ESADE eBook on the Global Context: How Politics, Investment, and Institutions Impact European Businesses

This week I will be highlighting articles from my friends and colleagues at ESADE, who have just released an eBook highlighting important issues with SWFs, state-owned enterprises, the regulatory environment, political risk, FDI, and many other issues.  The entire publication can be downloaded here.

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Chien and Zhao: State-Mediated Knowledge Transfer and Resource Mobility – A Case Study of China Local Government Entrepreneurship

Abstract:

This paper focuses on a new phenomenon in China: local government
entrepreneurship in constructing infrastructure and attracting
investment has been diffused from more developed to less developed
regions. We argue that this geographically diffused phenomenon is part
of a larger attempt by the Chinese Communist Party (CCP) to facilitate
advancement of less developed regions. The CCP has used a unique and centralized personnel management system to shift knowledge and resources in the interest of local economic development through betweenregion pairing assistance and inter-regional cadre transfer. This diffusion has mixed results: it accelerates infrastructure construction, investment and economic growth in less developed areas, but at the expense of increased social exclusion and environmental pollution.

Available for download here.

Wang, Li, Abdou & Ntim: Financial Development and Economic Growth in China

Abstract:

The purpose of this paper is to examine the relationship between financial development and economic growth. In particular, we examine the impact of financial development on the growth of primary, secondary, and tertiary industries in China. Ordinary Least Square (OLS) multiple regressions are applied on a set of data from China for the period 1978 to 2013 to determine the effects of financial development on economic growth, while controlling for other macroeconomic variables, namely labour force, capital growth, inflation rate and export growth. The empirical results show that financial development has a negative effect on economic growth in general, but on the growth of the tertiary industry in particular. By contrast, we find that financial development has no significant effect on the primary and secondary industries. The findings offer policymakers some useful insights that more attention may need to be paid on developing capital markets and providing more investment choices/opportunities for Chinese households. This paper is different from most of the previous studies as it uses up-to-date data (1978 – 2013) from China capturing the effects of financial development on economic growth in addition to other macroeconomic factors.

Available for download here.

Giordano, Losch, Minsat & Solignac-Lecomte: Unlocking the potential of African regions

Abstract:

n their latest joint report, the African Economic Outlook (AEO) 2015, the African Development Bank, the OECD Development Centre and the UNDP find the continent poised to resume its medium-term growth trend of about 5% per year (AfDB et al., 2015). In the next decades, however, a number of internal and external factors will alter the context in which African policy makers seek to accelerate growth and deepen structural transformation. In particular, demographic growth will shake up labour markets. Based on the conclusions of the AEO 2015, this article suggests that tapping better the economic potential of Africa’s diverse regions, which too often escape the attention of national policy makers, is one innovative way of rising up to the challenge. Multi-sectoral, place-based and participatory development strategies can contribute to unlocking that potential.

Available for download here.

Allen, Qian, Shan & Zhu: Explaining the Disconnection between China’s Economic Growth and Stock Market Performance

Abstract:

The size of the Chinese stock market is the second largest in the world. The poor performance of this market over the period 2000-2013, relative to developed and large emerging markets as well as unlisted firms in China, has been striking. This is despite the fact that the Chinese economy, the largest in the world in PPP terms, has been the fastest growing economy globally for the past three decades. We examine reasons for the disconnection between economic growth and stock market performance. Problematic IPO and delisting processes exacerbate the adverse selection of firms into the market. With much higher levels of investment compared to listed firms from the US, Japan, India and Brazil, Chinese firms generate lower net cash flows, implying low investment efficiency. Lower cash flows are associated with more related-party transactions for Chinese firms, indicating deficiencies in corporate governance.

Available for download here.

Monk, Kearney, Seiger & Donnelly: Energizing the US Resource Innovation Ecosystem

From the Executive Summary:

By 2050, the world population is forecasted to reach 10 billion people, and consumption of natural resources is expected to increase four-fold above current rates. Radical resource innovation – across energy, agriculture, water, and waste – is required to prepare the world for this future. Without it, we risk irreversible climate change, military conflict over resource access, and deepening inequity in the developing world.

Paradoxically, there are no shortages of breakthrough technologies being developed in universities, national labs, and garages that could be as transformative today as the steam turbine in the 19th century or the solar cell in the 20th.  What there is a shortage of, however, is patient, early-stage capital to support the transformation of these projects into lasting, profitable companies. Even growth-stage companies in this space sometimes lack access to project capital to execute first-of-a-kind demonstrations and deployments, and to achieve price competitiveness at commercial scale. In short, preventing a climate catastrophe demands that we create a new investment toolkit that can help bridge the “valleys of death” faced by these companies.

