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Lecture 3:
Emerging Markets and Elements
of Country Risk Analysis.
World Trading System:
Four Phases
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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
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Industrialisation in LDC:
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Ideology: socialist versus capitalist
development
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Import substitution industrialisation (ISI).
Role of Government and private sector;
Role of Planning.
Early shift to Export Led Growth (ELG) on
mfg:
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Asian miracle: Korea, Taiwan, HK and Singapore;
Role of Global Markets;
Role of Government.
1952-1972
World Trade
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Developing Countries dependent on
OECD markets:
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Export of primary commodities;
Import industrial goods.
Trade Blocks:
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North-South trade;
Little South-South trade.
1972-1980
Transition
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Emergence of East and South East Asia
Trade Block;
Growth of Trade in mfg in developing
countries:
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Success in ELG development strategy (also
during oil crises 1975-1978).
Failure of socialist development model:
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Increase role of markets: capitalist model;
Concern with price distortions.
1980s
Adjustment and Development
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Financial and Macro Crises:
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Inflation;
Financial capital flows and shocks;
Continued global trade
liberalisation;
Spread of ELG development
strategy.
Lessons (1)
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Failure of socialist development
model
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No productivity growth;
Enormous distortions, rent seeking, and
misallocation of resources.
Failure of ISI development strategy
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Bias against agriculture;
Autarchy and ISI failed to insulate domestic
economy:
• Macro shock:
• Protection and rent seeking: high cost.
Lessons (2)
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ELG Strategy:
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Importance of mfg trade in ELG
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Comparative Advantage: labour-intensive mfg
exports;
Better performance for poverty alleviation and
income distribution;
Value added chains;
Declining importance of primary commodities
 Terms of Trade Problem
Reforms as a reaction to a crisis:
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First VS second generation reforms;
It’s not a good strategy for development.
1990-2007
New Globalisation Wave
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Expanded role of International Governance:
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Expanded role of trade:
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Trade in services;
Fragmentation of Production
•
•
Value chains;
Productivity gains;
Continued Evolution of Global Trade Blocks:
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Entry of Developing Countries in WTO;
LAC, Africa, East and South East Asia;
Asian Drivers: China and India.
Trade Policy and reforms slow down.
Emerging Markets?!?!?
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Countries:
Asia (China! India! Indonesia!);
 Latin America (Brazil!);
 Africa (South Africa!);
 East Europe and Russia.
= BRIICS
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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
Strengths and Opportunities: Export
Share
Export and Import Growth
Share of Industrial Countries in world
export
Share of Developing Countries in world
export
GDP, Export and Imports
Weaknesses and Threats: volatility of
per capital income growth rates
Weaknesses and Threats: Exchange
Rate Instability
Weaknesses and Threats: Default and
Crisis
Weaknesses and Threats: not only
economic aspects

NOT only economy features but also
Socio-Political Elements!
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Weak Infrastructure;
Lack of specialised intermediaries;
Weak regulatory system;
Weak contract-enforcing mechanisms;
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Instable political system
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Invest or not Invest?
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YES!
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Growing economies;
Increasing investment opportunities;
High revenues.
NO!
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Default risk;
Volatility and Instability.
Further Reforms could decrease risk?
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YES: Second Generation Wave of
Reforms:
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Complex domestic regulation; service
regulation; technical standards; IPR,
administration and competition rules;
Improve the business-climate!
Link between trade policy and domestic
economic policy and institutional reforms;
Less dependent on trade negotiation and
international organisation foreign-policy
agenda;
More transparent!
Developing Countries and The
Financial Crisis (1)
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Financial sector
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Decrease in the capital inflow;
Risk of capital outflow;
Increase in the risk ratio of these countries;
Devaluation of exchange rate;
Negative feed-backs on real investment!
Real Economy:
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Decrease in the demand for export;
Decrease in FDI inflows;
Lower commodity prices (+ and -)
Developing Countries and The
Financial Crisis (2)
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Central and Eastern Europe are being the most
adversely affected
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Latin America:
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tight financial condition and weaker external demand;
Brazil and Mexico more hurtled from the world crisis;
Emerging Asia:
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Large current account (fiscal and external) deficit;
Reliance on manufacturing exports;
BUT domestic demand and strong policy stimulate the
economy!
Africa and Middle East:
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Lower GDP decrease than other regions
Commodity exporters;
Lower remittances;
FDI and aid flows reduction.
Russia Federation and Brazil
China and India
References
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Razeen Sally (2009): “Globalisation and the Political Economy
of Trade Liberalisationin the BRIICS”, chapter 4 in Lattimore
and Safadi (2009): Globalisation and Emerging Economies”,
OECD.
IMF (2009): ”Global Economic Policies and Prospects”, G20,
London 13-14 March 2009.
Bergsten, C.F. (1999): “The Global Trading System and the
Developing Countries in 2000”, WP 99-6, Institute for
International Economics.
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Balassa (1990): “Trade Between Developed and developing
countries: a decade ahead”
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Will, M. (2001): “Trade policy, developing Countries and
Globalisation”, World Bank, Development Research Group.