Emerging Market And Developing Economies Research Articles

Capital Flow Management Within Macroeconomics Stability Framework in Indonesia (2008 – 2022)

Indonesia is an EMDEs (Emerging Market and Developing Economies) country, and adopting an open economy causes foreign capital flow, especially FDI (Foreign Direct Investment) and PI (Portfolio Investment) can be free flows, and its movements are unpredictable. The movement of capital flows will affect the money supply transmitted to monetary and macroeconomic variables. This study aims to determine the response and contribution of macroeconomic variables to FDI and PI, as well as examining the causality between macroeconomic variables, FDI and PI. This research used the Vector Error Correction Model Granger Causality. The results show that exchange rate and inflation shocks significantly impact FDI and PI. While the results of Granger causality, changes in macroeconomic variables cause changes in FDI and PI. This research recommends that stakeholders continue implementing policy mix and monetary policy to improve exchange rates and inflation stability. In addition, the management of capital flows is still considered because the potential risks posed to the economy are quite large

MACROPRUDENTIAL POLICIES AND BANK RISK: DOES LANGUAGE MATTER?

The role of macroprudential policies (MPPs) in influencing bank behavior has expanded significantly in recent years. However, the evidence regarding the impact of MPPs in influencing bank behavior across countries with different Future time reference (FTR) of languages has not been adequately examined. To inform this debate, utilizing bank-level data during 2010–2019, we examine how MPPs affect bank return and risk across countries with varying FTR of languages. The findings show that using MPPs lowers risk in countries with strong FTR. This is manifest in baseline regressions as well as in robustness tests that incorporate additional dimensions of a country’s economic and institutional environment. Over and above, the results show that although borrower- and lender-focused macroprudential measures are equally effective, their efficacy differs, with the former set of instruments being more useful in Emerging Market and Developing Economies (EMDEs). In contrast, the latter holds greater traction in advanced economies.

The Widening of the North–South Divide: Debt Sustainability in a World Weakened by COVID-19

This research compares the global debt trends in the aftermath of the COVID-19 pandemic, focusing on economies that frame the North and South divide. The research centers on debt ratios, which serve as indicators of countries’ ability to finance recovery and development projects. The study period runs from 2015 to 2022 and follows the IMF’s country classification, which divides the world into advanced economies (AE) and emerging market and developing economies (EMDE). The research employs panel data regressions to assess three key debt ratios—external debt to Gross Domestic Product (GDP), external debt to exports, and public debt to GDP—against various pandemic-related indicators and control variables. The analysis provides three major contributions. Firstly, an examination of external and public debt burdens is conducted, showing that escalated external and public debt burdens in EMDE contrast with increasing public debt in AE, primarily due to fiscal stimulus. Secondly, it is argued that the ongoing pandemic has intensified the widening economic gap between the North (AE) and the south (EMDE). Thirdly, a review is presented of both orthodox and heterodox policies identified in existing literature that are considered capable of mitigating external vulnerabilities in EMDE. Findings highlight the critical need for multifaceted measures to address debt vulnerability and promote sustainable economic recovery in a post-pandemic world.

Tourism Demand in the Face of Geopolitical Risk: Insights From a Cross-Country Analysis

This paper develops a novel Bayesian heterogeneous panel vector autoregressive model (B-HP-VAR) that quantifies the impact of geopolitical risk shocks on the tourism industry of 14 emerging market and developing economies (EMDE). We find that increasing geopolitical tensions have a persistent negative effect on tourism demand in most of these countries, as shown by our impulse response estimates. Furthermore, evidence from forecast error variance decomposition reveals that geopolitical risk shocks in many EMDE economies constitute the main driver of tourism demand. Analysis from historical decompositions demonstrates that geopolitical tensions have been particularly influential in driving tourism demand in Ukraine, Russia, Turkey, China, Indonesia, Thailand, Colombia, and Mexico. Our main findings are robust to several perturbations to the benchmark specification. Our results have several important implications for policymakers in their efforts to strengthen the ability of the tourism industry to absorb shocks from geopolitical tensions.

