Introduction

Three developments with significant implications for the management of the world economy in the 1990s were growth in emerging markets, capital mobility, and the rise of regionalism. After the “lost decade” of the 1980s growth accelerated in the developing world. Exports from developing countries grew twice as rapidly as production, by nearly 10 percent per annum. Disturbances in emerging markets, including financial crises, became a prominent concern. And emerging market economies, for their part, increasingly insisted on a voice in the management of the international system.

The preceding reference to financial crises points to the second important development, namely rising capital mobility. A growing number of countries relaxed controls on capital movements in the 1980s and 1990s. Advances in information and communications technologies reduced the costs and increased the attractions of investing across borders. In response, net private capital flows to developing countries rose sixfold between 1983–1989 and 1993–1996. Capital mobility promised to extend the benefits of portfolio diversification, consumption smoothing, and higher rates of capital formation to developing countries. But capital flows proved not just large but also volatile. Their management thus proved a major challenge.

The third important development was the rise of regionalism. The 1990s saw the deepening and widening of the European Union. It also saw the establishment of NAFTA (the North American Free Trade Agreement) and the development of Asian regionalism.