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This chapter reviews the channels through which skilled emigration can affect the source countries. Recent literature suggests that remittances, return migration, diaspora externalities, and network effects favouring international transactions and technology diffusion, as well as brain gain channels, may compensate the sending countries for their loss of human capital. The chapter divides these channels into a ‘human capital’, ‘screening selection’, ‘productivity’, and ‘institutional’ channels, and analyse the links between brain drain and remittances. The development of a partial equilibrium model allows them to combine these various channels in an integrated setting. They quantify the costs and gains of the brain drain for developing countries and analyse how these balance out. In most cases, simulations suggest that at a macroeconomic level, the brain drain may generate short run and long run positive net gains for many developing countries, while adverse overall impacts are found only in a small number of countries exhibiting very high skilled emigration rates.

While several economic issues are brought about by the various developments of pension funds, it is important to consider that issues similar to these also emerge for least developed countries (LDCs). Thus, traditional methods for providing the elderly with care are disintegrating because of the rapidly ageing population, industrialization, and ill-conceived social-security systems. The successful development of private pension schemes entails a prior level of development in the financial sector, the absence of political interference, the availability of skilled employees and the economy's administrative efficiency. Private pensions would often require free-market orientation as well as capital markets and administrative development that would further regulation. This chapter attempts to examine the social security issues in LDCs and the development of the securities markets.

This section evaluates the policy implications of the brain drain. It focuses on policies that specifically address the causes and consequences of the brain drain. In particular, it explores whether sending countries should rethink their education policy in the face of the brain drain, whether immigration policies in receiving countries are at odds with their aid and development policies, and whether international tax cooperation is required (and feasible) in order to allow for a better sharing of the surplus from international skilled migration. Finally, it discusses the likely effects of the current crisis on the future of international skilled migration from developing to developed countries.

Frenkel and Rapetti argue in their chapter that the emerging market economies found in the 2000s a new way to participate in the global financial markets. In their view, one of the most important aspects was the stronger emphasis on the relationship between foreign saving, reserve accumulation, and the effect of competitive real exchange rates (RER) on economic growth. The authors find major theoretical explanations and empirical support for the RER‐growth link. The current global financial and economic crisis has brought back the discussion about the international financial architecture. The emerging debate has so far focused on the degree of regulation of global financial markets and potential reforms of multilateral financial institutions. These initiatives share the spirit of the proposals of the late 1990s and early 2000s, which were developed as a result of the crises in emerging markets economies. The proposals called for building institutions capable of preventing, managing, and compensating for the instability of the system.

Reddy highlights several broad issues which need to be kept in view while considering changes in the regulatory structures of developing economies. During a crisis, whatever has to be done must be done promptly, comprehensively, and effectively to bring stability. But in rewriting regulatory structures, some broader issues need to be considered. Most developing economies recognize the continuing need for reforms in their financial sectors. However, the crisis of 2008 raises doubts as to the efficacy of known and existing models of financial sectors in the advanced economies, particularly the Anglo Saxon one. Thus, in the future, reforms in the financial sector may have to be cognizant of the evolving understanding of the subject, and hence gradualism commends itself.

This chapter analyzes the origins and impact of the worst world recession since the 1930s, caused by an unsustainable growth pattern, related global imbalances, and weaknesses in the global financial and economic system. It first reviews the causes and nature of the financial crisis before assessing its impact on development. In particular, it considers how developing countries have been adversely affected by reduced trade and commodity prices, declining remittance incomes, and strains on official development assistance. It then examines the implications of the crisis for growth and employment in developing countries and describes global responses to the crisis. It also proposes a number of measures, such as coordinating macroeconomic recovery efforts, minimizing protectionist responses and unfair trading practices, and supporting long-term investments in sustainable development. Finally, it suggests ways of reforming the international financial system and global economic governance by regulating financial markets, addressing tax evasion and fiscal space, and creating better international mechanisms for sovereign debt restructuring and relief.

