Policy Brief 11, October 2012

Financial Instability as a Threat to Sustainable Development.

As seen over and again during recurrent financial crises in both developing and advanced economies (DEs and AEs), including the recent global crisis originating in the US and Europe, financial instability and boom-bust cycles undermine all three ingredients of sustainable development – economic development, social development and environmental protection.

Financial bubbles generate excessive investment which remains unutilized for an extended period even after full recovery from the ensuing financial crisis. This includes investment in industry as in Japan in the late 1980s and early 1990s as well as in property, as seen during the current crisis in the US and Europe. This is the main reason why recoveries from financial crises see little investment.

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