The Effect of 2008 Financial Crisis on the Distribution of Economic Power

AuthorManmohan Agarwal,Amrita Brahmo
Publication Date01 Apr 2020
DOI10.1177/0020881720918966
SubjectResearch Articles
Research Article
1 Former Dean, School of International Studies Jawaharlal Nehru University, New Delhi, India.
2 Centre for Development Studies, Trivandrum, India.
3 Research and Information Systems for Developing Countries, New Delhi, India.
Corresponding author:
Manmohan Agarwal, School of International Studies, Jawaharlal Nehru University, New Delhi, Delhi
110067, India.
E-mail: manmohan44@gmail.com
International Studies
57(2) 87–110, 2020
2020 Jawaharlal Nehru University
Reprints and permissions:
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DOI: 10.1177/0020881720918966
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The Effect of 2008
Financial Crisis on
the Distribution of
Economic Power
Manmohan Agarwal1,2
Amrita Brahmo3
Abstract
There has been considerable debate over whether the USA is losing its
stronghold over the world economy and its power declining, giving way to new
leadership from the emerging economies (EEs) like China. This article uses the
notion of power based on the resources available to a state. It uses a number of
measures to measure the resources available to a state and so assess economic
power. It finds that there has been a slight decline in the importance of the
developed countries and an increase in that of the developing countries (DCs).
However, there is a slight decline in the power of the USA. The increase in
the importance of developing countries is mainly on account of China. But the
changes do not mean that developing countries can get the changes they desire.
There is more of a stalemate.
Keywords
Developing economies, economic size, finance, GDP, power, world economy
Introduction
There has been considerable debate over whether the USA is losing its stronghold
over the world economy and its power declining, giving way to new leadership
from the emerging economies (EEs) like China. It is not easy to define the concept
of power in the sphere of international relations (Baldwin, 2013; Gilpin, 1981).1
88 International Studies 57(2)
Power can be interpreted in a dual sense—actively, in terms of the influence that
a state can exert on the working of other states, and, passively, as the ability to
resist pressure from others and so the freedom to navigate its own policy space
(Cohen, 2015; Friedberg, 1988). A second issue that arises in an analysis of power
is whether it can be measured. Broadly speaking, there are two schools of thought:
one believing that whether a country is powerful is one of perception (Kissinger,
1994; Morgenthau, 1948) and the other that power can be measured. There is also
the question of how one deals with different components of power, economic
power military power, soft power, etc., and the interrelations between the different
concepts of power.
Another question that is important is the source of power. Some analysts
believe that power is relational, arising from the manner in which states relate to
each other in the international system (Hirschman, 1969; Keohane & Nye, 1977).
Others contend that power arises from the military and economic resources
available to a state. The extent of resources influences, for instance, the ability to
wage war (Singer, Bremer, & Stuckey, 1972). Where power arises from the
resources available to a state, it is amenable to measurement. A number of indices
have been calculated to measure power.2
This article attempts to analyse whether power has shifted since the financial
crisis of 2008. Analysts have been contending for many years that the USA is
declining in power. In the views of most analysts, this decline in USA power
occurs because of a collapse of confidence in the dollar either gradually as in
Triffin or because of a sudden shift in confidence in the stability of the USA
financial system and thus the stability of the dollar. Triffin warned, in 1960 (p.
230), of ‘the imminent threat to the once mighty dollar’.3 Kindleberger declared
that the dollar was finished after the dollar’s gold convertibility was removed in
1971. Again, after the 2008 crash, Eichengreen (2004, p. 121) wrote, ‘doubts are
pervasive as to whether the dollar will retain its international role’. A bit later in
2014, Jonathan Kirshner (2014, p. 140) stated unequivocally of a ‘dollar
diminution’.4
We examine whether such views are correct by examining the effect on relative
economic power of the 2008 financial crisis, which originated in the USA.
We use a number of different ways to measure the changing importance of
countries in the world economy. In the second section, we study the changes in the
share of different countries and regions in the increases in world GDP and world
exports. Then in the third section, we examine the change in ranks according to
GDP during the period 1965–2015. Next, in the fourth section, we examine the
relationship between the GDP and GDP per capita of different countries and
regions relative to that in the USA to see whether there is convergence. In the fifth
section, we aggregate a number of indicators to get an index of economic power
in order to examine whether the ranks given by the measure have changed over
time. We construct two indices, one that includes financial indicators and another
that excludes financial indicators. This will help us to analyse the role that the
USA financial system and the dollar plays in economic power. These indices give

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