How China is Managing Capital Flows – and why Jayati Ghosh

The global financial media are always on the lookout for signs of an impending financial crisis in China – and the dark prognostications about the future made by several external observers relate to both internal and external financial flows. But there are reasons to believe that both concerns may be overplayed, and that what is occurring especially with respect to cross-border flows is a much more complex process reflecting a medium-term plan of the Chinese state, in accordance with its much more assertive role in the global scene. There has been much discussion on rising internal debt levels, with analysts…

Coping with Foreign Direct Investment Jomo Kwame Sundaram and Anis Chowdhury

Foreign direct investment (FDI) is increasingly touted as the elixir for economic growth. While not against FDI, the mid-2015 Addis Ababa Action Agenda (AAAA) for financing development also cautioned that it "is concentrated in a few sectors in many developing countries and often bypasses countries most in need, and international capital flows are often short-term oriented". FDI flows UNCTAD's 2017 World Investment Report (WIR) shows that FDI flows have remained the largest and has provided less volatile of all external financial flows to developing economies, despite declining by 14% in 2016. FDI flows to the least developed countries and ‘structurally…

Southeast Asia: From Miracle To Debacle Jomo Kwame Sundaram

The World Bank and other influential international financial institutions and development agencies have been touting Southeast Asian (SEA) newly industrializing countries as models for emulation, especially by African developing countries seeking to accelerate their development transformations. But these recommendations are usually based on misleading analysis of their rapid growth and structural transformation. Sub-regional differences Typically, various cultural and other justifications are offered to justify recommending SEA, rather than Northeast Asia (NEA), as the better sub-region for emulation. Consequently, important lessons from East Asian experiences have been misrepresented, drawing erroneous lessons from the region's undoubtedly impressive economic performance during its high…

Most Financial Inflows Not Developmental Jomo Kwame Sundaram and Anis Chowdhury

Recent disturbing trends in international finance have particularly problematic implications, especially for developing countries. The recently released United Nations report, World Economic Situation and Prospects 2017 (WESP 2017) is the only recent report of a multilateral inter-governmental organization to recognize these problems, especially as they are relevant to the financing requirements for achieving the Sustainable Development Goals (SDGs). Resource outflows rising Developing countries have long experienced net resource transfers abroad. Capital has flowed from developing to developed countries for many years, peaking at US$800 billion in 2008 when the financial crisis erupted. Net transfers from developing countries in 2016 came…

Fighting for Policy Space Jayati Ghosh

Everyone recognises that erosion of the autonomy of national policy making (or briefly put, some loss of “policy space”) has been among the important effects of various processes of economic globalisation and the institutional arrangements that have accompanied them. There are broadly two schools of thought in this regard. One sees this as both a necessary and a virtuous outcome of global integration, which forces governments to do what is “ultimately best” for them and for others, notwithstanding possible short term pain. The second view not only contests the notion of one-size-fits-all policy direction, but sees this as a significant…

Transfer Pricing and Tax Evasion: Beyond the trans-Atlantic furore Smitha Francis

As the countries of the European Union struggle to find the resources required to close their budget deficits and face enormous pressure to cut expenditures, tax avoidance in their jurisdiction by US transnational corporations (TNCs) like Google, Amazon, Starbucks and Microsoft through transfer pricing practices has come under intense scrutiny by fiscal authorities there. Despite the irony, the significance of this should not be lost on developing country governments, where transfer pricing has long been an issue for host economies of foreign direct investment (FDI). Transfer pricing refers to the pricing set between two related companies in intra-company transactions or…

Importing Risk into Insurance C.P. Chandrasekhar

On October 4, in a cabinet decision that had been predicted by the media and expected by the stock market, the UPA II government announced hikes in the ceiling on foreign equity ownership from 26 to 49 per cent in units in the insurance sector and from nil to 49 per cent in the pension fund industry. This hike in the FDI ceiling, which was contrary to the recommendations of the Parliamentary Standing Committee, was part of a package of “insurance reforms”, that included: (i) granting permission to the public sector general insurance companies and the GIC to raise capital…

Investment Provisions in Trade Agreements: Critical issues Policy Brief No. 02/2011

A prominent feature of recent trade and economic agreements is the inclusion of investment provisions, which involve profound public policy commitments. This policy brief focuses on some of the key aspects that developing country policymakers have to bear in mind while entering into investment negotiations. PB_02_2011 (Download the full text in PDF format)