Emerging And Developing Economies Research Articles

FDI–Growth Nexus in Emerging Economies: Role of Financial Sector Development

This paper examined the relationship between foreign direct investment (FDI) inflows and the growth rate in emerging and developing economies (EMDEs) and whether the development of the financial sector affects the growth-effect of FDI inflows for these economies. FDI enhances capital accumulation in the economy, and the level of financial sector development (FSD) affects the financial intermediation of funds, thereby enhancing the absorptive capability from investment. Using the dynamic panel threshold model (DPTM) for a balanced panel of 71 countries over the period 2000–2019, the paper finds a U-shaped relationship between the measures of FSD and the growth rate of an economy and does not find evidence for the ‘vanishing effect of finance’ for EMDEs. The growth-enhancing effect of FDI is much stronger for countries with a higher level of FSD. Our estimation techniques control for cross-sectional dependence and endogeneity in the case of a dynamic framework. The robustness results estimated using four-year non-overlapping averages as an observational unit support the findings. JEL Codes: F23, F36, O16

Does financial inclusion promote consumption smoothing? Evidence from emerging and developing economies

An important issue for emerging and developing economies (EMDEs) is how to reduce the occurrence of hand-to-mouth consumption by allowing consumption smoothing. Financial inclusion increases access to the formal banking system and financial markets, and allows households to use more appropriate financial instruments, which should enable them to diversify consumption, disrupting the connection to idiosyncratic income shocks. This paper empirically investigates whether financial inclusion can smooth consumption and promote risk sharing for a large heterogenous sample of 85 EMDEs for 1995 to 2017. We find that financial inclusion decreases the volatility of consumption and reduces deviations in country consumption vs world consumption. Curiously, we find that financial inclusion does not help countries improve risk sharing by lowering their exposure to idiosyncratic output shocks. We further find that risk sharing through domestic credit markets expands with financial inclusion, although it does not appear to reduce unsmoothed consumption.

Global challenges in access to diagnostics and treatment for neuroendocrine tumor (NET) patients.

SCAN, an online survey, measured access to diagnosis, treatments and monitoring of neuroendocrine tumor (NET) patients globally. Between September and November 2019, NET patients and healthcare professionals (HCPs) completed an online, semi-standardized survey with 54 patient questions and 33 HCP questions. A total of 2359 patients with NETs and 436 HCPs responded. Misdiagnosis was common (44% [1043/2359]). Mean time to diagnosis was 4.8 years (standard deviation [SD], 6.2). Compared with global figures (60% [1407/2359]), the availability of 68 Ga-DOTA positron emission tomography (PET)/computed tomography (CT) was significantly lower in Asia (45% [126/280]) and higher in Oceania (86% [171/200]). HCPs reported that 68 Ga-DOTA PET/CT was free/affordable to fewer patients in Emerging and Developing Economies (EDE) than Advanced Economies (AE; 17% [26/150] and 59% [84/142], respectively). Compared with global data (52% [1234/2359]), patient-reported availability of peptide receptor radionuclide therapy (PRRT) was significantly lower in Asia (31% [88/280]) and higher in Oceania (61% [122/200]). Significant differences were observed in average annual NET specialist costs between AE and EDE ($1081 and $2915, respectively). Compared with AE, patients in EDE traveled further for NET specialists (1032 [SD, 1578] and 181 [SD, 496] km, respectively). Patients and HCPs both recommended referral to HCPs that were more knowledgeable in the field of NETs and had better access to NET experts/specialist centers. National care pathways, enhancing HCP NET knowledge and ensuring effective diagnostics and access to appropriate treatments are crucial to improving patient survival and NET care worldwide.

Structural change, productive development, and capital flows: does financial “bonanza” cause premature deindustrialization?

AbstractRecent contributions to the literature on industrialization and development have confirmed that manufacturing continues to play a key role as a driver of economic development. As a corollary, these contributions highlight the importance of premature industrialization as a barrier to economic development and as one of the main sources of the middle-income trap. In this paper, we analyze the factors that may have hindered industrial development in the past four decades. In particular, we focus on the role of (non-Foreign Direct Investment) net capital inflows as a potential source of premature deindustrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing economies (EDEs) in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused a significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that the phenomena of “perverse” structural changes are significantly more relevant in EDE countries than in advanced ones and that they may similarly occur across EDE countries, regardless of structural differences in the way manufacturing contributed to their development. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful policy tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.

