this year ( 2011).


1.2    Emerging economies


Though the global economy crisis began in the United States and the rest parts of the world are all affected by the crisis, the degree of the impacts in each economy differentiates. Ranked on the impacts of the crisis, even the United States is one of the least affected economies according to a ranking as following.


* The difference between a country’s bond interest rate and the interest rate on the U.S. Treasury bond. The higher the number, the less confidence there is that a country can repay its loan.

Figure 2 Top 10 Least Affected Countries: Sept. 2008–May 2009

Source: 2009



The emerging economies, in my understanding, had not been fundamentally impacted largely by the crisis or we can say the impacts to the major emerging economies are insignificant. China has been ranked as the world no.1 least impacted countries in the crisis. Many studies are keen on explaining the reasons why the major emerging economies could remain strong in growth while the developed world had to struggle with the problems with the economy slow down and seek some adjustments to be done to revive the economy again. I agree with two of these reasons: the major emerging economies are developing countries and the financial institutions of them are by nature conservative and did not get involved with asset-backed securities. The issue for emerging economies therefore is not a banking sector crisis or a financial sector crisis; on the other hand, when the export tends to drop significantly in the major markets of the final products manufactured in the developing countries, the emerging economies were actively finding ways adjust their growth model gradually from export led growth to a more domestic consumption led economy growth. This perspective explains why large economy stimulus plan that includes tax reduction and other ways to encourage consumption, some of these emerging economies such as China and India are too large to slow down their high growth rate for a number of risks and challenges that they would definitely face when the rapid growth slows down greatly for a long time.


1.2.1            Promising future and dominance of the emerging economies


When the developed countries are growing much slower than the emerging economies before the economic crisis, during the crisis, and even after the financial crisis, it enhances the prediction that some key emerging economies will in the future take the leading position of the global economy which is currently played by the key large developed economies such as the united states. For example, various predictions indicate that China will replace the United States and become the world’s largest economy in term of nominal GDP in the middle of this century around 2050, some analysis even this will be realized in about 2030. One key theory supporting the future dominance of the emerging economies is the “demographic dividend” which could be defined as the positive economic impacts and potential benefits a nation might experience during the demographic transitions (Morgan & Kunkel 2011, p251). The transition in which young people already born are very likely to survive to become part of the adult labor force is the most seen change that enhances progress toward economic development. The two largest emerging economies, China and India are enjoying the demographic dividend in the coming few decades, and because the large labor force and relatively smaller depending population the continual development will probably be maintained with the low labor forces and also the expanding demand for the goods. But there are challenges that the emerging economies must conquer.


1.2.2            Challenges to the emerging economies      Asset bubble


One potential problem that could possibly happen in the emerging economies is the asset which could be driven by the cross border investment and domestic investment in the real estate with the prospect that the price will be higher in a short term. The asset bubble is a serious concern in the Asian countries that include a number of emerging economies with fastest growth rate in the world which has been powered and also attracts more cross border investment in the world. In 2009, the World Bank already warned that Hong Kong, Singapore and China were vulnerable to asset price bubbles after increases in equity and house prices across the region (Marr & Reynard 2010, p124). Two years has passed, now the asset bubble in China has not yet received a find resolution. In April this year, International Monetary Fund (IMF) has said that the country’s economy faces increasing pressure from credit and asset bubbles ( 2011), but still, China along with India will continue its solid growth, despite concerns over rising oil prices and high food prices and other prices according to the IMF report.      Volatile flow of external capital


As the western developed countries are undergoing with a slower growth which in other words indicating a lower rate of return on investment in these advanced economies. This is why China and other emerging economies could remain strong in growth even in the deep of the economic crisis as they receive are the heaven of such international capitals. For example in Asia, volatile flows of external capital that have poured into Asia are a hurdle to economic stability, said the French finance minister ( 2011). The sudden large inflow of external funds not only boosted the value of many emerging economies in Asia and pushing up the price of good but such large inflows of funds also bury boom for future financial risks when they retreat as the advanced economies recover. This is why the inflow of funds could be a good opportunity as well as a risk to the emerging economies.


2.        Global governance – emergence of the emerging economies


To answer the question regarding the whether the emerging economies have a parallel contribution in term of global governance like what they have contributed in the economic recovery and growth in the post-crisis environment, I would say no because of the strong barriers created and maintained by the developed economies on which the emerging economies reply during their economic development in term of the access to market, technology, management skills and talents. But these emerging economies are striving hard to achieve a better contribution to the global governance by reshaping the international new order and this process will be gradually and by stages. And some of the effects and data are already these progress made by the emerging economies like China, India and Brazil.


2.1    Introduction of global governance


The global governance could be defined as an inter-subjectively accepted global system of norms and rules that influence and guide the actions of international actors (Leonard 2005, p12). Another understanding of global governance is provided by Cooper and Hughes (2008, p22) who considered global governance as an additional layer of consultations and decision-making between and alongside governments and intergovernmental organizations with the goal to facilitate global problem-solving relying the agencies which are the results of the global governance. Also Cooper and Hughes also identified several types of global governances which include global economic governance, global security governance, global financial governance,


2.2    Importance of global governance


The global governance for every country is important because of the economic opportunities that are significantly affected by the position that the country occupies within the global hierarchy (Birkbeck 2011, p32). In another perspective, the advantage by occupying the higher positions in the global hierarchy is through the owning of more bargaining power which could be defined as the capacity of the national executives to achieve a distributional outcome as closely as possible reflects the preferences of the member state that he or she repents. And in an economy area, companies will similarly enjoy more bargaining power when they are support by the rule and orders made or enforced by their respective countries.


