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Foreign Direct Investments

Is your ‘emerging market’ securely fashionable?

Sina Odugbemi's picture

Traders crowd the post that handles Morgan StanleySo-called ‘emerging markets’ might as well be styles of frocks and blouses in the world of haute couture; they are in and out of fashion with similar unpredictability. One moment a market is all the rage; the next moment it is in the pits of despond. It is an all too familiar if sorry tale. You know that an emerging market is in fashion via the global business press, especially when reporters, pundits, analysts as well as paid boosters and carnival barkers, all produce pieces on the market displaying breathless admiration: What a wonderful place to be this is! What astonishing prospects!

If the emerging market is particularly blessed it will feature in one of the fancy acronyms of the day: BRICS, MINTS, the Breakout Nations, etc. Investment bankers are proving fecund when it comes to dreaming up these meaningless acronyms (if they did not have such real-world consequences!). For once an emerging market is deemed ‘hot’, money flows into it. Investors and hustlers pile in. People who express doubt, urge caution or circumspection are drowned out by the frenzy of adoration and boosterism.

Eventually, inconvenient facts that are too significant to ignore begin to emerge regarding the much-fancied emerging market.

Stock-markets lead to more FDI...or is it vice-versa?

Fulbert Tchana Tchana's picture
Most studies on the relationship between foreign direct investments (FDI) and financial market development focus on financial market development as a link between FDI and economic growth. However at present our disciple has no deep understanding of direct causality between FDI and financial market development, especially in emerging markets, where financial markets are in the development stage.
 

New challenges, new alliances

Jose Carlos Villena Perez's picture

Multilateral organizations and Southern Europe can do more to cooperate to restore these countries’ global competitiveness

One of the lessons learned from the past few years is that economic development processes are reversible. The once-bright southern Europe economies are languishing today, wrapped in a slow and painful process of adjustment aimed at restructuring their productive sectors and enter once and for all into the 21st century economy.

It’s clear that these countries’ recovery will not be achieved simply with reforming their administrative and regulatory frameworks. Perhaps one of the most complex issues that Italy, Portugal, and Spain are currently dealing with is the interruption of credit flows to the real economy. This interruption is doing considerable harm to the countries of southern Europe; the credit shortage is affecting their competitiveness and jeopardizing any possible hint of improvement, putting the overall global economic recovery at risk.

Don’t Throw the Baby with the Bathwater!

Zahid Hussain's picture

Paul Krugman’s September 6 article in the New York Times (How Did Economists Get It So Wrong?) is a humbling warning to the economics profession against the pitfalls of intellectual complacence. It challenges the profession to re-examine the validity of its existing knowledge particularly in relation to globalization and the workings of local and global financial markets.

Granted that economists have to face up to the unpalatable fact that our theoretical apparatus falls far short both as descriptions of how economies function and as prescriptions of how they can be made to function better. The crisis has exposed the limits of economic knowledge. According to Krugman: “The vision that emerge as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but one can hope that it will have the virtue of being at least partly right.”

In this process of reappraising existing economic knowledge, there is a real risk of going overboard and wrong the right knowledge. Using the global economic crisis as an excuse, there are emerging tendencies to reject tested economic wisdoms in areas such as the role of foreign capital and trade policy in economic development.

One school of thought that is attempting to rise from the ashes is known as (old) Structural Economics.