Get Immune to Integrated Economic Risks: Diversify in this Globalised World

The only good thing that came with the ongoing global economic crisis was the opportunity the learn more about the hidden vulnerabilities of globalizing. I’ll try to put it in a simple way- If US sneezes; the developing world can catch the cold. Economic integration has certain intimidating risks, and now that the world is on the track for economic recovery from a severe recessionary phase, nations now need to focus on future risks of global integration and develop ways to deal with integrated risks.

Developing Countries Need to Wake Up for Impending Economic Disasters 

Developing countries had nothing to do with the recent financial crisis but they took some severe knocks as the crisis unfolded and spread swiftly through trade channels. The freeze of capital flows in trade channels gave sudden jitters to growth in industrial world, and the global trade for goods fell well over 20% back in 2009 as the crisis peaked out.

Now if you try and figure out who should be held responsible for creating such a financial disaster, which was of a larger magnitude than that witnessed during the second world war, all clues point towards global financial centers in the developed world.

Yes, the roots to the crisis were tied to the irresponsible financial practices by the developed countries, and it was the developing markets that faced the unwarranted disaster. Now the recovery has spanned well for over past two years but we are not out of woods yet, there is a feeling that another economic disaster is looming in near future. So, its time and a wakeup call for developing nations to better prepare for external shocks.

Globalization and openness to integrate has its own benefits and risks, but its poor diversification which exposes an economy to higher external risks. The key problem arises when exports are concentrated, so diversification remains the key to reduce volatility in times of global economic downturns. And diversification should be done on grounds, Product and Market, as only that can significantly cut down integrated economic risks.

BRIC nations are working strong on export diversification, and now they are increasingly integrating among themselves, this will surely cut down the impact of any impending economic crisis as earlier these nations were highly reliant on developed market in US and Europe.

I Recommend Reading:-

How will the US Economy Shape Up in the Ongoing Global Recovery? Is the Recovery Process Self-Sustainable?

US Market Crash: What should I do now?

Why are Emerging Markets key Destinations for Staggering Equity Returns (updated)

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