Page 17 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

However, the experience of last 15 years has brought to the fore the several inadequacies and pitfalls
of this phase of globalisation—repeated bouts of financial instability, high indebtedness and large
imbalances in the global economy, weakening of democratic accountability, and widening inequality.

Global Financial Crisis: Exposes faultlines of hyper-globalised finance
Explosion in cross-border capital flows starting 1980s was supposed to mitigate risks through better
risk-sharing while boosting investment rates in low-income countries that lacked adequate savings.
The experience, however, has been sobering. Decades later, evidence suggests the countries that have
welcomed unhindered capital flows have seen stagnating investment rates. Besides, global financial
flows, instead of mitigating risks, seem to have heightened financial instability.
The crisis revealed that while the global banking system was highly interconnected, the bail-outs were
debated/decided nationally, sometimes to the detriment of certain banks and nations.

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Exhibit 3:
Capital flows
peak out

4

(% of GDP) 3

2

1
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

International capital flows*
Source: Obstfeld and Taylor (2005), IMF (2020) Nuvama Research
Note: Average current account balances of 15 major economies has been used. The countries in the sample are Argentina, Australia, Canada,
Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, the UK and the US.

Brexit and Donald Trump: Backlash against mainstream consensus
These twin events of 2016 – two popular votes by rich-country voters – can be understood as a
backlash against the mainstream consensus of globalisation. Rapid globalisation and technological
changes created winners and losers in the domestic arena and, therefore, needed safeguards at
the national level.

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