This week we are continuing to assess the new era of world trade that is emerging from the rollback of globalization. The fragmentation of trade threatens to widen the technological gap between the developed and developing worlds, stifling innovation and impeding poverty reduction. Another major risk to developing countries is a global debt crisis. Economists and global financial institutions are sounding the alarm over the unprecedented levels of debt across the world. To better understand these complex debt issues, we take a deeper look at China’s role as a major debt financier to the developing world. To round out this week’s newsletter, we compare the fragile state of democracy in Turkey and Nigeria.

Geoeconomic Fragmentation and the Future of Multilateralism:

Part II: Transmission Channels

International Monetary Fund

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As described in last week’s Geopolitics & the Day After, the interconnectedness of the world economy (a.k.a. globalization) is in trouble. The consequences of this global economic fragmentation (GEF) disturb several vital trends that increased global welfare, such as trade and technology. International trade has historically served as a way for low-income countries to catch up with higher-income countries. Trade also functions as a mechanism for reducing global poverty and increasing standards of living. The fragmentation of trade would reduce the economic potential of emerging economies, impeding global poverty reduction and lowering living standards. The free spread of technological innovation has also been a boon for the world. Globalization pushed the technological frontier and reduced the technological gap in many countries. Technological fragmentation would hurt innovation and significantly decrease productivity. Other trends that would be affected would be barriers to cross-border labor & capital flows, which would reduce efficiency and options for external financing. Additionally, the provision of public goods, such as measures mitigating climate change and preventing global pandemics, would be badly hurt by this process of fragmentation and would, in turn, make the world a less-safe place.

A Global Debt Explosion?

Project Syndicate

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The world’s debt, bloated by the 2008 global financial crisis and COVID-19, has swelled to an unprecedented 349% of the world’s GDP. Years of quantitative easing from central banks, where cheap money is pumped into financial systems, has kept borrowing costs ultra-low and served to prop up ‘zombie’ entities, entities that prove to be economically unviable as rising interest rates increase their debt-servicing costs. As central banks around the world tighten their monetary policy, these pockets of financial vulnerability will be exposed.



The debt crisis is likely to be particularly hard on developing countries. Soaring inflation, rising interest rates, and the strong dollar worsen these nations’ debt-service burdens, threatening to hurl many of them into economic ruin. Several of these countries are already in default, while others need debt relief to stave off this collapse. Compounding their troubles are the processes of deglobalization, decarbonization, and the end of the export-oriented growth model that has sustained many of their economies for many years. 

China: The Developing World’s Frontier

China’s Global Mega-Projects Are Falling Apart

Ryan Dube & Gabriele Steinhauser, The Wall Street Journal

China and the Sovereign-Debt Bomb

Anne O. Krueger, Project Syndicate

China has emerged as a leading financier and developer for the developing world. While some of these projects have shown significant merit, such as the Cauchari solar park in Argentina’s poor Jujuy province, which supplies 160,000 homes with power, other major projects from Ecuador to Pakistan to Uganda have all shown significant structural deficiencies. For instance, thousands of cracks have emerged in Ecuador’s Coca Codo Sinclair hydroelectric powerplant’s structure, threatening operations for Ecuador’s biggest powerplant. Major projects such as this one and many others are financed through an array of different Chinese banks and financial institutions, such as the Chinese Export-Import Bank. It is estimated that China accounts for over 50% of all debt owed by poor countries to official creditors. Some of the poorest countries have borrowed to cover balance-of-payment deficits, burning through their foreign reserves and jeopardizing future access to international capital in the process. The consequences can be seen in Sri Lanka and Zambia, with other countries, such as Tunisia, Ghana, and Pakistan set to follow. Even as China’s role grows within this space, China nonetheless refuses to play ball with the West and engage in multilateral debt-restructuring programs, opting instead for opaque bilateral debt-restructuring. While China agreed to the development of a Common Framework for debt restructuring at the G20 summit in 2020, no progress has been made on this front. A failure to bring the world together on the issue would represent a moral failure with real economic consequences both within developing countries themselves, and more broadly for the global economy.

The Rise and Fall of Democracy: Nigeria and Turkey

Turkey could be on the brink of dictatorship

The Economist

Nigerian democracy still has a pulse

David Pilling, Financial Times

Turkey and Nigeria are countries on different tracks of democratic evolution. Turkey, which had shown promise as a burgeoning democracy even during the early years of President Recep Tayyip Erdogan’s reign, is increasingly backsliding toward a possible dictatorship under Erdogan’s grip. The erosion of government checks and balances, appropriation of the media for state purposes, censorship of the internet, and jailing of opposition all fit the bill. With elections coming up in May, Western powers ought to show Erdogan that it is in his interest to maintain free elections, while also offering much-needed assistance to the Turkish economy through a revival of foreign direct investment, the export of critical Western technology, and other means.

Nigeria, on the other hand, could trend in the other direction. Nigeria, a country likewise in the runup to elections, is showing a competitive and open race, with a third party candidate, Peter Obi, displaying signs that he could win the election. While that may ultimately not be the case, it shows a level of democratic development that could presage a fast-growing and functioning democracy in a country set to overtake the US as the third most populous country within the next 25 years. That none of the three candidates is a former general, as the current president Muhammadu Buhari was, is also a positive signal. Nonetheless, the country has various internal problems ranging from terrorism, secessionist sentiment, and degradation of living standards. The prospect of a failing state is likewise real. That, coupled with a burgeoning autocracy in Turkey, foreshadows significant trouble for Europe, should either country fail to achieve their democratic potential.