2.3    Disparities of global governance


The so call economic opportunities are actually the convenience and development and expansion chances enjoyed mainly through the business activities of the transnational corporations. According to Aswini K. Ray (2004, p166), transnational corporations in the developed countries such as IBM, Toyota, Boeing and Microsoft are still worldwide flagships in their respective industries and these companies control the leading technology, management, capital, consumer preferences and even the policy and rule preference provided by the global governance of their home countries economies, in comparison the raw material and labor that the emerging economies hold as their only bargaining power are in serious disadvantages. Such unequal regional options tend to reinforce the same global power-hierarchy.


The disparities of global governance are also in the rule and order making. For example, world no.1 economy and military power, the United States, contributes or controls greatly the current international rule and order formation and enforcement through its long leading position such as its role as the “international police” in the international policing. As proposed by Deflem (2005) in matters of international policing that involve police activities transcending the borders of national states, police agencies from the United States play a role more significant than police from any other nation. In other areas, we also could find the leading and critical role played by the United States or the European Union which are the largest two of the leading advanced economies.


2.4    Increased role of emerging economies in global governance


2.4.1            Emerging economies in UN and WTO


As proposed by Cooper and Hughes (2008, p22) the organizing principle of global governance is multilateralism and the United Nations lies at the very core of the multilateral system of the global governance – governance without global government. The emerging economies with their membership have been playing an increasingly important role in the UN activities. For example, in a Global Cyber security Agenda (GCA) held in 2007 by United Nations Secretary-General as a global framework for dialogue and international cooperation with the aim to propose strategies for solutions to enhance the security in the information society, many recommendations before adopted had been adapted by a large number of developing and emerging economies in their effort to enact their cyber laws (Shalhoub & Qasimi 2010, p137).


In another governmental organization, World Trade Organization (WTO), with the increasing participation of the emerging economies like China, India, Indonesia and other developing countries, as WTO chief Pascal Lamy commented recently, while the US remains a key player it is no longer dominant. The simple and even simplistic North-South divide has given way to a more complex world of many different Souths and many different Norths. This multi-polar system is much more “democratic” than the old post-war order ( 2011).


2.4.2            Contribution to the global security governance


With the growing political, economic and military power of the developing countries, even the developed countries are afraid that they could become kind of threat to the existing global security balance. As claimed by Codner (2011, p25) that with the raising of the emerging economies in the international security arena, the optimistic scenario for the peace of the international community is that the emerging economies and the rising powers come to embrace the largely Western-constructed set of existing norms, procedures and structures and become so called the “responsible” partners in the global security governance. For instance, China has been increasing its participation in the UN peacekeeping operations. The Chinese leaders in the new century, particularly after the September 11, have repeatedly emphasized the irreplaceable position of the UN in the international security issues. As of 2002, China had sent more than 650 military observers, 800 engineering troops, and 198 civilian policemen to take part in the 10 UN peacekeeping operations (Deng & Wang 2005, p164). According to the Military and Security Developments Involving the People’s Republic of China 2011 released by the United States, as of January 2010, China has 2,131 peacekeepers in support of 10 United Nations peacekeeping operations group, and contingent workers have five separate more than 200 people ( 2011). This report also predicts that in the near future, China will possibly send out combat troops to peacekeeping operations as China has long been criticized as participate the UN peacekeeping operations only in relatively low level compared to other major powers operations (Deng & Wang 2005, p166). With China as a typical example, the emerging economies are more and more involved in the cross border military or security relatively activities under the existing structures such as UN peacekeeping function, the emerging economies contribute increasingly to the global security governance though such contribution is expected to be more.


2.4.3            Contribution to the global economic governance


The International Monetary Fund (IMF) which regulates a well established set of norms ideas and policies through its membership in the global economy governance before the financial crisis already had an “identify crisis” (Truman 2005) as the IMF’s most salient governance challenge is the lack of balance in the representation of countries on the Executive Board and in members’ shares of voting power and complaints are mostly from the emerging economies. For example, the Chinese officials still claimed that there was insufficient voice given to the poor and developing countries and the developed countries were overruling their concerns in critical issues (Xinhua 2007). And this argument again became the hot topic soon after the financial crisis because the developing countries were badly affected by the crisis mainly created by the developed countries. The demand to reform the IMF was one of the key goals in response to the crisis. In the 2008 G20 Summit, the G20 supported the governance reform of the IMF and the World Bank with the objective that it should “more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness (G20 2008). In April 2009, China announced that it will contribute 40 billion U.S. dollars to the International Monetary Fund’s (IMF) increased financing capacity. Even it is only a small portion of the total, but it could take China’s IMF voting rights to 3.997 percent from 3.807 percent ( 2009). This is an indication suggesting that the emerging economies through continual demand and substantial efforts and investments gradually expand their influence in the IMF and also other international institutions in order to have their voice heard. And China also lined up with other emerging nations such as Brazil and India in demanding a recalibration that reflected the changes in their share of the global economic activity (Bersick & Velde 2011, p104).





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