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Abstract
This volume examines a plethora of issues related to international capital flows, including the inevitable crisis that arises from the absorption of large volumes of capital inflow; the vast difference between foreign portfolio investment and foreign direct investment (FDI) from the point-of-view of the recipient country; the impact of different regulatory mechanisms; and various policy options for developing countries in the face of fluid international capital movements.
Ashwini Deshpande is a professor in the Department of Economics at the Delhi School of Economics. She holds a PhD and an MA in Economics, and was awarded the Exim bank award for an outstanding dissertation in 1995. She is also the 2007 recipient of the VKRV Rao Prize in Economics, awarded to economists below the age of 45 for their outstanding contribution to the field.
This book contains selected papers from the Annual Conference on Development and Change (ACDC) held at Sao Paulo in November 2006. Second in a series of three conferences, the 2006 ACDC showcased research by relatively younger scholars. While precise and rigorous alternatives to the neoliberal agenda are often overlooked in the huge volume of literature that addresses the larger issues, both aspects - the larger picture and the smaller nuts-and-bolts details - are very important, and this volume fills the gaps in the latter category. These papers were written before the global recession, and events subsequent to the conference and the writing of these papers have validated several of the concerns raised by their authors.
This volume focuses on a plethora of issues from the point of view of the South. It demonstrates, for example, that if capital inflows exceed a certain volume - no matter how they are absorbed - such openness will inevitably result in a crisis in the receiving country. The popular understanding of foreign portfolio investment as more benign than foreign direct investment (FDI) is also challenged. By contrasting contemporary capital flows as well as the international capital flows of the nineteenth century, this collection highlights the role of regulation and the role of the state, and ultimately emphasizes the need for recipient country governments to exercise policy options to control the volume of foreign capital inflows.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Front Matter | i | ||
| Half Title | i | ||
| Title | iii | ||
| Copyright | iv | ||
| TABLE OF CONTENTS | v | ||
| ACKNOWLEDGEMENTS | vii | ||
| LIST OF CONTRIBUTORS | ix | ||
| Main Matter | 1 | ||
| Chapter 1. INTRODUCTION | 1 | ||
| Chapter 2. HOW FINANCIAL LIBERALIZATION LED IN THE 1990s TO THREE DIFFERENT CYCLES OF 'MANIAS, PANICS AND CRASHES' IN MIDDLE-INCOME COUNTRIES | 11 | ||
| Introduction | 11 | ||
| The 'Three Routes' to Financial Crisis | 12 | ||
| The Latin American Story: To Sterilise or Not to Sterilise a Mainly 'Exogenous Push' of Foreign Captial – Route-1 vs. Route-2 | 16 | ||
| The East Asia Story of an 'Endogenous Pull' of Foreign Captial: The Cost of Maintaining High Levels of Investment in the Face of Rapidly Falling Profits | 25 | ||
| The Day of Reckoning | 28 | ||
| Conclusions | 29 | ||
| Notes | 34 | ||
| References | 36 | ||
| Chapter 3. TIMING THE MEXICAN 1994–95 FINANCIAL CRISIS USING A MARKOV SWITCHING APPROACH | 39 | ||
| Abstract | 39 | ||
| Introduction | 40 | ||
| Minsky's Financial Instability Hypothesis and the M2/R Ratio | 42 | ||
| Timing the 1994–95 Mexican Financial Crisis | 45 | ||
| Conclusions | 49 | ||
| Notes | 50 | ||
| References | 51 | ||
| Chapter 4. EXCHANGE RATES, GROWTH AND INFLATION: WHAT IF THE INCOME ELASTICITIES OF TRADE FLOWS RESPOND TO RELATIVE PRICES? | 53 | ||
| Abstract | 53 | ||
| Introduction | 53 | ||
| Two Views on the Balance-of-Payments Constraint | 55 | ||
