Deshpande nurse (eds ) the global economic crisis and the developing world; implications and prospects for recovery and growth (2012)

Routledge studies in development economicsGrowth and stabilization Akhtar Hossain and Anis Chowdhury 3 New Directions in Development Economics Growth, environmental concerns and gove

The Global Economic Crisis and the

Developing World

The world economy is currently in the throes of a global economic crisis reminiscent of the great depressions of the 1930s and the 1870s As back then, the crisis has exposed the major structural imbalances in financial and credit markets in addition to global trade, forcing many governments, developed and developing, to impose debilitating austerity measures that are exacerbating the structural weaknesses that caused the crisis in the first place.

This crisis has erupted at a time when the global economy is integrated, intertwined and interdependent as perhaps never before in history Thus, the impact of this crisis which originated in the advanced industrial countries can be felt sharply in the developing world, which is already grappling with its own internal constraints and structural barriers

to sustained development Emergent debates about resurgent protectionism, currency wars and alternative reserve currencies suggest that the global economy has entered a phase of heightened geo- economic and political change which will transform the devel- opment “equation” in varied and diverse ways Indeed, the economic and financial crisis

is but one element of the global transition, given what is referred to as the “triple crisis”

of finance, development and environment with challenges like climate change that score the limits of the global economy.

It is imperative at this time that development economists and policy- makers should engage with two crucial points: the implications of these changes for the developing world, and the prospects for “development” for the majority of people in the developing world This volume offers historical insights into the origins of the contemporary crisis,

as well as detailed analyses of the financial and trade dimensions, and an assessment of the technological and innovation context along with perspectives on the implications for unemployment and gender imbalances The volume also looks at the scenario for big developing countries, with a focus on South Africa, in addition to small developing states, with reference to the Caribbean The volume provides a wide variety of angles and approaches with which the discussion on the global economic crisis and its impact on the developing world can be approached in a methodologically and analytically rigorous manner.

Ashwini Deshpande is Professor of Economics at the Delhi School of Economics,

Uni-versity of Delhi, India.

Keith Nurse is Director of the Shridath Ramphal Centre for International Trade Law,

Policy and Services at the Cave Hill Campus (Barbados) of the University of the West Indies.

Routledge studies in development economics

Growth and stabilization

Akhtar Hossain and

Anis Chowdhury

3 New Directions in

Development Economics

Growth, environmental concerns

and government in the 1990s

Edited by Mats Lundahl and

Institutional and economic

changes in Latin America,

Africa and Asia

7 The South African Economy

Macroeconomic prospects for the medium term

Finn Tarp and Peter Brixen

8 Public Sector Pay and Adjustment

Lessons from five countries

Edited by Christopher Colclough

9 Europe and Economic Reform

in Africa

Structural adjustment and economic diplomacy

Obed O Mailafia

10 Post- apartheid Southern Africa

Economic challenges and policies for the future

Edited by Lennart Petersson

11 Financial Integration and Development

Liberalization and reform in sub- Saharan Africa

Ernest Aryeetey and Machiko Nissanke

12 Regionalization and

Globalization in the Modern

World Economy

Perspectives on the Third World

and transitional economies

Edited by

Alex E Fernández Jilberto and

André Mommen

13 The African Economy

Policy, institutions and the future

Steve Kayizzi- Mugerwa

14 Recovery from Armed Conflict

in Developing Countries

Edited by Geoff Harris

15 Small Enterprises and Economic

Development

The dynamics of micro and small

enterprises

Carl Liedholm and Donald C Mead

16 The World Bank

New agendas in a changing world

Michelle Miller- Adams

17 Development Policy in the

Twenty- First Century

Beyond the post- Washington

consensus

Edited by Ben Fine,

Costas Lapavitsas and

Jonathan Pincus

18 State- Owned Enterprises in the

Middle East and North Africa

Privatization, performance and

reform

Edited by Merih Celasun

19 Finance and Competitiveness in

Developing Countries

Edited by José María Fanelli and

Rohinton Medhora

20 Contemporary Issues in Development Economics

Edited by B.N Ghosh

21 Mexico Beyond NAFTA

Edited by Martín Puchet Anyul and Lionello F Punzo

22 Economies in Transition

A guide to China, Cuba, Mongolia, North Korea and Vietnam at the turn of the twenty- first century

Ian Jeffries

23 Population, Economic Growth and Agriculture in Less Developed Countries

An analysis of the CFA franc zone

David Fielding

26 Endogenous Development

Networking, innovation, institutions and cities

Antonio Vasquez- Barquero

27 Labour Relations in Development

Edited by Alex E Fernández Jilberto and Marieke Riethof

28 Globalization, Marginalization and Development

Edited by S Mansoob Murshed

29 Programme Aid and

A manual for policy analysis

Edited by Ganeshan Wignaraja

31 The African Manufacturing

Firm

An analysis based on firm surveys

in sub- Saharan Africa

Dipak Mazumdar and

Ata Mazaheri

32 Trade Policy, Growth and

Poverty in Asian Developing

Countries

Edited by Kishor Sharma

33 International Competitiveness,

Investment and Finance

A case study of India

Edited by A Ganesh Kumar,

Kunal Sen and

Rajendra R Vaidya

34 The Pattern of Aid Giving

The impact of good governance on

development assistance

Eric Neumayer

35 New International Poverty

Reduction Strategies

Edited by Jean- Pierre Cling,

Mireille Razafindrakoto and

François Roubaud

36 Targeting Development

Critical perspectives on the

millennium development goals

Edited by Richard Black and

Howard White

37 Essays on Balance of Payments Constrained Growth

Theory and evidence

Edited by J.S.L McCombie and A.P Thirlwall

38 The Private Sector After Communism

New entrepreneurial firms in transition economies

Jan Winiecki, Vladimir Benacek and Mihaly Laki

39 Information Technology and Development

A new paradigm for delivering the internet to rural areas in developing countries

