Academic journal article Contemporary Economic Policy

Asia's Role in the Global Economic Architecture

Academic journal article Contemporary Economic Policy

Asia's Role in the Global Economic Architecture

Article excerpt

In the management, staffing, and voting shares of major international organizations. (2) Following a general capital increase of the Asian Development Bank (ADB), the Pittsburgh Summit urged. governments to make similar capital increases in other multilateral development banks (MDBs).

The world's international economic organizations--essentially designed in 1944--now face the challenge of managing the global economy in an unusually demanding and radically different environment. The influence of the IMF, in particular, had declined in the long era of prosperity before the crisis, and by 2007 its lending had fallen to near zero. One-quarter of its staff had taken early retirement and plans were in place to sell gold reserves to sustain operations. In addition, considerable distance had emerged on the role of the IMF between the IMF itself and policy makers in important parts of the world. Voting reforms had not kept pace with changes in the composition of world output, and the much-criticized role of the IMF in the 1997-1998 Asian financial crisis had made it a "third rail" in the politics of many developing economies. (3)

A central feature of the new global economic and financial landscape is the rise of emerging economies, particularly China and India. in addition to their large populations, their economic size and financial power--measured by output, trade volume, and foreign exchange reserves--have grown very rapidly. These economies are also playing an unexpectedly large role in the recovery from the global financial crisis, having continued to grow at rapid rates even during the global recession. A new design of global economic architecture--led by the G20 summit and supported by key international orga-nizations--would require greater commitments and responsibilities from these emerging players. In turn, this would call for fundamental reform of their governance.

This article explores reforms in the governance of the global economy that would focus on strengthening the role of regional institutions and creating an explicit division of labor between them and global institutions.. We examine the challenges of key international organizations using an analytical per-spective--based on the theory of clubs--that highlights the objectives and constraints embedded in their structure. We argue that the reforms pursued so far--principally in voting shares--while important, are not sufficient. The structure of existing organizations is inherently inflexible, and innovations focusing on regional organizations would be required to make the system responsive to the needs of a rapidly changing world economy.

This article is organized as follows. Section II discusses the recent and prospective rise of new players in the global economy, particularly China and India, and suggests that the voice and responsibilities of these economies in global economic management will have to be substantially upgraded. Section III examines the pressures for reform in key global economic organizations. Section IV considers the challenges to reform from the perspective of club theory. Section V suggests possible solutions, including "federalizing" global economic governance by developing "families" of closely linked regional and global organizations. We believe that such a system would provide building blocks for a stronger global architecture where major emerging economies can play more active roles. Section VI argues that a similar arrangement could be applied to a broader issue of how to provide international public goods (IPGs), such as environmental and climate protection, communicable disease control, and disaster risk management. This framework too would include coordinated global, regional, and national approaches. Section VII concludes the article.

II. CHANGING ECONOMIC LANDSCAPE: THE RISE OF ASIA

The rise of emerging economies--especially the giant Asian economies--is rapidly changing the structure of world trade and finance. …

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