The Transmission Mechanism of Financial Shocks
Edited by Satoshi Inomata
Chapter 7: An Input–Output Analysis of Post-crisis Rebalancing in the Asia-Pacific Economy
1 Peter A. Petri INTRODUCTION 1. Reducing international imbalances and achieving sustainable demand growth in surplus and deficit economies have emerged as key policy priorities in the wake of the 2008–2009 economic crisis. Global current account imbalances shrank in 2009 – due in part to increased US household savings and depressed investment – but are beginning to grow again in the recovery. Rebalancing is the main objective, for example, of the G-20 surveillance process launched in 2009. Rebalancing raises policy challenges among and within countries. First, it requires changes in the composition of demand, with expenditures shifting from net exports to domestic absorption in surplus economies such as China, and from domestic absorption to net exports in deficit economies, including especially the United States. Such parallel shifts would reduce the scale of net international capital flows. Second, rebalancing requires adjustments in supply, with resources shifting from tradable goods sectors to non-tradable goods sectors in surplus economies and vice versa in deficit economies. Large adjustments of this kind could force changes in Asia’s growth strategy from industrialization to, say, fostering services. Relatively little work has been done so far on the implications of these adjustments. The Asian Development Bank (2009) traces the history of imbalances and explores the general case for rebalancing. The Pacific Economic Cooperation Council’s Taskforce on the Global Economic Crisis examines the implications of rebalancing for the Asia-Pacific, and proposes a policy framework for coordinated initiatives (Petri, 2009). Prasad (2009) and a McKinsey Global Institute study (Woetzel et al...
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