This chapter considers some of the implications of recent trends in global liquidity and financial flows to emerging markets before the current financial and economic crisis, with particular emphasis on the strong revival in capital flows to developing countries after the slump following the 1997–1998 financial crisis in East Asia. It argues that following liberalization of financial markets, the resurgence in cross-border flows can be better explained by supply-side factors than the financing requirements of recipient countries. It explains the significance of foreign investment as a source of corporate finance and discusses some of the lessons that can be learned from the sub-prime mortgage crisis in the United States. Finally, it evaluates the consequences of curbing the monetized deficit in order to appease financial capital.

This chapter calls for a reform of the international reserve system to address its three fundamental flaws: it has a deflationary bias as the burden of adjustment falls on deficit countries; it has inherent sources of instability associated with the use of a national currency as the major reserve asset and the high demand for foreign exchange reserves by developing countries, due to the pro-cyclical nature of cross-border capital flows and the inadequate availability of “collective insurance”; it exacerbates inequities by transferring resources to reserve currency-issuing countries. The chapter proposes a new system based on the countercyclical issue of Special Drawing Rights (SDRs) to finance International Monetary Fund (IMF) facilities, together with a network of regional reserve funds. It also stresses the need to consider regional monetary arrangements as part of the broader reform of the international monetary system. Finally, it highlights two complementary reforms: placing the IMF at the center of world macroeconomic policy management and rethinking the regulation of capital accounts in light of a reformed global financial system.

This chapter calls for significantly enhanced international tax cooperation, not only to enhance economic justice, but also to enhance fiscal space, especially in developing countries. The current financial crisis has highlighted the need for a historic and fundamental restructuring of the international financial architecture. The Financial Stability Board (FSB) and the G20 governments have been planning and are implementing this restructuring. The call for negotiations for the proposed restructuring of the international financial architecture is known as a “Bretton Woods II”, which designed the international financial architecture after World War II. The chapter first reviews developments contributing to cross-border tax evasion before discussing the reasons why the current international financial crisis is relevant to international taxation issues, cross-border tax evasion, and the process of change. It then stresses the need for more effective supervisory and regulatory regimes, along with the systemic risks posed by regulatory arbitrage. It also argues that international cooperation is necessary in crafting a new Bretton Woods-type agreement to address such issues and concludes by proposing an automatic exchange of tax information.

This chapter closes the panel discussion on socially responsible investment (SRI) by promoting microcredit in developing countries as a natural match for SRI investments by sovereign wealth funds (SWFs). The microfinance market includes three to four billion people worldwide who have no access to formal or traditional financial services in the twenty-first century, mainly in emerging countries. Of these three to four billion people, 500 million could use microcredit to develop their own business. The idea, therefore, is to build a retail financial infrastructure that will provide financial services to this marginalized group. There are two opportunities at the local retail level for funds interested in microfinance: the leading microfinance institutions that know most markets from Asia to Latin America to Africa; and leading microfinance institutions that can be invested in and that can be, with a long-term objective, brought to an exit on the local markets. At the global level, there are a number of microfinance investments: about 100 are based in the United States, Europe, and emerging markets, which can target specific private equity, fixed income, and different types of investment strategies.

This chapter examines how developing countries responded to the global financial crisis, which was triggered by widespread speculative lending and investment in major international financial centers. The financial crisis poses two sets of policy challenges. First, it calls for an immediate policy response in order to stabilize financial markets and international capital flows, halt economic decline, and initiate recovery. Second, it has indicated, once again, the need for a fundamental reform of the international financial system in order to secure greater stability and prevent virulent crises with global ramifications. The chapter considers deficiencies in the global institutional arrangements for crisis management as well as the international initiatives undertaken by developing countries thus far. It also analyzes the constraints faced by developing countries in trying to address the crisis more adequately and appropriately. Finally, it evaluates significant reform and major policy proposals from the perspective of developing countries.

