CAMBRIDGE – For many developing countries, the global economic landscape has shifted dramatically in recent years. Lower growth, disrupted supply chains, reduced aid flows, and heightened financial-market volatility represent significant headwinds. Underpinning these changes is a fundamental restructuring, driven by the developed world, of the postwar economic and financial order. Against this background, a handful of factors are becoming critically important for the current and future well-being of developing countries – and for the fate of multilateral institutions.
For much of the period following World War II, the global economic and financial order operated as a core-periphery construct, with the United States at its center. The US provided global public goods, led multi-country policy coordination, and acted as a crisis manager, in accordance with a widely accepted set of rules and standards. The end goal was eventual convergence, securing an ever more integrated and prosperous world economy.
But three factors undermined this order. First, insufficient attention was paid to increasingly destabilizing distributional outcomes, leading to widespread alienation and marginalization within politically influential segments of society. Instead of continuing to influence politics, economics became subservient to it.
Second, the existing order struggled to integrate rapidly expanding large developing countries. The most notable example is China, whose immense economy but relatively low per capita income created a persistent misalignment between its domestic development priorities and its new global responsibilities. The world could no longer absorb smoothly the external consequences of China’s economic strategy, generating tensions that international governance structures have struggled to resolve.
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