The global financial cycle and external debt: effects on growth and distribution in emerging and developing economies

The global financial cycle (GFCy), driven by international monetary conditions and global risk perceptions, is a major driver of capital flows to and out of emerging and developing economies (EDEs), reflected in external indebtedness. This paper analyzes the impact of the GFCy on the economic performance of EDEs borrowing in international markets. Rising external borrowing generates appreciating pressures on the exchange rate and lowers the cost of external borrowing. The overall impact of these reinforcing effects acts over investment, debt servicing and the current account balance. We conduct simulation exercises which show that rising external debt coupled with lax external financial conditions have a detrimental impact on economic activity and creates inflationary pressures through the effect of financial costs and the reaction of nominal wage demands. We show that capital control measures increase the degrees of freedom of monetary authorities.

The cost of neuroendocrine tumor patient healthcare: Comparison between advanced economies and emerging and developing economies.

64 Background: The Survey of Challenges in Access to Diagnostics and Treatment for NET Patients (SCAN) measured the delivery of healthcare to neuroendocrine tumor (NET) patients globally. This analysis focused on the cost of NET care, comparing results between Advanced Economies (AE) and Emerging and Developing Economies (EDE). Methods: During Sept-Nov 2019, 2359 NET patients and 436 healthcare professionals (HCPs) from 68 countries across 6 continents completed an online self-report survey, available in 14 languages, disseminated by INCA and its partner organizations. Results: Of all respondents, 88% [2076/2359] were AE NET patients/carers, and 12% [283/2359] were from EDE. HCPs were evenly spread 51% AE [221/436] vs. 49% EDE [215/436]. Almost all patients (94% (2218/2359) were on follow-ups, most commonly on conventional imaging (74%, 1745/2359) and Chromogranin A (ChA) (50%, 1179/2359) both administered with similar frequency every third month. 66% of NET patients globally (1557/2359) declared оut-of-pocket costs related to disease management, significantly higher for EDE (84%, 238/283) vs AE (64%, 1333/2076) p<0.0001 by Chi-square). One third of EDE NET patients (33%, 93/283) spent from 50% to 100% of their annual household income on disease management over the past 12 months. 41% of AE patients (41%, 851/2076) spent up to 10% of the same. State healthcare coverage was claimed by half of AE NET patients (51%, 1064/2076). A national healthcare plan that covered NETs was mentioned by only a third of EDE NET patients (30%, 85/283). According to HCPs, newer, more specialized tools were the least affordable to all NET patients. PRRT was reported as not affordable by 9% of AE HCPs (20/221) and by significantly more – 21% of EDE HCPs (45/215) p<0.0001. Gallium 68 DOTA PET was reported as not affordable by 9% of AE (20/221) and 10% of EDE HCPs (22/215). This monitoring tool was somewhat affordable to patients according to 25% of AE (54/221) and 62% of EDE HCPs (133/215) p<0.0001. According to HCPs, leading specialized services, where available, were somewhat affordable or not at all affordable to NET patients, i.e. a clinical nurse specialized in NETs – not or somewhat affordable ( HCPs AE 16%, 17/108; EDE 37%, 16/43, p<0.0001); a multidisciplinary team (HCPs AE 18%, 34/194; EDE 39%, 68/174, p<0.0001); a NET specialist (HCPs AE 21%, 42/200; EDE 36%, 46/127, p<0.0001), psychological care (HCPs AE 58%, 42/124; EDE 41%, 11/27, p<0.0001). Psychological care was reported to be available by only 13% of EDE HCPs (27/215). Conclusions: More adequate healthcare funding and better and more inclusive healthcare plans to utilize the optimal diagnostic and treatment tools available to improve outcomes and quality of life for NET patients is needed globally. Discrepancies between AE and EDE healthcare accessibility are huge.

Does digital financial inclusion moderate or exacerbate output volatility?

ABSTRACT Fintech, broadly encompassing financial innovations enabled by digital technology, has seen phenomenal growth across emerging and developing economies (EMDEs) over the last few years. While the fintech revolution can facilitate broader financial inclusion and spur overall economic growth, concerns have been raised about the possible impact of fintech on growth volatility. Using a selected heterogeneous panel of 40 EMDEs spanning 2009 to 2017 we find that greater digital financial inclusion persistently exacerbates output volatility, although this result holds true only in countries with low banking concentration. Our results are robust to both different definitions of digital financial inclusion and alternative methodologies controlling for potential endogeneity.

