Financial Instability and Economic Development in Emerging Markets: Controversies and Critical Issues

241 Pages·2014·2.377 MB·English

by  Ognjen Radonjić and Christine Sinapi, editors

JOURNAL OF SOCIAL SCIENCES AND HUMANITIES
FINANCIAL INSTABILITY AND
ECONOMIC DEVELOPMENT
IN EMERGING MARKETS:
CONTROVERSIES AND
CRITICAL ISSUES
Edited by
Ognjen Radonjić and
Christine Sinapi
AUTHORS:
JOURNAL OF SOCIAL SCIENCES AND HUMANITIES
_____IS_S_N__ 1_8_2_0_-_0_86_9_____ Tanweer ALI, Empire State College, State
______B_r_o_j_ 3_/_2_0_1_4______ University of New York, USA
Scientifi c Editorial Offi ce: Eva LEBDUŠKOVÁ, Faculty of Education, JE
Ivo GOLDSTEIN, Erick GORDI,
Purkyně University, Ústí nad Labem,
Egidio IVETIC, Dušan JANJIĆ,
the Czech Republic
Predrag MATVEJEVIĆ, Anđelka
MIHAJLOV, Aleksandar
Noemi LEVY ORLIK, Faculty of Economics in
MIRKOVIĆ, Vuk OGNJANOVIĆ,
Mexico, UNAM, Mexico
Darko TANASKOVIĆ, Christine
SINAPI, Aleksandra STUPAR,
Dušan MOJIĆ, Faculty of Philosophy, University
Josip VRANDEČIĆ
of Belgrade, Serbia
Edited by
Christine NGOC NGO, Department of
Ognjen RADONJIĆ
Economics, University of Denver, USA
Christine SINAPI
Marc PILKINGTON, University of Burgundy,
Publisher
France
Ognjen RADONJIĆ, Faculty of Philosophy,
Beograd, Francuska 14 University of Belgrade, Serbia
E-mail: [email protected]
www.limesplus.rs; www.hedu.biz Christine SINAPI, CEREN/Burgundy School of
www.komunikacija.org
Business, Dijon, France
For Publisher Pritam SINGH, Oxford Brookes University,
Zorica STABLOVIĆ BULAJIĆ Oxford, UK
Editor-in-chief Faruk ÜLGEN, Centre de Recherche en Economie
Nikola SAMARDŽIĆ de Grenoble (CREG) and Faculty of
Economics, University of Grenoble Alpes,
Executive Editorial Offi ce:
France
Haris DAJČ, Aleksa DMITROVIĆ
Zorica STABLOVIĆ BULAJIĆ,
Sreten VUJOVIĆ, Faculty of Philosophy,
Maja VASILJEVIĆ secretary,
University of Belgrade, Serbia
Alenka ZDEŠAR ĆIRILOVIĆ
Miodrag ZEC, Faculty of Philosophy, University of
Technical Editor
Belgrade, Serbia
Predrag Knežević
Proofreading
CIP - Каталогизација у публикацији
Sonja Mićunović Народна библиотека Србије, Београд
32
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Content no. 3/2014
EDITORIAL 5 Ognjen RADONJIĆ and Christine SINAPI: Foreword
Part I – Financial Instability: Old Wine in an Old Bottle
11 Faruk ÜLGEN: Liberalised Finance and Instability:
“Does It Drop Out as a Matter of Logic”?
29 Christine SINAPI: Revisiting the Washington Consensus
Debate Today: A Th eoretical Appraisal of International
Institutions Prescriptions to Emerging Economies
53 Ognjen RADONJIĆ: Two Decades Later: Important
Minskyan Lessons from the Mexican Peso Crisis
79 Marc PILKINGTON: Why do We Need to Replace DSGE
Models? A Critical View on Pre-Crisis Central Bank Models
95 Tanweer ALI and Eva LEBDUŠKOVÁ: Th e Austerity Debate in
the Czech Republic
Part II – Catching-Up Traps: Sand in the Gears
of Economic Development
117 Pritam SINGH: Th e Competing Th eories of Development and
Underdevelopment: A Critical Evaluation from an
Eco-Socialist Perspective
147 Noemi LEVY ORLIK: Financialization in Unsuccessful
Neo-Mercantilist Economies: External Capital Infl ows,
Financial Gains and Income Inequality
177 Christine NGOC NGO: Industrialisation and the Triangular
Rent-Seeking Relationship Between Vietnam, Japan and
China in Vietnam’s Motorcycle Industry
209 Dušan MOJIĆ: Youth Unemployment in Economic
and Social Crisis: Case of Serbia
Part III – Book Reviews
225 Sreten VUJOVIĆ: Razaranje i rekonstitucija društva –
Srbija na prelazu u 21. vek (Destruction and Reconstitution
of Society: Serbia in Transition into the 21st Century)
by Silvano Bolčić (Službeni glasnik, Belgrade, 2013)
231 Miodrag ZEC: Keynes, Minsky and Financial Crises in
Emerging Markets by Ognjen Radonjić and Srdjan Kokotović
(Faculty of Philosophy, Belgrade, 2014)

