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Synthesis Report; Empirical analysis for new ways of global engagement

Carolina Alves, Vivienne Boufounou, Konstantinos Dellis, Christos Pitelis and Jan Toporowski
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Jan Toporowski: School of Oriental and African Studies, University of London

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: There has been an increase of private non-guaranteed external debt (PNG) in developing countries and emerging economies in the last two decades reflects the increasing cross border flows of capital. The traditional literature, relaying on the current account, i.e. net capital flows, associates external debt in emerging and developing countries with deficits in current account, and cross border capital flows with global current account imbalances. This paper presents empirical evidences showing that during the 2000s that emerging markets have experienced a surge in private capital flows. As a result, emerging and developing countries cross-border asset positions have correspondingly increased, with the share of private sector claims on emerging markets increasing and the share of liabilities held by government and multilateral institutions decreasing. There is increasing involvement of the private sector in the developing countries’ external debt and the fact that the public sector, previously reliant almost entirely on official credit, has become able to access private debt markets reflects the increasing integration of developing countries into the global financial system. Gross capital flows data reveals that net capital flows do not explain and do not capture this global financial integration. The emerging and developing economies are at the margin of the process when it comes to cross-border financial flows that are still very much driven by developed economies, especially the EU and US and are concentrated in only a few countries. The surge in private capital flows within a context of current account surpluses has its mirror image in the accumulation of foreign exchange reserves. In turn this connects the capital flows towards these economies with factors such as the international monetary cycle. Lastly, it is discussed that the growing integration of developing and emerging countries into the global financial system is also the product of official development policy becoming more supportive of the private sector. The EU Aid policy has relentlessly supported the ‘pro-finance’ argument to achieve economic growth in these countries. Interestingly, one of the main tools to promote the development of the financial sector in developing countries relies on the notion of ‘blended finance’, which rests on using public Overseas Development Assistance (ODA) funds to leverage private funds and on developing broader types of public-private partnerships. There is therefore increasing increased integration of Emerging and Developing Economies in the global financial system, emerging 'financialization' in the economic and social development of developing countries and the increased role of the private sector, and inter-dependence between the European Union (EU) and the emerging countries and an assessment on the potential economic and social benefits for European sovereigns.

Keywords: Development finance; international capital flows; international monetary cycle; financialisation; sovereign wealth funds; private equity; hedge funds (search for similar items in EconPapers)
JEL-codes: E44 F33 F34 G15 (search for similar items in EconPapers)
Pages: 90 pages
Date: 2016-08-30
New Economics Papers: this item is included in nep-mac
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