Engineering a New Crisis to resolve an Old One C.P. Chandasekhar

News that the US economy grew at 3 per cent during the hurricane-blighted third quarter of 2017, close to the 3.1 per cent recorded in the previous quarter, has once more revived claims that the world economy has left the Great Recession behind. There is one reason to discount this claim. Back to back 3 per cent annualized rates of growth in consecutive quarters has been observed more than once since the 2008 crisis. In fact, as recently as the second and third quarters of 2014, rates of GDP growth in the US stood at 4.6 and 5.2 per cent…

Finance Following Growth Jomo Kwame Sundaram and Anis Chowdhury

Economists of all persuasions recognize the critical role of finance in economic growth. The financial sector's stability and depth are widely considered important in this connection. Thus, many believe that the lack of a well-developed financial sector constrains growth in developing countries. Neoliberals generally attribute this to excessive regulation, especially the role of state-owned financial institutions, interest rate limits and restrictions on short-term cross-border capital flows. It is often assumed that banks and financial markets allocate capital to the most productive endeavours, and that the financial infrastructure for credit reduces ‘information inefficiencies', such as ‘moral hazard' and ‘adverse selection'. Another…

Trumping the NAFTA renegotiation: An alternative policy framework for Mexican-US cooperation and economic convergence Robert A. Blecker, Juan Carlos Moreno-Brid and Isabel Salat

NAFTA has utterly failed from a development standpoint and Mexico and US both need a new policy regime to reverse that rising inequality, secular stagnation, and regional divergences. If done with a cooperative spirit, the renegotiation of NAFTA can be a win-win for both, but a hasty US withdrawal from it would not work in favour of the average US and Mexican citizens. NAFTA_Renegotiation (Download the full text in PDF format) (This article was originally published in the World Economics Association)

Monitoring the Evolution of Latin American Economies using a Flow-of-funds Framework Esteban Peez Caldentey and Manuel Cruz Luzuriaga

Flow-of-funds accounting permits to monitor the financial sector in terms of flows and stocks and to analyze its relationship with the real sector. Traditionally practised in developed nations, this accounting has not experienced a parallel development in developing countries. In order to fill this gap, the paper undertakes the construction of a data base of flow-of-funds account matrices for various Latin American and Asian countries, exemplifying their use for the study of financial crisis in these regions. Monitoring_Evolution (Download the full text in PDF format)

Emerging Markets at Risk Again Jomo Kwame Sundaram

Emerging market governments often draw lessons from previous financial crises – or at least claim to do so – to prevent their recurrence. However, such preventive measures are typically designed to address the causes of the last crisis, not the next one. Hence, some measures adopted may inadvertently become new sources of instability and crisis. Very rarely are the root causes of crises and vulnerability addressed. In their efforts to prove themselves as worthy emerging markets, they tend to be pro-active in joining the financial globalization bandwagon. But premature financial liberalization – with hasty integration into the international financial system,…

Mounting Illicit Financial Outflows from South Jomo Kwame Sundaram and Zera Zuryana Idris

Although quite selective, targeted, edited and carefully managed, last year's Panama Papers highlighted some problems associated with illicit financial flows, such as tax evasion and avoidance. The latest Global Financial Integrity (GFI) report shows that illicit financial outflows (IFFs) from developing countries, already at alarming levels, continue to grow rapidly. Illicit financial flows growing rapidly  With international financial liberalization enabling investments abroad, ‘legitimate outflows' have also been growing rapidly, heightening macro-financial risks to countries. Many of today's financial centres compete intensely to attract customers by offering lower tax rates and banking secrecy. It is generally presumed that IFFs are related…

The Slide of an Aging Leader C. P. Chandrasekhar

After 15 years, the Tata group has exited the mobile telephony business. Its assets in the area located in Tate Tele Services Ltd (TTSL) have been taken over by Bharti Airtel. The Tata name has featured in the mobile telephony market ever since it acquired Hughes Telecom (India), incorporated in 1995, and renamed it Tata Teleservice Maharashtra in 2002. Since Tata Tele’s other enterprise, retail fixed line, and broadband businesses are being merged with Tata Communications and Tata Sky, TTSL is in essence being dismembered. Few of the firm’s current employees would be absorbed by Airtel or the Tatas themselves.…

The Golden “Diwali Gift” Jayati Ghosh

The Modi government made its supposed determination to end corruption in India its signature theme. The massive damage done by demonetisation as well as the continuing chaos produced by the flawed introduction of the Goods and Services Tax have all been justified on the grounds of reducing possibilities of corruption and tax avoidance. Similarly, the imposition of Aadhaar requirements on the population for access to all manner of publicly provided goods and services is regularly justified on the grounds of reducing “leakages” and misappropriation of benefits. The Prime Minister has sought to burnish his image of anti-corruption crusader through emotional…

Why 1997 Asian Crisis Lessons Lost Jomo Kwame Sundaram

Various different, and sometimes contradictory lessons have been drawn from the 1997-1998 East Asian crises. Rapid or V-shaped recoveries and renewed growth in most developing countries in the new century also served to postpone the urgency of far-reaching reforms. The crises' complex ideological, political and policy implications have also made it difficult to draw lessons from the crises. Conventional wisdom  The conventional wisdom was to blame the crisis on bad economic policies pursued by the governments concerned. Of course, the vested interests favouring the international financial status quo or further liberalization also impede implementing needed reforms. Such interests continue to…