FOREWORD
S
eemingly suddenly, in August  the
US fi nancial markets came to a sudden stop. Although the fi rst signs of accumu-
lated diffi culties became visible in 2006 when house prices peaked, in March 2007
when debtors in the subprime mortgage market started to declare bankruptcy,
and in July 2007 when big banks found that they could not sell originated loans,
the credit crunch fi nally arrived in August 2007. Th e monetary authorities and
mainstream economists were stunned. Th e crisis erupted in the subprime mort-
gage market and afterwards, as quick as lightning, it spread to other US fi nancial
markets and markets worldwide. Th e real economy and export demand collapsed
around the globe. Due to the collapse of export demand in developed countries,
developing countries faced severe export volume contraction and decline in the
terms of trade, especially in the case of commodity exporting countries. Also, in-
vestments slumped due to the cessation of previously abundant capital infl ows
used to fi nance investment booms. Th e heightened risk aversion of investors gave
rise to an excessive increase in risk premia, which spilled over into steep increases
in interest rates charged on loans extended to developing countries’ business enti-
ties. Th e world economy entered an era of Great Recession.
Today, after seven years of one of the most severe global economic crises
since the Great Depression, its eff ects are still unfolding. European countries are
struggling to face budget defi cits and massive unemployment, while defl ation is
menacing. Growth and fi nancial stability seem to be restored in the US, but the
level of income inequality is reaching unprecedented heights. Eventually, the situ-
ations of emerging economies are diverse but remain unstable and fragile. Making
a parallel with the 1930’s is tempting, with the gloomy prospects of the political
and human tragedies history has taught us economic crises may trigger. Th e mod-
ern context, regarding fi nancial, economic, institutional, geopolitical and social
aspects, is however singular and calls for renewed analyses.
Far from ensuring improvement in social conditions, the development poli-
cies implemented in emerging economies for decades, although subject to recur-
rent critics, have so far remained globally unchanged. Th ey sometimes partially
succeed in promoting growth. But growth itself does not prevent instability nor
Ognjen Radonjić and Christine Sinapi Foreword
volatility and generates its own undesirable drawbacks and threats: inequalities,
environmental changes, social protests, intolerance etc. Th ese are among the con-
sequences of “ideologically biased” economic policies, theoretically fl awed, and
failing to incorporate institutional, social and human objectives.
Understanding the characteristics and challenges of today’s capitalism, dis-
cussing the perspectives and implications of development policies for emerging
economies, call for an open and large debate. Complementary theoretical, meth-
odological and applied research contributions, as well as multidisciplinary ap-
proaches, are necessary. Th is LIMESplus special issue Financial Instability and
Economic Development in Emerging Markets: Controversies and Critical Issues,
aims to contribute to this debate.
Th e fi rst part of the special issue is entitled Financial instability: Old wine in
an old bottle. Papers in this part point to the failures of the traditional economic
theories of crises and development, as well as their related policy implications and
propose alternatives. Th e papers by Faruk Ülgen, Christine Sinapi and Ognjen
Radonjić defend theoretical approaches anchored in Minsky’s Financial Instability
Hypothesis (FIH). Faruk Ülgen highlights the conceptual weaknesses of liberalized
fi nance and endorses a Minskyan institutional approach of endogenous instability.
Christine Sinapi revisits the Washington consensus debate and disputes interna-
tional institutions ability to learn from their own-though recognized-failures. She
refutes their theoretical approach of institutional development and their (alleg-
edly) renewed policies of development. She advocates, instead, for a Minskyan
approach of institutions. Ognjen Radonjić identifi es specifi c patterns of fi nancial
crises in emerging economies. He advocates for a renewed theoretical apparatus,
based on the FIH and adjusted to emerging economies. Further on, Marc Pilking-
ton in his paper puts forth paradigmatic failures of DSGE models and defends the
need for a methodological change in the mainstream approach. Tanweer Ali and
Eva Lebdušková analyze the austerity political discourse in the Czech Republic,
which does not call into question the mainstream economic views.
Papers in the next part titled Catching- up traps: Sand in the gears of econom-
ic development focus on emerging countries, challenging the effi ciency and success
of their socio-economic development policies. Pritam Singh presents a critique
of the traditional (Neo-classical, Keynesian and Neoliberal), Marxian and Green
economic theories of development. He argues for an eco-socialist perspective as
6 the most appropriated development perspective in the era of climate change and
LIMES+ Godina XI (2014), Broj 3: str. 5–7
global warming. Noemi Levy Orlik disputes the economic and social effi ciency of
fi nancialization and neo-mercantilist policies in Latin America, which she associ-
ates with failed growth and income inequality. Christine Ngoc Ngo analyses the
results of the Foreign Direct Investment-based industrial policy in the Vietnam-
ese motorcycle industry, from a rent seeking perspective. She sees these policies
as largely unsuccessful. Dušan Mojić argues that the socio-economic challenges
related to youth employment in the economic transition of Serbia have failed to
be addressed.
As the world becomes more and more integrated and thus interdependent,
need for penetrating analysis of controversial issues such as fi nancial instability
and economic development in emerging markets becomes more urgent. We hope
that the nine papers in this issue of LIMESplus revealed a fresh perspective on
economic problems faced by emerging markets in their everyday struggle to earn
their place in the sun.
Ognjen Radonjić
Christine Sinapi
7

JOURNAL OF SOCIAL SCIENCES AND HUMANITIES
FINANCIAL INSTABILITY AND
ECONOMIC DEVELOPMENT
IN EMERGING MARKETS:
CONTROVERSIES AND
CRITICAL ISSUES
Part I
FINANCIAL INSTABILITY:
Old Wine in an Old Bottle