Do International Investment Agreements attract Foreign Direct Investment inflows? Revisiting the literature

Empirical research assessing the effects of International Investment Agreements (IIAs) on Foreign Direct Investment (FDI) flows proliferated since the late 1990s, largely coinciding with an acceleration in the signing of such investment treaties between the developed countries and emerging market and developing economies (EMDEs). This paper offers a comprehensive survey of the literature on the impact of IIAs on FDI flows, with a specific focus on EMDEs. The main goal of the review is to highlight the important themes that emerge from the literature and how each of those themes have been addressed by the existing studies. Despite the proliferation of studies on this topic, the literature remains highly inconclusive as to whether IIAs matter when it comes to attracting FDI flows. A substantive part of the empirical ambiguity arises for two broad reasons. First, there have been methodological constraints in disentangling co-movements from causal effects when it comes to estimating the impact of IIAs on FDI flows. Second, studies have suffered from the general paucity of granular data on IIAs which allow for a systematic unpacking of various IIA provisions on FDI inflows.

Banking across borders: Are Chinese banks different?

Chinese banks have become the largest cross-border creditors for almost half of all emerging market and developing economies (EMDEs). While they look similar to other EMDE banks in terms of ownership and balance-sheet structure, their global cross-border lending resembles that of banks from advanced economies along several dimensions, especially when lending to EMDEs. We find that geographical distance poses a barrier for cross-border lending, including for Chinese banks. For them, given their network of affiliates, this barrier is lower than for other EMDE banks, more like US or European banks. We show that across all bank nationalities, bilateral economic interactions, like trade, FDI and portfolio investment, all positively correlate with cross-border lending. What stands out is that Chinese banks’ lending to EMDEs correlates more than any other nationality with trade, but there is no such correlation with FDI and, unlike all other banks, their lending correlates negatively with portfolio investment.

INVESTMENT IN EMERGING AND DEVELOPING ECONOMIES: REVERSION TO TREND IS NOT ENOUGH

Investment in emerging market and developing economies (EMDEs) is projected to grow at a pace below the average rate of the past two decades through the medium term, after declining in the majority of countries during the pandemic. This outlook for investment is unwelcome news on several counts. Whether the policy priority is bolstering resilience to climate change, improving social conditions, smoothing the transition away from growth driven by natural resources, or supporting long-term per capita income growth, investment (gross fixed capital formation, or buildings, machinery, equipment, and intangible assets used for more than one year) is critical.

INVESTMENT IN EMERGING AND DEVELOPING ECONOMIES: REVERSION TO TREND IS NOT ENOUGH

Investment in Emerging Market and Developing Economies (EMDEs) is projected to grow at a pace below the average rate of the past two decades through the medium term, after declining in the majority of countries during the pandemic. This outlook for investment is unwelcome news on several counts. Whether the policy priority is bolstering resilience to climate change, improving social conditions, smoothing the transition away from growth driven by natural resources, or supporting long-term per capita income growth, investment (gross fixed capital formation, or buildings, machinery, equipment, and intangible assets used for more than one year) is critical.

Institutions Determine Debt–Growth Relationship: Evidence from Fourth Wave of Debt in EMDEs

ABSTRACT The last decade witnessed global debt levels to reach record high. In Emerging Market and Developing Economies (EMDEs) like never before, the (public and private) debt–GDP ratio has been dismally high. An upward spree of the debt–GDP ratio coupled with a looming economic crisis led to concerns about institutional qualities (IQ). We explore how different dimensions of IQ (namely, political, legal and governance) impact the debt–growth relationship in the EMDEs amidst the current fourth wave of debt (2010–2019). We examine whether the relation is monotonic or it varies around a particular threshold value of IQ. By applying a dynamic panel threshold regression model, we obtain two regime-dependent marginal effects of regressors (upper and lower regimes) that are distinguished by a threshold value of IQ. Our results reveal that for each of our considered IQ, there exists a statistically significant threshold value. For public debt, across all dimensions of IQ debt hurts growth in the lower regime, while in the upper regime the association is favourable. While private debt is growth enhancing in the lower regime of all IQs (excepting corruption), while it is inimical in the upper regime.

