The Natural Instability of Financial Markets Jan Kregel

[Working Paper No. 04/2009] This paper gives a detailed exposition of Hyman Minsky’s Financial Instability Hypothesis which takes the US financial system as its reference structure and provides a historical account of financial sector evolution and regulatory changes in the US in the run up to the current crisis. In Minsky’s approach, fragility is inherent in the successful operation of the capitalist economic system, and results from changes in the liquidity preferences of bankers and businessmen for a given degree of maturity mismatching. While financial fragility is independent of financial regulation, regulation may play a role in the rate of…

Macroeconomic Regime, Trade Openness, Unemployment and Inequality: The Argentine Experience Roxana Maurizio

[Working Paper No. 03/2009] This paper analyzes the Argentine experience of the interactions of macroeconomic regime, labour performance, income distribution and poverty during the Convertibility Plan and the new macroeconomic regime that followed the collapse of the currency board regime. Differing theoretical perspectives are discussed, and diverse labour and social indicators analyzed. The macroeconomic framework is found to have a bearing on the social situation. Further, the negative effects of the macroeconomic configuration on the labour market and income distribution persist even after the country has resumed a growth path. The complete recovery of the standard of living conditions thus…

Cuba: Economic Restructuring, Recent Trends and Major Challenges Elda Molina Díaz

[Working Paper No. 02/2009] The collapse of the European socialist block at the end of the 1980s caused a deep crisis in the Cuban economy. One of the distinctive features of the process of adjustment and reform of the Cuban economy carried out by the government was that even during the worst period of the crisis, the Revolution’s main social achievements in education, healthcare and social security were preserved. At the same time, the measures introduced by the government succeeded in the following areas: resumption of economic growth; sectoral diversification and reinsertion into the world markets; and partial correction of…

Patterns of Adjustment in the Age of Finance: The Case of Turkey as a Peripheral Agent of Neoliberal Globalization A. Erinç Yeldan

[Working Paper No. 01/2009] Following the 2000-01 crisis, Turkey implemented an orthodox strategy of raising interest rates and maintaining an overvalued exchange rate. But, contrary to the traditional stabilization packages that aim to increase interest rates to constrain domestic demand, the new orthodoxy aimed at maintaining high interest rates to attract speculative foreign capital. The end result was shrinkage of the public sector, deteriorating education and health infrastructure, and failure to provide basic social services to the middle class and the poor. Furthermore, as the domestic industry intensified its import dependence, it was forced to adapt increasingly capital-intensive foreign technologies…

Back to the Future: Latin America’s Current Development Strategy Esteban Pérez Caldentey and Matías Vernengo

[Working Paper No. 07/2008] From 2002 to 2006, Latin America registered one of the highest average growth rates in over two decades. The empirical evidence suggests that the good economic performance of the last 6 years (including 2007-08) is increasingly and strongly correlated either with a positive terms-of-trade shock, mostly in South America, or with the increase in the flow of remittances, particularly in Central and North America. In other words, Latin America now exports commodities and people. The paper shows the possible limitations of this development strategy. 07_2008 (Download the full text in PDF format)  

The New Regionalism in Southeast Asian Trade Policy and Issues in Market Access and Industrial Development: An Analysis of the ASEAN-China Free Trade Agreement Smitha Francis and Murali Kallummal

[Working Paper No. 06/2008] This paper argues that the recent bilateral free trade initiatives of ASEAN members and, in particular, the ASEAN-China free trade agreement (ACFTA), are driven by ASEAN’s desire to maintain its export growth based on the regional production networks promoted by multinational corporations. The paper undertakes an analysis of ASEAN-China bilateral trade and the tariff preferences under the ACFTA to understand the actual prospects for Southeast Asian countries to expand their market access. It is concluded that without effective strategies for industrial upgradation and restructuring at the national levels, ASEAN’s attempts to obtain increased investment and export…

Endogenous Money in the Age of Financial Liberalization Gökçer Özgür and Korkut A. Ertürk

[Working Paper No. 05/2008] The paper reports results showing a much weakened statistical relationship between total bank credit, total deposits and the broad money supply for the period after 1995 for the US, where no statistical causation can be discerned in either direction. This has been the result of the changing nature of the credit creation process where banks have acquired almost total independence in extending credit from required reserves and core deposits and an ability to circumvent the constraint posed by capital requirements through asset securitization. Because of the explosive increase in nonbank intermediation this has caused, the expansion…

Using Minsky’s Cushions of Safety to Analyse the Crisis in the U.S. Subprime Mortgage Market Jan Kregel

[Working Paper No. 04/2008] Hyman P. Minsky's financial fragility hypothesis appears highly relevant in understanding the current crisis in the financial systems of developed countries. His most important contribution to our understanding of the logic of repeated financial crises under capitalism is that of endogenous instability, expressed in terms of a declining 'margin' or 'cushion' of safety in financial transactions and an increase in financial leverage that he called 'layering.' However, the paper also argues that the current crisis differs in important respects from the traditional analysis of a Minsky crisis. These differences have had a significant impact on the…

Regional Trade Agreements and Improved Market Access in Developed Countries: A Reality Check and Possible Policy Alternatives Parthapratim Pal

[Working Paper No. 03/2008] This paper investigates issues related to motivation, market access and costs in the context of Regional Trade Agreements (RTAs), and tries to understand whether there is any clear pattern between the signing of RTAs by developing countries and increase in their market share in developed countries. It also analyzes the possible costs a developing country will have to bear to gain the actual preferential market access. 03_2008  (Download the full text in PDF format)

Growth Patterns, Income Distribution and Poverty: Lessons from the Latin American Experience Carlos Aguiar de Medeiros

[Working Paper No. 02/2008] This paper explores some of the factors linking income growth, income distribution and poverty, historically observed in LACs, with particular reference to the recent experiences in Argentina, Brazil, Chile, Mexico and Venezuela. Given that the LACs have historically shown a high level of income concentration by all measures along with a high level of poverty which has invited a multitude of interpretations, this paper tries to analytically explore some myths on Latin American income distribution that are ingrained in the conventional literature. 02_2008 (Download the full text in PDF format)