While delivering Prof. K.S. Mathur Memorial Lecture on Financial Developments in the World Economy at University of Rajasthan, Jaipur, Prof. J.D. Agarwal, Chairman & Director, Indian Institute of Finance, Delhi said the slow down of the US economy has a compound effect on the growth of the world economy by adversely affecting the demand for the products of partner countries as well. The effect of the impending slow down will be more severe on the growth rate of world trade which is likely to reduce to nearly a fifth of the rate achieved in 2000 to around 2.7 and 5.2 per cent in 2001 & 2002, respectively.

According to Prof. Agarwal, the Terrorist Attacks of 11 September, 2001, The Afghan Air Strikes, The U.S. Intervention in Iraq in 2003 have serious economic effects on World Economy. Some of the worst affected sectors were: Textiles and garments exports, IT, air travel and tourism, hospitality and insurance; financial services and the insurance industry. The implications for developing countries are apparent in the form of reduced inflows of foreign investments especially of those from foreign institutional investors. The uncertainty coupled with the slow down also tends to affect FDI inflows to the different regions as investors hold back the investment decisions.

Prof. Agarwal strongly feels that the volatility of oil prices is a highly destabilizing factor for the world economy. It is more devastating for oil importing developing countries than for other countries. Oil importing countries will have to adjust their economies to the new level of oil prices in the coming years.

Transition from GATT to WTO in 1995 constitutes one of the most important developments in the world economy of the twentieth century. It has wide-ranging implications for the global economy. The emerging WTO regime is important for the national development, trade, investment and technology policies member countries. The recent developments in Cancun WTO meeting is an eye opener and a major set back to multilateral trade regime opines Prof. Agarwal.

According to Prof. Agarwal, one of the important events for the future of world trade is the entry of China into the WTO regime. He feels that China’s accession to the WTO may further strengthen its competitiveness and hence may affect exports particularly of the South Asian Countries adversely. Another possibility is that the accession of China to the WTO would force it to follow WTO norms and procedures, etc. and will bring its trade policy under international surveillance.

According to him, the challenges of globalization today cannot be adequately handled by a system that was largely designed for the world of 50 years ago. Changes in international economic governance have to keep pace with the growth of international interdependence feels Prof. Agarwal.