Cost of foreign reserve accumulation in emerging market and developing economies

PurposeThis paper aims to obtain a recent estimate of the cost of precautionary foreign reserve accumulation that emerging market and developing economies (EMDEs) had to endure to protect themselves against the risks of financial globalization. In addition, the study estimates the cost of excess reserves in emerging market economies (EMEs) using various reserve adequacy indicators that reflect potential sources of foreign exchange drains and vulnerability in EMEs' balance of payments.Design/methodology/approachThis paper begins by explaining the accumulation of foreign reserves in EMDEs as a self-protection strategy against the risks of financial globalization. Next, it sheds light on the different types of economic costs of foreign reserve accumulation. Finally, it estimates the cost of foreign reserve accumulation in EMEs during the period (1990–2018) and in EMDEs during the period (1990–2015) due to data availability.FindingsResults indicate that the cost of accumulating foreign reserves as a self-protection strategy in EMDEs and EMEs' was huge compared to their development financing needs. Applying various reserve adequacy measures demonstrates that many of the EMEs were holding inadequate precautionary reserves in 2018. Actually, this reflects the significant increase in external short term debt that many of the EMEs have witnessed since the eruption of the global financial crisis (2008). Thus increasing reserves in EMEs with weak reserve buffers and higher external debt is critical as they are more vulnerable to external shocks and capital flow reversals. Also given the estimated huge costs of accumulating foreign reserves, EMDEs should accompany it by other complementary self-protection policies and liquidity management policies to free up resources for productive investment.Originality/valueThe study contributes to the literature by estimating the cost of precautionary foreign reserve accumulation imposed on EMDEs during an extended period of time that covers a decade after the onset of the global financial crisis. Also to the authors' knowledge, this is the first study that estimates the cost of excess reserves in EMEs using various reserve adequacy indicators including the International Monetary Fund (IMF) assessing reserve adequacy (ARA) approach.

The interrelationship between bank capital and liquidity creation: A non-linear perspective from the Asia-Pacific region

The study investigates nonlinearity in the interrelationship between liquidity creation (LC) and bank capital. It addresses the reverse-causality concerns by employing a simultaneous equations model with a two-step system GMM estimator. The data comprises 597 commercial banks in the Asia-Pacific region from 2006 to 2019. The findings indicate a U-shaped bi-directional relationship between bank capital and LC, with a significant moderating effect of bank size. The results also hold for Advanced economies (AEs), Basel II and Basel III periods. However, there is an inverted U-shaped impact of capital on LC in the Emerging market and developing economies (EMDEs). The findings call for coordination between liquidity and capital regulations. Further, policymakers should adopt a tailored regulatory approach for banks instead of uniform blanket regulations, as the latter might prove to be counterproductive.

Natural Capital, Institutional Quality and SDG Progress in Emerging Market and Developing Economies

Whether environmental impacts, natural capital depreciation, and effective governance have impacted progress in emerging market and developing economies (EMDEs) to achieving the 17 Sustainable Development Goals (SDGs) of the UN Agenda 2030 has become a significant policy topic. We determine estimates of the changes in net welfare that indicate progress over 2000–2019 in terms of meeting the 17 SDGs for 99 EMDEs. We compare these estimates with the environmental impacts associated with SDGs 11–15, natural resource depletion as a share of national income, and average institutional quality. Net SDG welfare gains over 2000–2019 were often accompanied by adverse environmental impacts, natural capital depletion, and poor-quality institutions. This is especially the case for low- and lower-middle-income economies. Higher net SDG welfare gains are correlated with reduced losses associated with SDGS 11–15, and larger welfare gains from attaining SDG 1 No Poverty are associated with better governance. These results suggest that long-term progress towards the SDGs in EMDEs hinges on improved management of natural capital and the environment, as well as more effective governance. Three policies can be implemented to achieve these objectives without additional financing or imposing fiscal burdens: fossil fuel subsidy swaps, tropical carbon taxes, and improved management and distribution of resource revenues.