The Baker Hypothesis: Stabilization, Structural Reforms, and Economic Growth

In 1985, James A. Baker III's “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the ten-year period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.6 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since the early 1990s.

Treatments and ongoing monitoring for patients with neuroendocrine tumors, monitored by medical oncologists: Scan comparative data between advanced economies (AE) and emerging and developing economies (EDE).

e16200 Background: The Survey of Challenges in Access to Diagnostics and Treatment for NET Patients (SCAN) measured the delivery of healthcare to neuroendocrine tumor (NET) patients globally. This analysis focused on the treatments and follow-up received by NET patients who most often visited a medical oncologist (MO) for their ongoing monitoring, and compared results between Advanced Economies (AE) and Emerging and Developing Economies (EDE). Methods: During Sept-Nov 2019, 2359 NET patients and 436 healthcare professionals (HCPs) from 68 countries completed an online self-report survey, available in 14 languages, disseminated by NET patient group networks, NET medical societies and other INCA partners. Results: 1016 NET patients (43% of all NET patients globally) reported a MO as the HCP most often visited for their ongoing monitoring, 90% of which were from AE (N = 913) and 10% from EDE (N = 103). 108 MOs (25% of all HCPs) took part in the survey, 62% from EDE [67/108]. Primary NETs for this patient sub-group were most often GEP NETs, specifically small intestine, more often reported from AE (41%, 316/913) than EDE (20%, 21/103; p < 0.0001 by Chi-square), and pancreatic, more often reported from EDE (33%, 34/103) than AE (21%, 192/913). Other primary NETs included lung (AE [11%, 92/913], EDE [6%, 6/103]) and of unknown origin (AE [8%, 73/913], EDE [14%, 14/103]). The most common treatment received was somatostatin analogues (SSA) (AE [57%, 507/913], EDE [44%, 43/103]), followed by surgery (AE [16%, 140/913], EDE [17%, 16/103]) and oral chemotherapy (AE [14%, 120/913], EDE [18%, 17/103]). PRRT (AE [14%, 124/913], EDE [8%, 8/103]; p < 0.0001) was used more frequently in AE. Awareness of the 4 most frequently used treatments among MOs was 80% or greater. MOs reported similar availability of SSA (AE [95%, 39/41], EDE [96%, 64/67]) by economic areas, while lower availability of surgery (AE [98%, 40/41], EDE [88%, 59/67], oral chemotherapy (AE [98%, 40/41], EDE [82%, 55/67]) and PRRT (AE [81%, 33/41], EDE [60%, 40/67]; p < 0.0001) in EDE. NET patients reported CT scan as the most frequently used ongoing monitoring tool (AE [78%, 699/913], EDE [70%, 66/103]). Ga-68-labeled SSA PET/CT was used for slightly more than 1/3 of patients with no significant differences by regions (AE [38%, 337/913], EDE [30%, 28/103]). For these tools, awareness among MOs was 69% and above, while both awareness and availability were significantly lower in EDE. Multidisciplinary teams (MDT) were rarely used in AE NET patients (35%, 318/913), and in only 14% (14/103) of EDE. Conclusions: MOs play an essential role in NET patients’ follow-up, being the leading HCP for almost half of them. There is a critical need for a global standard of ongoing NET monitoring as data indicate significant differences in therapeutic and follow-up procedures between AE and EDE.

Do macroprudential policies counter real exchange rate appreciation in emerging markets?

AbstractA competitive and stable real exchange rate (RER) has been recognised as an important variable for promoting economic development, especially in emerging and developing economies (EMDEs). The postglobal financial crisis era, however, has seen a marked deluge of global liquidity from ultra‐loose monetary policy in advanced economies, which has led to a surge in capital inflows and consequent loss of external competitiveness in several EMDEs. Given this context, this paper empirically investigates if and what types of macroprudential policies (MaPs) have been effective in countering RER appreciations in a panel of 93 EMDEs over the period 2000–2013. Our results show strong evidence that MaPs moderate RER appreciation through the real interest rate channel, though this is limited to MaPs that target financial institutions rather than borrowers. There is also evidence to suggest that MaPs work more effectively during periods of rising rather than falling real interest rates.

