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on Post Keynesian Economics |
| By: | Eric Tymoigne |
| Abstract: | This paper presents a method to capture the growth of financial fragility within a country and across countries. This is done by focusing on housing finance in the United States, the United Kingdom, and France. Following the theoretical framework developed by Hyman P. Minsky, the paper focuses on the risk of amplification of shock via a debt deflation instead of the risk of a shock per se. Thus, instead of focusing on credit risk, for example, financial fragility is defined in relation to the means used to service debts, given credit risk and all other sources of shocks. The greater the expected reliance on capital gains and debt refinancing to meet debt commitments, the greater the financial fragility, and so the higher the risk of debt deflation induced by a shock if no government intervention occurs. In the context of housing finance, this implies that the growth of subprime lending was not by itself a source of financial fragility; instead, it was the change in the underwriting methods in all sectors of the mortgage markets that created a financial situation favorable to the emergence of a debt deflation. Stated alternatively, when nonprime and prime mortgage lending moved to asset-based lending instead of income-based lending, the financial fragility of the economy grew rapidly. |
| Keywords: | Debt Deflation; Minsky; Financial Fragility; Systemic Risk |
| JEL: | E12 E32 E44 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_716&r=pke |
| By: | L. Randall Wray |
| Abstract: | This paper integrates the various strands of an alternative, heterodox view on the origins of money and the development of the modern financial system in a manner that is consistent with the findings of historians and anthropologists. As is well known, the orthodox story of money's origins and evolution begins with the creation of a medium of exchange to reduce the costs of barter. To be sure, the history of money is "lost in the mists of time," as money's invention probably predates writing. Further, the history of money is contentious. And, finally, even orthodox economists would reject the Robinson Crusoe story and the evolution from a commodity money through to modern fiat money as historically accurate. Rather, the story told about the origins and evolution of money is designed to shed light on the "nature" of money. The orthodox story draws attention to money as a transactions-cost-minimizing medium of exchange. Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the "rational" economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society. As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but a problem concerning production and distribution. A powerful critique of the orthodox story regarding money can be developed using the findings of comparative anthropology, comparative history, and comparative economics. Given the embedded nature of economic phenomenon in prior societies, an understanding of what money is and what it does in capitalist societies is essential to this approach. This can then be contrasted with the functioning of precapitalist societies in order to allow identification of which types of precapitalist societies would use money and what money would be used for in these societies. This understanding is essential for informed speculation on the origins of money. The comparative approach used by heterodox economists begins with an understanding of the role money plays in capitalist economies, which shares essential features with analyses developed by a wide range of Institutionalist, Keynesian, Post Keynesian, and Marxist macroeconomists. This paper uses the understanding developed by comparative anthropology and comparative history of precapitalist societies in order to logically reconstruct the origins of money. |
| Keywords: | Origins of Money; Evolution of Financial System; Substantivist Methodology; Comparative History; Nature of Money |
| JEL: | B5 B25 B41 E11 E12 N01 N2 P1 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_717&r=pke |
| By: | Jesus Felipe; Arnelyn Abdon; Utsav Kumar |
| Abstract: | This paper provides a working definition of what the middle-income trap is. We start by defining four income groups of GDP per capita in 1990 PPP dollars: low-income below $2,000; lower-middle-income between $2,000 and $7,250; upper-middle-income between $7,250 and $11,750; and high-income above $11,750. We then classify 124 countries for which we have consistent data for 1950–2010. In 2010, there were 40 low-income countries in the world, 38 lower-middle-income, 14 upper-middle-income, and 32 high-income countries. Then we calculate the threshold number of years for a country to be in the middle-income trap: a country that becomes lower-middle-income (i.e., that reaches $2,000 per capita income) has to attain an average growth rate of per capita income of at least 4.7 percent per annum to avoid falling into the lower-middle-income trap (i.e., to reach $7,250, the upper-middle-income threshold); and a country that becomes upper-middle-income (i.e., that reaches $7,250 per capita income) has to attain an average growth rate of per capita income of at least 3.5 percent per annum to avoid falling into the upper-middle-income trap (i.e., to reach $11,750, the high-income level threshold). Avoiding the middle-income trap is, therefore, a question of how to