Recessions and mortality: A global perspective

Using panel data covering 180 countries over six decades, this paper shows that recessions are systematically associated with higher mortality rates in poorer countries. During years when GDP falls, death rates, in particular child mortality rates, rise in emerging market and developing economies (EMDEs), while they remain unaffected or even fall in advanced economies. We further find that the scarring effects of recessions in EMDEs persist for several years and that deeper recessions lead to larger increases in mortality.

Another legacy of the COVID-19 pandemic: Income divergence

The uneven economic recovery from the pandemic-induced global recession of 2020 is expected to disrupt a multi-decade trend of per capita income convergence between advanced and emerging market and developing economies (EMDEs). This stands in contrast to the global recession following the global financial crisis. Should downside risks to the global recovery, in particular financial market stress, materialize, they are likely to set back growth in EMDEs more than in advanced economies in part because of the more limited policy space remaining in EMDEs, and would further widen per capita income divergence.

Importance of ESG factors in sovereign credit ratings

This paper analyzes the importance of Environmental, Social and Governance (ESG) factors in sovereign credit ratings, by using a two-step, data-driven methodology. First, we build ESG and non-ESG (macro-financial) meta-variables from observed data using factor analysis. Second, by employing a statistical shadow rating model, we compute variable importance scores to explore the relative importance of ESG and non-ESG factors in sovereign creditworthiness assessment. We analyze the ESG importance according to the level of economic development and by different geographic areas. In particular, we find that the importance of ESG factors is different in emerging market and developing economies (EMDEs) and in advanced economies (AEs): governance is the most important factor for AEs and non-ESG factors drive the creditworthiness of EMDEs. Lastly, the relative importance of ESG factors is tracked at different dates between 2002 and 2018. We show that the evolution of ESG importance also depends on economic development: it grows for AEs and decreases for EMDEs, especially after the 2008 financial crisis.

THE RUSSIAN GOVERNMENT’S MEASURES TO SUPPORT THE RUSSIAN ECONOMY DURING COVID-19 CRISES

The pandemic COVID-19 has plunged the world economy into the deepest recession since World War II. Despite additional policy support, GDP of world in 2020 decreased by 5.2 percent, then followed by an increase of 4.2 percent in 2021. The pandemic has deeply interrupted livelihoods, with the termination in nearly 500 million full-time jobs in second quarter of 2020 alone. And this situation pushed about 150 million people into poverty by 2021. The revival of pandemic is blowing out a shadow over the global restoration as countries are forced to pull tight social-distancing measures, but trust has been picked up by news that various vaccines have shown high effectiveness in clinical experiments. The pandemic is forecasting to have long-lasting scarring effects on productivity and prospective growth, as investment loses strength further and human capital accumulation slows for reason of prolonged school lock-downs and extended unemployment. Financing situations in Emerging Market and Developing Economies (EMDEs) have s amid gathering speed in COVID-19 cases. EMDEs suffering of higher debt burdens or financing needs are especially vulnerable to acute rise in borrowing costs and to restrictions in their access to financing. Foreign Direct Investment (FDI) flows to EMDEs dropped by about 32 percent in 2020 among stalling investment and poor corporate profit. Keywords: pandemic, fiscal assistance, government measures.

Banking Across Borders: Are Chinese Banks Different?

We explore the global footprint of Chinese banks and compare it with that of other bank nationalities. Chinese banks have become the largest cross-border creditors for almost half of all emerging market and developing economies (EMDEs). Their global reach resembles that of banks from advanced economies (AEs). We take a nationality approach as international banks, and Chinese banks in particular, grant a substantial share of their cross-border loans from affiliates located abroad. But differences remain. Using a gravity model with a novel measure of distance capturing the role of foreign affiliates across all bank nationalities, we find that larger distances deter crossborder bank lending to EMDEs more than to AEs. For Chinese banks, however, distance deters lending to EMDEs less than for peer EMDE banks. We show that for all banks combined, bilateral economic interactions like trade, FDI and portfolio investment, positively correlate with lending. Chinese banks' lending to EMDEs also strongly correlates with trade, but not with FDI and, unlike other banks, it correlates negatively with portfolio investment.