Survey of challenges in access to diagnostics and treatment for neuroendocrine tumor (NET) patients (SCAN): Global disparities in quality healthcare for NETs.

127 Background: Neuroendocrine tumors (NETs) are rare and complex neoplasms with increasing incidence and prevalence worldwide. SCAN assessed global delivery of healthcare to NET patients. This analysis focused for the first time on healthcare quality evaluation by economic areas–Advanced Economies (AE) and Emerging and Developing Economies (EDE) classification used as per the International Monetary Fund. Methods: During Sept-Nov 2019, NET patients and healthcare professionals (HCPs) completed an online survey (available in 14 languages). Results: There were 2795 respondents from 68 countries across 6 continents. AE NET patients/carers were 88% [2076/2359], EDE were 12% [283/2359]. HCPs were evenly spread 51% AE [221/436] vs. 49% EDE [215/436]. The average evaluation score provided by NET patients to the healthcare received in the country they reside in for more than 6 months was 3.6 in AE, while one point lower 2.5 in EDE on a 5-point Likert scale (1-poor, 5-excellent). HCPs’ and NET patients’ scores were aligned: 3.9 as per AE HCPs (94% [208/221]), vs. 2.6 by EDE HCPs (68% [190/283]). The availability of top 3 most used NET treatments over the past 12 months was significantly lower in EDE: surgery in AE reached 85% (1765/2076) vs. EDE 71% (201/283) p<0.0001 [Chi-squared], somatostatin analogues - in AE 67% (1391/2076) vs. EDE 59% (167/283) p<0.0001, PRRT was 57% in AE countries (1183/2076), vs. EDE 33% (93/283) p<0.0001. Specialized services were of low usage globally and in deep disparity by economic areas, namely: NET specialist consultations (AE 55% [1143/2076] vs. EDE 40% [112/283] p<0.0001), multidisciplinary team care 34% (AE 34% [706/2076] vs. EDE 22% [63/283] p<0.0001), a clinical nurse specialized in NETs (AE 28% [589/2076] vs. EDE 7% [21/283] p<0.0001), psychological care (AE 13% [261/2076] vs. EDE 5% [15/283] p<0.0001), physical activities like yoga classes, trainings designed for cancer patients (AE 11% [220/2076] vs. EDE 3% [7/283] p<0.0001). State healthcare coverage was claimed by half of AE NET patients (51% [1064/2076]). National healthcare plan that covered NETs was mentioned by only a third of EDE NET patients (30% [85/283]. Conclusions: Availability of treatments and access to specialized NET healthcare is a global challenge and is in need of improvement. Additionally, the gap between AE and EDE in terms of treatments availability, support services usage, and state healthcare coverage is significant and manifests deep inequality.

Nexus between green finance and climate change mitigation in N-11 and BRICS countries: empirical estimation through difference in differences (DID) approach.

Green finance is inextricably linked to investment risk, particularly in emerging and developing economies (EMDE). This study uses the difference in differences (DID) method to evaluate the mean causal effects of a treatment on an outcome of the determinants of scaling up green financing and climate change mitigation in the N-11 countries from 2005 to 2019. After analyzing with a dummy for the treated countries, it was confirmed that the outcome covariates: rescon (renewable energy sources consumption), population, FDI, CO2, inflation, technical corporation grants, domestic credit to the private sector, and research and development are very significant in promoting green financing and climate change mitigation in the study countries. The probit regression results give a different outcome, as rescon, FID, CO2, Human Development Index (HDI), and investment in the energy sector by the private sector that will likely have an impact on the green financing and climate change mitigation of the study countries. Furthermore, after matching the analysis through the nearest neighbor matching, kernel matching, and radius matching, it produced mixed results for both the treated and the untreated countries. Either group experienced an improvement in green financing and climate change mitigation or a decrease. Overall, the DID showed no significant difference among the countries.