| Exchange Rates and Growth in the Long Run | 61 | ||
| Inflation Targeting and Exchange Rates | 65 | ||
| Notes | 69 | ||
| References | 69 | ||
| Chapter 5. ALTERNATIVE MEASURES OF CURRENCY AND ASSET SUBSTITUTION: THE CASE OF TURKEY | 71 | ||
| Abstract | 71 | ||
| Introduction | 72 | ||
| Turkish Economy 1989–2007 | 72 | ||
| The Model | 76 | ||
| The Empirical Investigation | 76 | ||
| Conclusion | 80 | ||
| Appendix | 81 | ||
| Notes | 86 | ||
| References | 87 | ||
| Chapter 6. COMPETITIVE DIVERSIFICATION IN RESOURCE ABUNDANT COUNTRIES: ARGENTINA AFTER THE COLLAPSE OF TEH CONVERTIBILITY REGIME | 89 | ||
| Introduction | 89 | ||
| The Scandinavian Model | 92 | ||
| Structural Constraints to Productive Diversification in Resource Rich South American Countries | 97 | ||
| Macroeconomic Diversification Policies | 101 | ||
| Do Macroeconomic Policies Suffice? | 107 | ||
| Some Final Comments | 110 | ||
| Appendix | 112 | ||
| Notes | 115 | ||
| References | 117 | ||
| Chapter 7. FOREIGN PORTFOLIO INVESTMENT, STOCK MARKET AND ECONOMIC DEVELOPMENT: A CASE STUDY IN INDIA | 121 | ||
| Abstract | 121 | ||
| Introduction | 122 | ||
| How Foreign Portfolio Flow Can Help an Economy | 123 | ||
| Portfolio Captial Flow and India: The Empirical Evidence | 125 | ||
| Possible Reasons behind the Dichotomy of Secondary and Primary Market | 133 | ||
| Why High Portfolio Catital Inflow has not Helped the Real Economy? | 136 | ||
| Notes | 142 | ||
| References | 143 | ||
| Chapter 8. TRANSNATIONAL CORPORATIONS AND THE INTERNATIONALIZATION OF RESEARCH AND DEVELOPMENT ACTIVITIES IN DEVELOPING COUNTRIES: THE RELATIVE IMPORTANCE OF AFFILIATES IN ASIA AND LATIN AMERICA | 147 | ||
| Abstract | 147 | ||
| Introduction | 147 | ||
| TNCs and the Globalization of R&D Activities | 149 | ||
| The Internationalization of U.S. TNCs' R&D Activities: The Insertion of Latin American and Asian Developing Countries | 152 | ||
| Final Remarks | 160 | ||
| Notes | 162 | ||
| References | 162 | ||
| Chapter 9. EXTERNAL DEBT NATIONALIZATION AS A MAJOR TENDENCY ON BRAZILIAN EXTERNAL DEBT IN THE TWENTIETH CENTURY: THE SHIFTING CHARACTER OF THE STATE DURING DEBT CRISIS | 165 | ||
| Abstract | 165 | ||
| Objective | 166 | ||
| The Old Republic (1906–1930) | 167 | ||
| Brazil 1906–1914: Federal Government's Indirect Participation | 168 | ||
| Federal Government Direct Participation and Sao Paulo's Response (1920–1931) | 170 | ||
| The Years of Rapid Economic Growth (1947–1962) | 173 | ||
| President Goulart and the Generals (1962–64) | 177 | ||
| The Return of the Private Bank Loans and the Debt Crisis (1968–1982) | 178 | ||
| The Return of Compensatory Finance (1994–1998) | 180 | ||
| Conclusions | 184 | ||
| Notes | 184 | ||
| Bibliography | 185 | ||
| Chapter 10. PRUDENTIAL REGULATION AND SAFETY NET: RECENT TRANSFORMATIONS IN BRAZIL | 187 | ||
| Abstract | 187 | ||
| Introduction | 187 | ||
| Brazil | 190 | ||
| Remedying the Stystem: Emergency Measures | 193 | ||
| Improvements in Prudential Regulation | 196 | ||
| Final Remarks | 203 | ||
| Notes | 204 | ||
| References | 206 | ||
| Chapter 11. RE-CRAFTING BILATERAL INVESTMENT TREATIES IN A DEVELOPMENT FRAMEWORK: A COMPARATIVE REGIONAL PERSPECTIVE | 209 | ||
| Overview | 209 | ||
| Objectives | 210 | ||
| BITS and FDI | 210 | ||
| Understanding Development Concerns in Bilateral Investment Treaties with Special Reference to Dispute Settlement Systems | 212 | ||
| Study of BITS in a Comparative Regional Perspective: Case Studies of teh Dabhol Power Project in India and Cochabama Water Privatisation in Bolivia | 219 | ||
| Origin and Launch of the Power Project | 219 | ||
| Salient Features of the Power Purchase Agreement | 220 | ||
| Comparison of the Netherlands-India BIT with the IISD's Model International Investment Agreement on Investment for Sustainable Development | 226 | ||
| Conclusion | 228 | ||
| Notes | 228 | ||
| Annexure I | 234 |