Download - MIBE The economics of emerging economies
MIBEThe economics of emerging economies
The role of Finance in economicThe role of Finance in economic
development and the emerging development and the emerging economieseconomies
Gianni Vaggi
University of Pavia
April, 2014
MIBEThe economics of emerging economies
The role of Finance in economicThe role of Finance in economic
development and the emerging economiesdevelopment and the emerging economies
Finance 1-1Finance 1-1
Different financial flows and the Balance of Payments
Introduction:Introduction:
The rich and the poorThe rich and the poor
Countries with more than 100 million people, 2011 (World Development Indicators 2013)
India 1.241
United States 311
Indonesia 242
Brazil 196
Pakistan 176
China 1.344
Nigeria 162
Bangladesh 150
Russian Federation 143
Japan 127
Mexico 114
Population Density
Population, millions
World Bank income groupsGNI per capita 2012, WDI 2014
Low $ 1,035 or less
Lower middle $ 1,026 – 4,085
Upper middle $ 4,085 – 12,616
High $ 12,616 or more
PartPart 1 1
Economic growth and Economic growth and capital accumulationcapital accumulation
GDP Growth rates
-30
-20
-10
0
10
20
30
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
China
Korea, Rep.
Mexico
Brazil
South Africa
Vietnam
Malaysia
BRICS Capital accumulation
The engine for growth-1
The role of the governments:– Policies ensuring macroeconomic stability– Government and financial markets– Policies promoting equality(education, land
reform)
The engine for growth-2
•The profit-saving-investment nexus
•Industrial policies (promoting accumulation of physical and human capital)
•activities (altering the allocation of resources) Export promotion-SEZ
Part 2Part 2
What if a country does not have What if a country does not have its own capital to accumulate?its own capital to accumulate?
Financing DevelopmentFinancing Development
Private
•FDIs
•Workers’ remittances
•Portfolio Investment
•Stocks
•Bonds
•Loans
•NGOs
Public-ODA
•Bilateral
•Multilateral
•Technical assistance
•Concessional loans
•Grants
•Debt cancellation
Non debt
Debt
Total net resource flows to developing countries, by type of flow, 1990-2016f (Billions of Dollars)
1. AID THROUGH NGOS
2. OFFICIAL DEVELOPMENT ASSISTANCE
3. PORTFOLIO INVESTMENTS
4. FOREIGN DIRECT INVESTEMENTS
5. REMITTANCES
Short Memo about:
1-NGOs1-NGOs
Represent specific local and international Represent specific local and international interest groups concerninginterest groups concerning
• Emergency reliefEmergency relief
• Child healthChild health
• Women’s rightsWomen’s rights
• Alleviating povertyAlleviating poverty
• Increasing food productionIncreasing food production
NGOs; PROs and NGOs; PROs and ConsConsPROs PROs • Less constrained by political imperativesLess constrained by political imperatives
• Strength at local levelsStrength at local levels
ConsCons• Small projectsSmall projects
• Short-medium term projectsShort-medium term projects
2-Foreign Aid, ODA2-Foreign Aid, ODA
DEF.DEF. Any flow of capital to LDCsAny flow of capital to LDCs
• Its objective should be Its objective should be nonnon commercialcommercial from the point of view of the donorfrom the point of view of the donor
• It should be characterized by It should be characterized by concessional concessional termsterms (i.e. i and repayment period for (i.e. i and repayment period for borrowed capital less stringent then borrowed capital less stringent then commercial terms)commercial terms)
Aid can be tiedAid can be tied
• By SOURCE By SOURCE
(loans or grants have to be spent on the (loans or grants have to be spent on the purchase of donor-country goods and purchase of donor-country goods and service)service)
• By PROJECTBy PROJECT
funds can only be used for a specific funds can only be used for a specific projectproject
Aid AllocationAid Allocation
Rarely determined by relative needs of DCs. Rarely determined by relative needs of DCs. Most bilateral aid seems unrelated to Most bilateral aid seems unrelated to development priorities and are based development priorities and are based largely on POLITICAL or largely on POLITICAL or ECONOMICALLY RATIONAL ECONOMICALLY RATIONAL considerations.considerations.
3-Portfolio Investments3-Portfolio Investments
• Foreign Portfolio InvestmentForeign Portfolio Investmentstocksstocksbondsbonds
in emerging credit or equity marketin emerging credit or equity market
• 1/3 of overall net resource flows to DCs1/3 of overall net resource flows to DCs
• INVESTOR: investing in emerging countries permits toINVESTOR: investing in emerging countries permits to– Increase returnsIncrease returns– Diversify riskDiversify risk
• RECIPIENT: portfolio flows as vehicle for RECIPIENT: portfolio flows as vehicle for raising capital for domestic firmsraising capital for domestic firms
LARGE but VOLATILE … LARGE but VOLATILE …
May represent a destabilizing force forMay represent a destabilizing force for
• Financial marketsFinancial markets
• Overall economyOverall economy
(i.e. Mexico crisis, hot money)(i.e. Mexico crisis, hot money)