Lecture 2: Emerging Markets and Elements of Country Risk Analysis.
Lecture 2: Emerging Markets and Elements of Country Risk Analysis.
World Trading System: Four Phases
1952-1972: Development Strategies;
1972-1980: Transition and Reorientation;
1980-1990: Macro Adjustment, Trade Reform and shift in Development Strategies;
1990-2007: New Globalisation Wave and WTO.
1952-1972 Development Strategies
Industrialisation in LDC:
Import substitution industrialisation (ISI).
Ideology: socialist versus capitalist development
Role of Government and private sector;
Role of Planning.
Early shift to Export Led Growth (ELG) on mfg:
Asian miracle: Korea, Taiwan, HK and Singapore;
Role of Global Markets;
Role of Government.
1952-1972 World Trade
Developing Countries dependent on OECD markets:
Export of primary commodities;
Import industrial goods.
Trade Blocks:
North-South trade;
Little South-South trade.
1972-1980 Transition
Emergence of East and South East Asia Trade Block;
Growth of Trade in mfg in developing countries:
Success in ELG development strategy (also during oil crises 1975-1978).
Failure of socialist development model:
Increase role of markets: capitalist model;
Concern with price distortions.
1980s Adjustment and Development
Financial and Macro Crises:
Inflation;
Financial capital flows and shocks;
Continued global trade liberalisation;
Spread of ELG development strategy.
Lessons (1)
Failure of socialist development model
No productivity growth;
Enormous distortions, rent seeking, and misallocation of resources.
Failure of ISI development strategy
Bias against agriculture;
Autarchy and ISI failed to insulate domestic economy:
Macro shock:
Protection and rent seeking: high cost.
Lessons (2)
ELG Strategy:
Comparative Advantage: labour-intensive mfg exports;
Better performance for poverty alleviation and income distribution;
Importance of mfg trade in ELG
Value added chains;
Declining importance of primary commodities Terms of Trade Problem
Reforms as a reaction to a crisis:
First VS second generation reforms;
It’s not a good strategy for development.
1990-2007 New Globalisation Wave
Expanded role of International Governance:
Entry of Developing Countries in WTO;
Expanded role of trade:
Trade in services;
Fragmentation of Production
Value chains;
Productivity gains;
Continued Evolution of Global Trade Blocks:
LAC, Africa, East and South East Asia;
Asian Drivers: China and India.
Trade Policy and reforms slow down.
Why is CRA linked to Development Issues? (1)
Emerging Markets: DEF!
1980s by International Finance Corporation;
Middle-to-higher income developing countries;
in transition to developed status;
undergoing rapid growth and industrialisation;
Stock markets are increasing in size, activity and quality.
CUT OFF point: GDP per capita = 25,000 USD
24 Countries; the most dynamic are:
Asia (China! India! Indonesia!);
Latin America (Brazil!);
Africa (South Africa!);
East Europe and Russia.
= BRIICS
Why is CRA linked to Development Issues? (2)
How important are Emerging Markets?
70% of world’s population (5 times that of developed markets);
46% of land mass (2 times that of developed markets);
31% of GDP (1/2 that of developed markets).
Forbes’ 2009 ranking of top global companies: 3 over 5 with the largest mkt capitalisation are from EM!
11 of the top 100 are from China (only USA has more companies listed!)
Strengths and Opportunities;
Weaknesses and Threats.
Strengths and Opportunities
Strengths and Opportunities: Economic Growth and Income Convergence
Strengths and Opportunities: Share in World Output
Strengths and Opportunities: Industrial Production
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