Natural resources and financial development: The role of institutional quality

This study investigates the natural resource rent and financial development nexus by subsuming the critical role of institutional quality in this paradigm in a sample of 87 Emerging and Developing Economies (EMDEs), during the period from 1984 to 2018. The findings demonstrate that natural resources rent undermines finance and supports the natural resource curse hypothesis in the financial sector of EMDEs. The institutional quality has a significant positive impact on finance and it positively moderates the resource-finance nexus. We argue that institutional quality follows some channels through which the natural resource curse operates and turns the resource curse into a blessing for the financial sector. Furthermore, the results document a threshold effect of institutional quality in the resource-finance relationship. Precisely, we find that natural resources rent positively explains finance, once a certain threshold level of institutional quality is attained – below which the natural resources rent becomes a curse, and hinders financial development. Therefore, policy attentions are recommended to promote finance by efficient utilization of natural resources through promoting and maintaining institutional quality beyond a certain threshold level, and incorporating its vital role. Our results are robust to the use of different samples, alternative specifications, and alternative measures of finance and institutional quality, and are practically useful to the policymakers concerned about EMDEs.

Monetary Policy Transmission in Emerging Markets and Developing Economies

Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

The Baker Hypothesis

In 1985, James A. Baker III's “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the 10-year-period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.2 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since 1995. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Monetary Policy Transmission in Emerging Markets and Developing Economies

Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jorda’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Does Financial Inclusion Amplify Output Volatility in Emerging and Developing Economies?

This paper empirically investigates if, in what direction, and under what circumstances financial inclusion amplifies or moderates output volatility, which is a matter of concern for monetary policymakers in emerging and developing economies (EMDEs). The empirical estimation for a large panel of over 100 EMDEs spanning the period 1995 to 2013 finds a strong and persistent trade-off between higher financial inclusion and output stability. The paper also finds strong and robust evidence of non-linearity governing this relationship. Countries with high degrees of financial inclusion as well as those that are relatively lower income tend to experience a significant trade-off between financial inclusion and output stability. Further, the paper also finds that reckless financial inclusion coinciding with excessive credit growth tends to worsen output volatility.

Euro Zone Crisis: Impact And Implication For India

The global economy is still being buffeted by the effects of sovereign debt crisis which hit the Euro-zone. The crisis is the result of increasing property prices, credit growth which got translated into a buildup of debt. The after effects of the Euro zone crisis have been felt not only by Euro zone countries but also by developing countries who were trying to put in place the plans to recover through the US Sub-prime crisis of 2007. The European Union has since its inception been a vital economic and trade partner for Asian countries. It has been an important absorbent of exports of Emerging and developing economies (EDEs), and also a key provider of large amount of foreign direct investment and capital flows into the EDEs especially India. Europe and US accounts of a third of India’s export. The euro-zone crisis following the global financial crisis will jeopardize the recovery plan and macroeconomic variable of India. The present paper tries to review the underlying causes of the European Sovereign debt crisis and analyses the impact and implications of European crisis for Indian economy.

The Contagion Effects of European Union Macroeconomic Instability in Emerging Markets: Evidence from India

This paper examines the European Union (EU) macroeconomic instability and its contagion effects on emerging market economies. Given the large economic weight of the EU in the world, the contagion of the crisis and its potentially devastating effects are necessitating a renewed attention from the researchers and international financial institutions in analyzing the nature and implications of sovereign debt on the political economy of developing and emerging economies in general, particularly India. Though the crisis is epicentered in the EU, its knock-on effects are felt all across the globe. The emerging and developing economies (EDEs) have posted lower growth on account of the worsening external environment and a weakening internal demand during the period of the Eurozone debt crisis. While presenting the contemporary literature on the topic, this paper analyses the causes of the sovereign debt crisis presents implications for sovereign debt crises and draws lessons particularly for emerging markets such as India.

Developing Economies and Global Governance: Will IMF Rethink Its Orthodox View?

It has been constantly viewed that the developed economies unevenly ruled the governance structures in the international organizations such as International Monetary Fund (MF). The continuous development in Emerging and Developing Economies (EDEs) over the last 20 years witnessed their growing importance in the world economy, but at the same time little increase in their voice in the IMF. There are reasons for the discontent of the EDEs in the present structure such as the increase of regional monetary arrangements, uneven distribution of quota shares, IMF quota reforms, and IMF voting structure. The world economy is witnessing a tremendous growth of these EDEs and is now at the verge where Asian economies are capable of leading, rather than the North Atlantic economies. This issue should be acknowledged properly and must be responded adequately. This paper makes an attempt to understand the prime issues that should be fixed in the current quotas system and voting structure in the IMF.