the Evolving Global Economy Sr. Vice President and Chief Economist Emerging Nations and the Evolving Global Economy 2013 Sakip Sabanci Lecture Kaushik Basu Sr. Vice President and Chief Economist The World Bank Brookings Institution Washington DC May 2, 2013

Changing global structure Increases in share of BRICS in global GDP and global trade Changing global structure

Changing global structure Increase in South-South trade Changing global structure

Salient features of the global crisis Capital market turbulence affected borrowing costs of developing countries, 2008-2011 Developing Country Sovereign Bond Spread

Salient features of the global crisis The Rebirth of Differentiated Sovereign Risk in the Euro-Zone.

Salient features of the global crisis Emerging markets challenge: exchange rates, capital flows and inflation targeting. Figure 1: Standard quantity intervention in FX markets Dollars p S D0 D1 p0 p1 F E Devaluation

Theory of alternative approaches to exchange rate management: schedule intervention Figure 2: Net excess demand after central bank schedule intervention p D1 A2 B2 P2 P’ E1 • p0 A E0 D0 Dollars

In countries where central banks practiced some form of rules-based FX intervention (Mexico, Colombia, Guatemala, Chile); or preannounced intervention (Turkey), the volatility of changes in FX reserves was below the average for 22 emerging market economies over 2000-2012