lecture 3: emerging markets and elements of country risk analysis
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Lecture 3:
Emerging Markets and Elements of Country Risk Analysis.
World Trading System:Four Phases
1952-1972: Development Strategies;
1972-1980: Transition and Reorientation;
1980-1990: Macro Adjustment, Trade Reform and shift in Development Strategies;
1990-2007: New Globalisation Wave and WTO.
1952-1972 Development Strategies
Industrialisation in LDC: Import substitution industrialisation (ISI).
Ideology: socialist versus capitalist development Role of Government and private sector; Role of Planning.
Early shift to Export Led Growth (ELG) on mfg: Asian miracle: Korea, Taiwan, HK and Singapore; Role of Global Markets; Role of Government.
1952-1972World Trade
Developing Countries dependent on OECD markets: Export of primary commodities; Import industrial goods.
Trade Blocks: North-South trade; Little South-South trade.
1972-1980Transition
Emergence of East and South East Asia Trade Block;
Growth of Trade in mfg in developing countries: Success in ELG development strategy (also
during oil crises 1975-1978). Failure of socialist development model:
Increase role of markets: capitalist model; Concern with price distortions.
1980sAdjustment and Development
Financial and Macro Crises: Inflation; Financial capital flows and shocks;
Continued global trade liberalisation;
Spread of ELG development strategy.
Lessons (1)
Failure of socialist development model No productivity growth; Enormous distortions, rent seeking, and
misallocation of resources.
Failure of ISI development strategy Bias against agriculture; Autarchy and ISI failed to insulate domestic
economy:• Macro shock:• Protection and rent seeking: high cost.
Lessons (2)
ELG Strategy: Comparative Advantage: labour-intensive mfg
exports; Better performance for poverty alleviation and
income distribution; Importance of mfg trade in ELG
Value added chains; Declining importance of primary commodities
Terms of Trade Problem Reforms as a reaction to a crisis:
First VS second generation reforms; It’s not a good strategy for development.
1990-2007New Globalisation Wave
Expanded role of International Governance: Entry of Developing Countries in WTO;
Expanded role of trade: Trade in services; Fragmentation of Production
• Value chains;• Productivity gains;
Continued Evolution of Global Trade Blocks: LAC, Africa, East and South East Asia; Asian Drivers: China and India.
Trade Policy and reforms slow down.
Emerging Markets?!?!?
Countries: Asia (China! India! Indonesia!); Latin America (Brazil!); Africa (South Africa!); East Europe and Russia.= BRIICS
Strengths and Opportunities; Weaknesses and Threats.
Strengths and Opportunities
Strengths and Opportunities: Economic Growth and Income Convergence
Strengths and Opportunities: Share in World Output
Strengths and Opportunities: Industrial Production
Strengths and Opportunities: Export Share
Export and Import Growth
Share of Industrial Countries in world export
Share of Developing Countries in world export
GDP, Export and Imports
Weaknesses and Threats: volatility of per capital income growth rates
Weaknesses and Threats: Exchange Rate Instability
Weaknesses and Threats: Default and Crisis
Weaknesses and Threats: not only economic aspects
NOT only economy features but also Socio-Political Elements! Weak Infrastructure; Lack of specialised intermediaries; Weak regulatory system; Weak contract-enforcing mechanisms;
Instable political system
Invest or not Invest?
YES! Growing economies; Increasing investment opportunities; High revenues.
NO! Default risk; Volatility and Instability.
Further Reforms could decrease risk?
YES: Second Generation Wave of Reforms: Complex domestic regulation; service
regulation; technical standards; IPR, administration and competition rules;
Improve the business-climate! Link between trade policy and domestic
economic policy and institutional reforms; Less dependent on trade negotiation and
international organisation foreign-policy agenda;
More transparent!
Developing Countries and The Financial Crisis (1)
Financial sector Decrease in the capital inflow; Risk of capital outflow; Increase in the risk ratio of these countries; Devaluation of exchange rate; Negative feed-backs on real investment!
Real Economy: Decrease in the demand for export; Decrease in FDI inflows; Lower commodity prices (+ and -)
Developing Countries and The Financial Crisis (2)
Central and Eastern Europe are being the most adversely affected Large current account (fiscal and external) deficit;
Latin America: tight financial condition and weaker external demand; Brazil and Mexico more hurtled from the world crisis;
Emerging Asia: Reliance on manufacturing exports; BUT domestic demand and strong policy stimulate the
economy! Africa and Middle East:
Lower GDP decrease than other regions Commodity exporters; Lower remittances; FDI and aid flows reduction.
Russia Federation and Brazil
China and India
References
Razeen Sally (2009): “Globalisation and the Political Economy of Trade Liberalisationin the BRIICS”, chapter 4 in Lattimore and Safadi (2009): Globalisation and Emerging Economies”, OECD.
IMF (2009): ”Global Economic Policies and Prospects”, G20, London 13-14 March 2009.
Bergsten, C.F. (1999): “The Global Trading System and the Developing Countries in 2000”, WP 99-6, Institute for International Economics.
Balassa (1990): “Trade Between Developed and developing countries: a decade ahead”
Will, M. (2001): “Trade policy, developing Countries and Globalisation”, World Bank, Development Research Group.