The global financial crisis started in 2008 has changed the world economic order or environments in multiple aspects. The goal of this study is to make an overall assessment of the changes in each aspect after the crisis, to forecast the direction of the further change, and to draw implications for Korea’s international economic policy. This study deals with the topic in four categories: overview of the crisis, changes in global governance, changes in advanced economies, and changes in emerging economies.
In Part I which overviews the crisis, we contrast the recent crisis with the Great Depression of the 1930s from the perspective of comparative history and examine fundamental causes of global imbalances which were an important background of the crisis. Part II discusses the changes in international economic order or global governance created by impacts of the crisis. The changes include the emergence of the G20 as a new international forum, the tendency of financial re-regulation, and the stalemate in international climate change negotiation. This part deals with also the rise of the G2 system as a global political order which was caused by the great resilience of the Chinese economy after the crisis. Part III covers the changes which happened in advanced economies in the post-crisis era. The notable changes are the crisis of the Euro system, widespread fiscal consolidations, and deterioration of economic inequality. Part IV examines the changes in emerging economies. Rapid recovery from the crisis in these economies is contrasted with stagnation in advanced countries. This two-speed recovery from the crisis enhanced the status and proportion of emerging economies. Internally, however, cracks in political order were often incurred as in the Middle East. In East Asia the greater Chinese economy created a substantial change in the regional economic integration framework. In conclusion the prospect of further changes in the world economy and their implications for Korean economy are provided.
The global financial crisis has worked as a momentum to accelerate structural changes which were already under way in the world economy. One of the most significant changes is the shift in the economic gravity from advanced economies to emerging ones. The other is rethinking of economic liberalization or deregulation movements which continued after the 1980s. These changes imply that capitalism requires its reformulation on the basis of new economic and social norms. However, it is highly susceptible whether such reformulations are actually in progress now.
It is also obscure whether a new global economic order is being re-established after the crisis. Although the shift in global economic power toward emerging economies brought about the creation of the G20, the governance seems too fragile and fluid to replace the old global order. Rather, the decline in the US hegemony and heightened tensions between the US and China appear to make global governance more unstable. In addition, regional integrations which were developing encountered a critical moment as shown in Europe and East Asia. Consequently, cooperative global governance seems most unlikely to be built up, reflecting the emerging multi-polar world economic system. The unlikeliness is attributed to the internal weaknesses of emerging economies, particularly China, which should work as a setter of new rules. The weaknesses include income inequality, political risk, lingering inflation, fragile financial system, and so forth. These factors are constraining the capacity or willingness for China to participate in making new global rules. In foreseeable future the world economy will spend time and efforts in managing the problems caused by the crisis with existing global orders dismantled but new norms unset.
Under these prospects for the world economic circumstances, Korea’s economic policy should be aimed at keeping the economic stability against possible external shocks. Particularly it needs to be prepared to absorb the volatile international financial markets and capital flows. As well it has to induce international cooperation in order to resist protectionist trade policies. Korea needs to intensify economic linkages with emerging economies, but also has to be cautious of their political risks. As for the East Asian economic integration, it needs to steadily engage Japan in the integration process and to circumscribe the leverage of China together with Japan.