The Global Economy

Many observers blame excessive risk taking and inadequate regulation as the core causes of the current global financial crisis that we have been witnessing. Consequently, in the aftermath of the massive efforts by governments to rescue financial firms that were hard hit by the global crisis, the re-regulation of global finance has surfaced in many of the comments or policy proposals made by policymakers, the academic as well as business communities.

Numerous people in the developed world are not participating in the growth of the world economy. In some countries unemployment remains high, whereas others suffer from the problems of the working poor.

What are the most effective policies for creating employment – particularly in well-remunerated, satisfying jobs – in OECD countries?

Poverty reduction has become the central objective of development policy, as evidenced for example by the formulation of the UN Millennium Development Goals (MDGs). While economic growth is regarded as an important ingredient to achieve sustainable poverty reduction, the emerging consensus is that growth has to be pro-poor in order to reach ambitious targets such as those laid out in the MDGs.

Globalization has been the engine of growth and economic prosperity in many countries in the past 30 years. Yet, some of the poorest countries in the world by the late 70s have made little progress or even experienced economic decline. The majority of these countries is located on the African continent.

The financial crisis and the resulting global downturn have unwound some of the old global imbalances. For example, U.S. household consumption as a proportion of income has fallen; Chinese government spending relative to GDP has increased. Nevertheless, the economic turmoil may give rise to new patterns of global imbalances.

To promote the creation and dissemination of knowledge in a globalizing world, public finance of R&D and the patent system must be helped work together. The traditional public finance provision of knowledge is often inhibited by financial restrictions.

Recent changes in how different stages of the production chain are dispersed across the globe have led to the notion of a new global division of labour.

It will have far-reaching consequences for the skills required from the workforce, their jobs, and the economy as whole; both in developed and developing countries.

The mainstream economists' account of financial crises - based on rational expectations, maximization of stable utility functions, information shocks - is currently called into question as it failed to predict the present global crisis ex ante and even to explain certain relevant aspects of it ex post. A new approach to understand the mechanisms of financial crises is based on recent research in psychology and neuroscience.

The new wave of globalization – in which outsourcing and off-shoring includes not only unskilled and manufacturing jobs, but also skilled and service sector jobs – makes new demands on education and training systems around the world.