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East Asian countries were showing many structural strains and rigidities prior to the crisis, partly due to cosmetic reform efforts. Four critical failures are identified: benign neglect of the conflicts between government mechanism and the democratic polity and market liberalization, the inability to restructure the financial system, the closed and non-transparent corporate sector, and focus on an export-led development strategy.

This chapter reviews the strategies of Latin American companies that have attained leading positions in the region, facing and beating major global companies in their product categories. The companies studied include Cemex, Corona Beer, Arcor, Jabon La Corona, Nazca Cosmetics, Bodegas Lopez, and others. The chapter examines the complex context drawn by scarcity in the region, and several ‘myths’ about the poor that blur managers' perspective when assessing the real market potential. Consumer research conducted in six major markets proves them wrong. The paradoxes that prevent managers from developing innovative strategies that have given the examined companies access to broad mass markets in the region are considered.

This chapter shows how volatility can emerge endogenously, in a world where credit constraints sometimes bind. An elementary theoretical framework is developed, which generates endogenous and persistent volatility in a growing economy with credit constraints. The basic mechanisms are the interaction of credit constraints and endogenous changes in market prices. It is argued that the model can account for a number of observed facts about lending booms and crises in emerging market economies. It also provides additional arguments in favour of countercyclical budgetary policies in less financially developed economies.

This chapter examines emerging capital economies from the perspective of creating the new success stories in the developing world. It focuses on the underlying (legal) causes for such successes and the impediments thereto. The perspective of international finance (e.g., foreign direct and foreign portfolio investment), and their relative pitfalls are examined along with a sea change in investment patterns as may be discerned from sovereign wealth funds, and other related issues. Financing private infrastructure projects, the access to private bond and equity markets, and the dangers of global financial contagion are all explored. Finally, the need for the prudential and legal regulation of private equity markets, and related issues, are examined in the context of furthering development objectives.

Taking an economic perspective, the developing countries that will potentially bring about the most significant impacts are those whose economies may be perceived to be ‘emerging’ in the context of growing market opportunities and those that are undergoing a shift from the constraints imposed by state administration and the restrictions set in foreign trade. Foreign governments and companies may thus be able to assist economies in achieving rapid modernization. This chapter looks into how emerging economies serve as hosts for FDI and how various cooperative forms become manifest in emerging economies. It looks particularly into the environments presented in China, India, South America, and Eastern and Central Europe. It also attempts to examine the level of alliances formed with partners from local emerging economies through identifying areas of likely compatibility.

Chapter 2 analyzes the OECD's roles in global governance. The organization is a network of trans‐governmental networks linking government bureaucracies in member and (increasingly also) non‐member states, emerging economies in particular. Its institutional advantages are its broad and select member‐ship, and its ability to work with practically all policy areas. In a highly variable and flexible in‐stitutional geometry, the OECD is the site for a range of governance activities pertaining to agenda setting, soft harmonization of national policies across multiple policy areas, and hard regulation in the form of conventions and other instruments where the OECD represents a forum for inter‐state decision making as well as policy implementation. Morten Ougaard argues that the OECD facilitates the development of joint responses to common challenges and consensus on broad contours of strategic direction setting in macro‐economic and other policy areas. It is a forum and force for soft and gradual political integration among members.

This chapter shows that the Russian 1998 crisis had a big impact on capital flows to Emerging Market Economies (EMEs), especially in Latin America, and that the impact of the Russian shock differs quite markedly across EMEs. To illustrate this statement, the polar cases of Chile and Argentina are compared. While Chile exhibited a significant economic slowdown after August 1998, it did not suffer the excruciating collapse suffered by Argentina, where even the payments system came to a full stop. This difference is attributed to the fact that Chile is more open to trade than Argentina, and that it appears to suffer much less from balance-sheet currency-denomination mismatch that was rampant in Argentina before the 2002 crisis (due to large domestic liability dollarization). The chapter is essentially descriptive but is in line with and, thus, complements econometric studies like Calvo, Izquierdo, and Mejia (NBER Working Paper 10520). The final section addresses policy issues in light of the chapter's findings and conjectures.

This final chapter explores the broader implications of the analysis for strategic management of knowledge assets in the twenty-first century. In industrialized countries, this kind of management perhaps holds the key to continued prosperity and social stability. In the emerging economies it offers the prospect of by-passing the dreadful and dehumanizing experience of industrialization through which developed countries initially secured their wealth. As things stand, neither industrialized nor industrializing economies have yet developed a managerial orientation appropriate to the needs of the information economy in general, or the phenomenon of knowledge assets in particular. It has been shown here that far more important than having the physical resources is the ability to do something intelligent with them.

Chapter 22 notes the growing attraction of emerging economies as host locations for foreign direct investment (FDI). While acquisitions are generally the favored mode of FDI into developed-economy markets, cooperative forms allowing for local participation, such as joint ventures, have been more prevalent in emerging economies, often due to the mandatory requirements of host governments. Emerging economies are distinctive environments for MNEs partnering with local firms, and this can give rise to certain challenges. One is a conflict of objectives held by MNEs and their emerging economy alliance partner(s), with the latter prioritizing defensive and developmental needs. Additionally, the number of multinationals from emerging economy firms (EMNEs) has grown substantially, often internationalizing through alliances with developed economy MNEs as well as with firms in other emerging economies.

