• Dani Rodrik on financial globalization failure

A few important paragraphs from Dani Rodrik interesting article:

“The main problem seems to be the paucity of entrepreneurship and low propensity to invest in plant and equipment – what Keynes called “low animal spirits” – especially to raise output of products that can be traded on world markets. Behind this shortcoming lay various institutional and market distortions associated with industrial and other modern-sector activities in low-income environments.

When countries suffer from low investment demand, freeing up capital inflows does not do much good. What businesses in these countries need is not necessarily more finance, but the expectation of larger profits for their owners. In fact, capital inflows can make things worse, because they tend to appreciate the domestic currency and make production in export activities less profitable, further weakening the incentive to invest.

Thus, the pattern in emerging market economies that liberalized capital inflows has been lower investment in the modern sectors of the economy, and eventually slower economic growth (once the consumption boom associated with the capital inflows plays out). By contrast, countries like China and India, which avoided a surge of capital inflows, managed to maintain highly competitive domestic currencies, and thereby kept profitability and investment high.

The lesson for countries that have not yet made the leap to financial globalization is clear: beware. Nothing can kill growth more effectively than an uncompetitive currency, and there is no faster route to currency appreciation than a surge in capital inflows”.

  • Mukul Asher on India rising role in Asia.

Some concluding comments from Asher paper .

“The role of Indian professionals, skilled and unskilled workers in contributing to Asia’s economic growth and dynamism also appears to have been underemphasized. In several key Asian countries, including Japan,

Malaysia and Singapore (and to a lesser extent in Australia), there has been noticeable increase in the size of the Indian diaspora. If the experience of the Indian diaspora in the U.S is any guide, then acceleration in economic linkages, and increase in comfort levels between India and these countries may be expected. Increasing presence of the Indian media and entertainment firms and products globally, including in Asia and Pacific countries, is also contributing positively to comfort levels. […]

India, on its part, must continue to broaden and deepen its domestic reforms with the main objective of improving governance and quality of life for its people. It is time Indian people in general, and its intelligentsia in particular developed a constructive, confident, and problem‐solving mind set to help India emerge as a modern, knowledge‐economy based and secure nation. “

  • World Bank paper on Sub-Saharan Africa joining globalization

“This paper examines opportunities for Sub-Saharan African countries to effectively participate in globalization, particularly given the increasing interest of China and India in Sub-Saharan Africa. How could Sub-Saharan Africa fully engage and gain benefits from global network trade? Over the last 15 years Asia has become Africa’s fastest growing export market. Asian countries are much more open to trade than Europe

or America. There seems to be no evidence to suggest that this trend will not continue in the near future. We acknowledge the numerous caveats in Asia’s growing interest in the African continent; not least the “resource curse” of exports that are heavily concentrated on oil, minerals and raw materials, as well as the fierce competition from Asia’s manufactured exports. However, we believe that there is strong evidence to suggest a clear potential for South-South cooperation in trade and investment. Drawing on evidence from our extensive research into international value chains, we identify five “critical factors” for effective participation in global network trade: price, speed-to-market, labor productivity, flexibility and product quality. Underlying competitive performance of these critical factors are a country’s policies and institutions. Effective policies, efficient institutions and the necessary infrastructure will ensure the best outcome for trading countries. In order to improve the depth and sustainability of these five critical factors, it is critical that developing countries create a supportive policy and institutional framework from the outset.”