We thus believe that the resource innovation ecosystem could benefit from the creation of a new aligned intermediary (“AI”). The AI, detailed below, is designed to be a uniquely aligned financial services organization whose mission would be to specifically help Long-Term Investors (“LTIs”) – such as pensions, endowments, sovereign funds, family offices, and foundations – identify, screen, assess, and invest in high-potential companies that are producing the most impactful, and indeed profitable, solutions to climate change.

Available for download here.

Jalil: Did globalisation stimulate increased inequality? A heterodox perspective

From the Introduction:

Global income inequality has been steadily rising since the 1980s. The sensational success of Thomas Piketty’s “Capital” shows that the topic resonates well with the global population. Many have argued that this has been the result of “globalisation” (Palma, 2006), another concept which is widely discussed but rarely defined. Most divide globalisation into economic globalisation, focusing on international trade and foreign direct investments, and political globalisation, focusing on institutional arrangements. This division hinges on the existence of a conceptual separation between political logic from economic policy, which seems untenable. The contour of the global economy, the structure of the global market, who can participate in it and how they can engage in exchange are seldom apolitical choices.

This paper showcases four scenarios to show that the “political economy” aspect of globalisation is important, and posits that the “neoliberal version of globalisation” has contributed significantly towards increased inequality rather than just globalization. This detrimental and pervasive effect of neoliberalism has been carried out through dismantling the welfare state, reduced power of trade unions, massive industrial consolidation, deregulation of the economy, increased financialization of the international economy and the belief in the primacy of “self-regulating” market. The author believes it is critical to specify that a specific form of globalisation is at fault rather than the whole idea of globalisation; otherwise many may wrongly associate increasing inequality as a necessary consequence of engaging with the global economy and thereby decide to disengage their country and move towards autarky, which might be detrimental. Also unless we define the form of globalisation that is damaging, the debate wrongly focuses on merits and demerits of globalisation rather than what form of global engagement suits an individual country the best. The challenge is to take advantage of globalisation while limiting its offsetting costs.

 

Available for download here.

Delechat et al.: Harnessing Resource Wealth for Inclusive Growth in Fragile States

ABSTRACT:

Like other fragile sub-Saharan African countries, Côte d’Ivoire, Guinea, Liberia, and Sierra Leone are seeking to harness their natural resource potential in the context of ambitious development strategies. This study investigates options for scaling up public investment and expanding social safety nets in a general equilibrium setting. First, it assesses the macro-fiscal implications of alternative fiscal rules for public investment, and, second, it explicitly accounts for redistribution through direct cash transfers. Results show that a sustainable non-resource deficit target is robust to the high uncertainty of resources output and prices, while delivering growth benefits through higher public investment. The scaling-up magnitudes, however, depend on the size of projected resource revenue and absorptive capacity. Adding a social transfer raises private consumption, suggesting that a fraction of the resource revenue could be used to expand safety nets.

 

Available for download here.

Tyfield, Ely, Urban, Geall, Zuev & Urry: Low-Carbon Innovation in China – Prospects, Politics and Practices

ABSTRACT:

China’s potential transition to a low-carbon, climate resilient or ‘post-carbon’ society is a key concern for the world. There is an urgent need for better understanding of these processes, posing major challenges for social science given the complex, systemic and emergent nature of the multiple changes involved in possible transitions. This report outlines the background to a project assessing the status of, and opportunities for, low-carbon transitions in China by going beyond existing technology-focused approaches to innovation. This involves a re-insertion and reconceptualization of power within the processes of low-carbon transitions across socio-technical systems, and with greater attention paid to everyday social practices of both ‘users’ and producers.

 

Available for download here.

Balli & Pierucci: Globalization and international risk-sharing – do political and social factors matter more than economic integration?

ABSTRACT:

We explore the impact of various forms of globalization upon international risk-sharing applying the KOF globalization indices. The empirical literature, so far, has only investigated economic and financial sides of globalization. By decomposing globalization into its economic, social and political aspects, we gauge the impact of these aspects on the extent of risk-sharing among Organization for Economic Cooperation and Development (OECD), European Monetary Union (EMU) and low and middle income (LMY) countries, obtaining unprecedented results that might shed a light on the open question about the role of globalization in risk-sharing. Our main finding is that noneconomic aspects of globalization are relevant in shaping risk-sharing opportunities.
When non-economic aspects are taken into account, economic integration loses relevance, whereas social and political globalization improve risk-sharing. These remarkable unprecedented results entail new policy implications, particularly for EMU and OECD countries, and call for further investigation.

 

Available for download here.