This chapter examines the state of fiscal accounts in advanced and emerging market economies from the postwar period until the outburst of the 2007 financial crisis, revealing some early symptoms of fiscal profligacy that eventually degenerated into fiscal stress. In G7 countries, general government expenditures grew persistently, from 25 percent of GDP in 1950 to 40 percent in the early 1990s. Initially, increasing expenditures were paid for by increasing revenues, but these were eventually accommodated by wider deficits and growing debt. After reaching a postwar low of 35 percent of GDP in the mid-1970s, helped by a negative interest-rate growth differential, the debt-to-GDP ratio stood at 84 percent by the time the crisis erupted. The reduction in fiscal deficits in advanced economies just before the crisis reflected largely temporary factors: equity prices added about 1.5 percent of GDP to revenues in advanced G20 countries, while housing prices, at their peak prior to the crisis, improved revenues in several European Union countries by about 2 percent of GDP.

This chapter examines the impact of the financial policies of industrial countries on the financial crises in emerging market economies. It analyzes the macroeconomic policies of the Group of Seven (G7) countries and the role of the G7 and the International Monetary Fund (IMF) in the management of international crises. This chapter identifies macroeconomic variables in industrialized countries that have major short-term impact on developing countries including growth rates, real interest rates and exchange rates.

This chapter examines how countries employed activist fiscal policies in response to the sharp decline in global growth following the financial crisis of 2007. In particular, it provides an in-depth analysis of the timing, size, and composition of fiscal stimulus packages in advanced and emerging market economies as well as the issues related to their implementation. It first summarizes some of the empirical evidence on whether an expansionary fiscal policy response was appropriate. It then shows that public debts increased dramatically from 2008 to 2010, especially in advanced economies. The substantial rise in fiscal deficits and debt ratios was not caused primarily by the fiscal stimulus, but by a decline in government revenues and, to a lesser extent, government support to the financial sector. Although fiscal stimulus packages varied across countries, these differences were generally consistent with each country's economic fundamentals, including available fiscal space, the severity of the downturn in domestic economic activity, the ability and space to use monetary policy, and the degree of trade openness that dilutes the effect of fiscal stimuli on the domestic economy.

Emerging economies have been subject to abrupt reversals in capital flows, which have adverse consequences for economic activity and financial stability. An important question for policymakers is how to respond to a sudden loss of external financing and its negative effects on the domestic economy. The experience of emerging economies throughout the recent financial crisis shows that those economies with relatively better economic fundamentals were able to implement countercyclical policies. This chapter provides a simple analytical framework to rationalize this evidence. In particular, it addresses this issue by developing a small-scale macroeconomic model of the New-Keynesian type. Numerical exercises illustrate how both credible monetary and fiscal policies increase policymakers’ degrees of freedom to respond to adverse external shocks.

This chapter examines public spending on pensions and health care as well as the rapid growth and projected increase of these costs in relation to GDP in advanced and emerging economies over the next two decades, suggesting that such increases will add to the already urgent need for fiscal adjustment in many countries. It first presents projections for spending in both public pensions and health care for twenty-eight advanced and twenty-two emerging economies before discussing reform options to improve the long-term sustainability and performance of public pension and health care systems while safeguarding the most vulnerable. For countries with large projected spending increases and limited fiscal space, the challenge is to contain the growth of public pension and health spending without adversely affecting the social objectives of these programs. The viable options to contain pension spending include curtailing eligibility, reducing benefits, or increasing contributions. While all of these options involve apparent trade-offs, increasing the retirement age has many advantages. Containing public health spending requires a mix of macro-level controls, such as imposing budget caps, and microlevel efficiency-enhancing reforms, such as strengthening market mechanisms.

Using scenario analysis, this chapter examines the fiscal challenges facing advanced and emerging economies. The 2007 financial crisis left many countries, especially advanced economies, with a dangerous combination of high debt and high fiscal deficits. Over the medium term, even as crisis-related measures are unwound, headline deficit-to-GDP ratios are not expected to return to pre-crisis levels without fiscal adjustment measures. Although revenues are expected to recover from their current cyclical weakness, they are not projected to resume their original (pre-crisis) path because of what has been regarded as a permanent loss of potential GDP. Overall balances are expected to narrow only gradually, while debt ratios are expected to remain high over the medium term. Debt is expected to take a downward path in emerging economies, supported by relatively strong GDP growth, but this positive outlook is tempered by relatively benign assumptions regarding interest rates and growth trends. In general, all countries face important risks that could derail debt reduction, including policy implementation challenges, greater macroeconomic uncertainty, and the possibility that large contingent liabilities materialize.

This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the period from 1970 to 2008, it shows that initial debt is inversely related to subsequent growth, controlling for other determinants of growth. On average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated over the medium to long run with a slowdown in real per capita GDP growth of approximately 0.2 percentage points per year, with the impact somewhat smaller in advanced economies than in emerging market economies. Some evidence indicates nonlinearity, with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Moreover, when a country's economic and financial position vis-à-vis the rest of the world is weak or the share of its foreign currency-denominated debt is large, the adverse impact of initial public debt on subsequent growth tends to be much more pronounced than when these factors are at more moderate levels.