This chapter examines the economic rationale for the proposals made by the United Nations Commission of Experts on Reform of the International Monetary and Financial System. The independent commission was created to analyze the causes of the global financial crisis and to suggest adequate responses to reform financial markets, with the goal of restoring global economic stability. Taking into account the failures of both macroeconomic and financial regulations leading to the crisis as well as challenges of international economic governance and systemic reforms, the commission proposed measures that are not only concerned with macro-financial reforms for greater financial risk mitigation and monetary stability, but also with creating the conditions for more equitable and sustainable development in light of contemporary conditions. One of the commission's recommendations calls for the creation of a new credit facility to provide funding for stimulus packages in developing countries. Another is the establishment of a Global Economic Coordination Council (GECC) to provide a democratically representative alternative to the Group of 20 (G20).

This chapter examines the link between the global food crisis and the financial crisis. More specifically, it considers the dramatic increase in world food prices in 2007–2008, attributing it mainly to greater speculative activity in global commodity markets in response to earlier financial deregulation and the flight of capital from Wall Street following the bursting of the housing bubble with the sub-prime mortgage crisis in the United States. Despite the subsequent drop in agricultural prices, food prices remained higher than before 2007, and continued to be volatile in many developing countries. The chapter discusses two policy factors affecting global food supply: bio-fuels and the policy neglect of agriculture over the past two decades. It explains how the financial crisis has worsened food insecurity by constraining public investment in agriculture, limiting food imports in developing countries constrained by balance of payments.

This chapter summarizes the panel discussion on socially responsible investment (SRI). It argues that improving the functioning of the international financial system is a concern for all. SWFs can play a big role in changing the financial systems to better serve the real economy, particularly in developing countries. The success of SRI depends ultimately on the number of adopters. SWFs, because of their size and their ability to coordinate on new information standards, can influence the number of adopters. SRI will have an impact only if people coordinate on the values and the selection process that they apply. SWFs can play a role as activists, to directly challenge companies that do not fulfill the criteria they want to see.

This chapter calls for a careful consideration of the agenda and criteria for financial regulatory reform in view of the differing circumstances, experiences, capacities, and capabilities of various economies in the international financial system. The global financial crisis that started in 2007 follows many costly crises in developing economies over the last three decades. Like previous ones, it is the result of inherent flaws in the way financial markets operate coupled with insufficient, incomplete, and sometimes inappropriate regulation. This chapter argues that liberalization of financial markets has been a major cause of costly crises, especially in the last two decades. With the emergence of a shadow banking system, which remains opaque and unregulated, the chapter suggests that regulatory reform needs to be comprehensive in order to avoid regulatory arbitrage and should also strive to be countercyclical to try to compensate for the inherently pro-cyclical behavior of financial markets. It also proposes some key criteria for reforming financial regulation involving capital provisions and liquidity requirements, taking into account the perspectives and needs of developing countries.

In spite of these enormous health challenges and the preventable nature of many illnesses afflicting the poor in developing countries, the World Bank largely neglected health issues for many decades. Moreover, when the Bank finally began to focus on this area, strategies were designed by neoclassical economists rather than by health experts. The first part of this chapter documents the history of health policy at the World Bank, including the increasing influence of economic thinking during the 1980s. It shows that Bank health economists not only influenced health policy within the organization, but also greatly influenced the agendas of other donor agencies. This is followed by an empirical review of the impact of the reform policies. The latter part of the chapter develops an institutional approach to health care based not on some optimum level of health spending, but rather on an intuitive approach that carefully applies the institutional matrix to concrete health problems.

Commodity price volatility continues to be one of the major risks faced by developing countries. The question is how a sovereign wealth fund (SWF) can help reduce that risk by defining an efficient asset allocation. This chapter draws a basic outline of a comprehensive framework for sovereign wealth management. The basic idea is to structure asset and liability management so that the SWF can achieve its goals in reducing the impact of commodity volatility on the government's sources of revenues. To do that, it is crucial to consider the sovereign's risk-adjusted balance sheet. The idea is to look at the assets and liabilities at their current market values and then to look at their sensitivity to the underlying market or economic risk factors.