5 Puzzles in the International Economy

The world’s economy is interconnected in complex tangles that raise consequential challenges. Five are especially critical due to the breadth of their impacts:

1. “Why is so little capital flowing to emerging and developing countries?” – In 2019, net amounts moving into these economies will total about $4 billion, a paltry sum compared to their $35 trillion aggregate size and woefully inadequate to fund growth-generating infrastructure such as roads, ports, electricity and education.
2. “What is going on with global productivity growth?” – Experts associate rising productivity with better living standards, so lackluster increases are troubling. They might be the result of inadequate levels of innovation or of lags between invention and adoption. Perhaps growth is taking place, but current metrics aren’t capturing it. Drags on productivity in the advanced economies could suppress growth in emerging markets.
3. “Why is it so hard to fix externalities?” – Today, countries pursue policies “that tax labor and subsidize fossil fuels.” The 2017 average “tax wedge on labor” in OECD countries was 35.9%, despite a global need for more jobs. Governments in the G-7 want to eliminate greenhouse gas emissions by 2025. But they support carbon-producing energy industries to the tune of $100 billion annually.
4. “What constitutes progress in the world?” – China and the United States, “perhaps the most consequential relationship in the world,” highlight a macroeconomic dilemma. China offers either an enormous boon to the US economy or a geopolitical threat, depending on your point of view. Another quandary concerns the unequal distribution of gains in living standards. While some benefit from economic progress, others don’t, and so measures of “life satisfaction” in fast-growing economies like those of India and China are on the decline.
5. “Why don’t we spend much more on nutrition and education?” – The return on investment in children’s nourishment is more than 40 times, in terms of productivity, over their adult lives. Similar yields also occur for treatments to prevent tuberculosis, HIV/AIDS and malaria, which are receiving greater funding. Yet global nutrition and education aid continue to significantly lag what’s needed to achieve the UN’s Sustainable Development Goals.