MIBE The economics of emerging economies

1. MIBEThe economics of emerging economies The roleof Finance in economic development and the emergingeconomies Gianni Vaggi Universityof Pavia April, 2014

2. MIBEThe economics of emerging economies The roleof Finance in economic development and the emergingeconomies Finance 1-1 Differentfinancialflows and the BalanceofPayments

3. Introduction: The rich and the poor

5. Countries with more than 100 million people, 2011 (World Development Indicators 2013)

6. Population Density

7. Population, millions

8. World Bank income groupsGNI per capita 2012, WDI 2014 Low $ 1,035 or less Lower middle $ 1,026 – 4,085 Upper middle $ 4,085 – 12,616 High $ 12,616 or more

11. Part 1Economic growth and capital accumulation

17. BRICS Capital accumulation

22. The engine for growth-1 The role of the governments: • Policies ensuring macroeconomic stability • Government and financial markets • Policies promoting equality(education, land reform)

23. The engine for growth-2 The profit-saving-investment nexus Industrial policies (promoting accumulation of physical and human capital) activities (altering the allocation of resources) Export promotion-SEZ

25. Part 2What if a country does not have its own capital to accumulate?

26. Financing Development • Private • FDIs • Workers’ remittances • Portfolio Investment • Stocks • Bonds • Loans • NGOs • Public-ODA • Bilateral • Multilateral • Technical assistance • Concessional loans • Grants • Debt cancellation Non debt Debt

28. Total net resource flows to developing countries, by type of flow, 1990-2016f (Billions of Dollars)

31. Short Memo about: 1. AidthroughNGOs2. OfficialDevelopmentAssistance3. Portfolio Investments4. ForeignDirectinvestements5. Remittances

32. 1-NGOs Represent specific local and international interest groups concerning Emergency relief Child health Women’s rights Alleviating poverty Increasing food production

33. NGOs; PROs and Cons PROs Less constrained by political imperatives Strength at local levels Cons Small projects Short-medium term projects

34. 2-Foreign Aid, ODA DEF. Any flow of capital to LDCs Its objective should be noncommercial from the point of view of the donor It should be characterized by concessional terms (i.e. i and repayment period for borrowed capital less stringent then commercial terms)

35. Aid can be tied By SOURCE (loans or grants have to be spent on the purchase of donor-country goods and service) By PROJECT funds can only be used for a specific project

36. Aid Allocation Rarely determined by relative needs of DCs. Most bilateral aid seems unrelated to development priorities and are based largely on POLITICAL or ECONOMICALLY RATIONAL considerations.

37. 3-Portfolio Investments Foreign Portfolio Investment stocks bonds in emerging credit or equity market 1/3 of overall net resource flows to DCs INVESTOR: investing in emerging countries permits to Increase returns Diversify risk

38. RECIPIENT: portfolio flows as vehicle for raising capital for domestic firms LARGE but VOLATILE … May represent a destabilizing force for Financial markets Overall economy (i.e. Mexico crisis, hot money)