Economic Impact of COVID-19 on Different Groups of Peoples in South Asia: Evidence from Bangladesh

Within a couple of months, COVID-19 has evolved as an economic catastrophe beyond health cataclysm that was initially thought. It is already forewarned as to the deepest global recession since World War II. Bangladesh that represents the emerging market and developing economies (EMDEs) has suddenly fallen into a deep economic hole although unprecedented challenges resulting from the COVID-19 pandemic related to health, macroeconomic and social effects are on equal focus. World Bank, in its June 2020 estimation, has revised Bangladesh’s growth downward to 1.6 percent in FY2020 whilst Bangladesh achieved average GDP growth of 6.5% since 2004 and generally, the labor-oriented service sector contributes about 50% to this growth. It is estimated that the national (upper) poverty rate from 24.3 percent in 2016 already increased to 35 percent in 2020. Declining demands, as well as supply disruptions, have weighed significantly on exports, especially exports of textiles and clothing products. Banking sectors are in potential risk due to the increase of Non-Performing Loan (NPL) which are mostly associated with the RMG industry and its backward linkage industries. On the other hand, the RMG sector has started to suffer from both cancellations of order and supply chain interruption alongside hamper in production due to lockdown. Slower loan recovery rate is also a cause of greater headache of the banking sector in this pandemic period. 85% of the total employment of the country belongs to informal sectors. A sharp fall in overall consumption led to decline in overall trade as well decline in production except for foods and medical items. SMEs have seen revenue drop by at least 50%, while 52% of SMEs have locks hung over their businesses generating no revenue at all. These all will create a large spillover effect on the state economy. To build quick resilience, some fiscal measures have been taken by the government of Bangladesh. IMF, ADB, and World Bank promised to support US$730 million, US$ 600 million, and US$100 million respectively to increase social safety net. To build more and sustainable resilience, a number of interventions to be considered such as immediate access to capital and technology by small, medium, and regional clustered enterprises; proper guideline and financial support to forced migrant laborers, utmost attempt to collect the demographic dividend and more. The study stands for composition analyses of secondary data proceedings and literature on the previous pandemic.

Technological and non-technological drivers of productivity dynamics in developed and emerging market economies

Frequently, factors other than structural developments in technology and production efficiency drive changes in labor productivity in advanced economies (AEs) and emerging market and developing economies (EMDEs). In this paper, we contrast the responses of AEs and EMDEs to innovations in technology and investigate whether the cross-country co-movement in productivity is due to technological or non-technological factors. We find that technological innovations are associated with higher and more rapidly increasing rates of investment in EMDEs relative to AEs, suggesting that positive technological developments are often capital-embodied in the former economies. Employment falls in both AEs and EMDEs following positive technology developments, with the effect smaller but more persistent in EMDEs. Low cross-country correlations of technological developments suggest that global synchronization of labor productivity growth is primarily due to non-technological influences. Overall, non-technological factors accounted for most of the fall in labor productivity growth during 2007-09 but less than one-half of the longer-term productivity decline after the global financial crisis in the median AE and EMDE.

Borrowing Patterns in the Global Financial Safety Net: Does Governance Play a Role?

AbstractThe global financial safety net (GFSN) has become a complex regime. Regional financial arrangements (RFAs) have emerged alongside established IMF structures. How relevant are RFAs and the IMF in moments of financial crisis? And more specifically: Do member countries resort to RFAs as complements or as substitutes to IMF lending? To answer these questions, we developed an original data‐set on the GSFN use by the 61 emerging market and developing economies (EMDEs) that are members of existing RFAs between 1976 and 2018. We find that not only economic criteria such as lending volume, timeliness and conditionality drive patterns of complementarity and substitution in crisis finance, but that RFA governance structure and regional independence matters. The data show that borrower‐dominated RFAs are used much more frequently than creditor‐dominated RFAs. Moreover, RFAs which lack regional policy autonomy but are dependent on the IMF are not called upon – even if they have far superior volumes of potential lending capacity.