grow fast enough so as to cross the lower-middle-income segment in at most 28 years, and the upper-middle-income segment in at most 14 years. Finally, the paper proposes and analyzes one possible reason why some countries get stuck in the middle-income trap: the role played by the changing structure of the economy (from low-productivity activities into high-productivity activities), the types of products exported (not all products have the same consequences for growth and development), and the diversification of the economy. We compare the exports of countries in the middle-income trap with those of countries that graduated from it, across eight dimensions that capture different aspects of a country’s capabilities to undergo structural transformation, and test whether they are different. Results indicate that, in general, they are different. We also compare Korea, Malaysia, and the Philippines according to the number of products that each exports with revealed comparative advantage. We find that while Korea was able to gain comparative advantage in a significant number of sophisticated products and was well connected, Malaysia and the Philippines were able to gain comparative advantage in electronics only. |
| Keywords: | Middle-income Trap |
| JEL: | C33 O40 O54 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_715&r=pke |
| By: | Sunanda Sen |
| Abstract: | The narrative as well as the analysis of global imbalances in the existing literature are incomplete without the part of the story that relates to the surge in capital flows experienced by the emerging economies. Such analysis disregards the implications of capital flows on their domestic economies, especially in terms of the "impossibility" of following a monetary policy that benefits domestic growth. It also fails to recognize the significance of uncertainty and changes in expectation as factors in the (precautionary) buildup of large official reserves. The consequences are many, and affect the fabric of growth and distribution in these economies. The recent experiences of China and India, with their deregulated financial sectors, bear this out. Financial integration and free capital mobility, which are supposed to generate growth with stability (according to the "efficient markets" hypothesis), have not only failed to achieve their promises (especially in the advanced economies) but also forced the high-growth developing economies like India and China into a state of compliance, where domestic goals of stability and development are sacrificed in order to attain the globally sanctioned norm of free capital flows. With the global financial crisis and the specter of recession haunting most advanced economies, the high-growth economies in Asia have drawn much less attention than they deserve. This oversight leaves the analysis incomplete, not only by missing an important link in the prevailing network of global trade and finance, but also by ignoring the structural changes in these developing economies--many of which are related to the pattern of financialization and turbulence in the advanced economies. |
| Keywords: | Global Current Account Imbalances; Impossible Trinity; Capital Mobility; Official Reserves; Monetary Policy; National Autonomy; Efficient Market |
| JEL: | E31 E52 F42 O16 O53 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_714&r=pke |
| By: | Fabrizio Carmignani; Abdur Chowdhury |
| Abstract: | Despite the recent growth resurgence, Sub-Saharan Africa (SSA) remains the poorest region in the world. At the same time, it is a region that heavily relies on natural resources. In this paper we investigate the extent to which the second fact helps explain the first one. The distinctive feature of our study is that we take a geographical perspective and allow the effect of natural resources to differ across regions of the world. Our findings suggest that (i) the effect of natural resource intensity on per-capita income is positive and significant in general, but almost negligible and possibly negative in SSA, (ii) natural resources have a negative effect on institutional quality in SSA only, (iii) natural resources hinder human capital accumulation in SSA much more than anywhere else, and (iv) the combination of bad disease environments and large resource endowments accounts for most of the observed cross-regional differences in the effect of natural resources. |
| Keywords: | Development, Sub-Saharan Africa, natural resources, disease, institutions,human capital |
| JEL: | O11 O55 Q28 |
| Date: | 2011–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2011-1022&r=pke |
| By: | Johan Fourie (Department of Economics, University of Stellenbosch); Stefan Schirmer (School of Economic and Business Sciences, University of the Witwatersrand) |
| Abstract: | This note reviews the state and future of South African economic history. We argue that although new techniques, archival sources, international interest and a greater propensity to collaborate within and across disciplines have stimulated new research over the last decade, overcoming our divided methodological and ideological past remains first priority if South African economic history is to make a contribution to future development theory and policy, in South Africa and across the developing world. |
| Keywords: | South Africa, economic history, historians, Apartheid, colonial history |
| JEL: | N01 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers158&r=pke |