Jeffrey James

40 The Economics of Palestine

Economic policy and institutional reform for a viable Palestine state

Edited by David Cobham and Nu’man Kanafani

41 Development Dilemmas

The methods and political ethics

of growth policy

Melvin Ayogu and Don Ross

42 Rural Livelihoods and Poverty Reduction Policies

Edited by Frank Ellis and

44 The Political Economy of

Issues and challenges for the

twenty- first century

Edited by Ricardo Gottschalk and

Patricia Justino

46 Trade, Growth and Inequality

in the Era of Globalization

Edited by Kishor Sharma and

Oliver Morrissey

47 Microfinance

Perils and prospects

Edited by Jude L Fernando

48 The IMF, World Bank and

restructuring and social policy

Edited by Junji Nakagawa

50 Who Gains from Free Trade?

Export- led growth, inequality and

poverty in Latin America

Edited by Rob Vos,

Enrique Ganuza, Samuel Morley,

and Sherman Robinson

51 Evolution of Markets and

Institutions

A study of an emerging economy

Murali Patibandla

52 The New Famines

Why famines exist in an era of globalization

Edited by Stephen Devereux

53 Development Ethics at work

Edited by Pan A Yotopoulos and Donato Romano

56 Ideas, Policies and Economic Development in the Americas

Edited by Esteban Pérez-Caldentey and Matias Vernengo

57 European Union Trade Politics and Development

Everything but arms unravelled

Edited by Gerrit Faber and Jan Orbie

58 Membership Based Organizations of the Poor

Edited by Martha Chen, Renana Jhabvala, Ravi Kanbur and Carol Richards

59 The Politics of Aid Selectivity

Good governance criteria in World Bank, US and Dutch development assistance

Wil Hout

60 Economic Development, Education and Transnational Corporations

Mark Hanson

institutional reform and social

welfare in the Western Balkans

William Bartlett

65 Work, Female Empowerment

and Economic Development

Sara Horrell, Hazel Johnson and

Health Care in India

Lessons for developing countries

A Venkat Raman and

James Warner Björkman

68 Rural Poverty and Income

Dynamics in Asia and Africa

Edited by Keijiro Otsuka,

Jonna P Estudillo and

Yasuyuki Sawada

69 Microfinance: A Reader

David Hulme and Thankom Arun

70 Aid and International NGOs

Dirk- Jan Koch

71 Development Macroeconomics

Essays in memory of Anita Ghatak

Edited by Subrata Ghatak and Paul Levine

72 Taxation in a Low Income Economy

The case of Mozambique

Channing Arndt and Finn Tarp

73 Labour Markets and Economic Development

Edited by Ravi Kanbur and Jan Svejnar

74 Economic Transitions to Neoliberalism in Middle- Income Countries

Policy dilemmas, crises, mass resistance

Edited by Alfedo Saad- Filho and Galip L Yalman

Edited by Yenkong Ngangjoh- Hodu and Francis A S T Matambalya

77 The Comparative Political

Economy of Development

Africa and South Asia

Edited by Barbara Harriss- White

and Judith Heyer

78 Credit Cooperatives in India

Past, present and future

Biswa Swarup Misra

Local versus global logic

Edited by Rick Molz, Cătălin Ratiu

and Ali Taleb

81 Monetary and Financial

Integration in West Africa

83 Towards New Developmentalism

Market as means rather than

New insights into an old debate

Edited by Jean- Philippe Platteau

and Robert Peccoud

85 Assessing Prospective Trade Policy

Methods applied to EU–ACP economic partnership agreements

Edited by Oliver Morrissey

86 Social Protection for Africa’s Children

Edited by Sudhanshu Handa, Stephen Devereux and Douglas Webb

87 Energy, Bio Fuels and Development

Comparing Brazil and the United States

Edited by Edmund Amann, Werner Baer and Don Coes

88 Value Chains, Social Inclusion and Economic Development

Contrasting theories and realities

Edited by A.H.J (Bert) Helmsing and Sietze Vellema

89 Market Liberalism, Growth, and Economic Development in Latin America

Edited by Gerardo Angeles Castro, Ignacio Perrotini- Hernández and Humberto Ríos-Bolivar

92 Microcredit and International

Development

Contexts, achievements and

challenges

Edited by Farhad Hossain,

Christopher Rees and

Tonya Knight- Millar

93 Business Regulation and

Non- State Actors

Whose standards? Whose

development?

Edited by Darryl Reed and

Peter Utting and

Ananya Mukherjee Reed

94 Public Expenditures for Agricultural and Rural Development in Africa

Edited by Tewodaj Mogues and Samuel Benin

95 The Global Economic Crisis and the Developing World

Implications and prospects for recovery and growth

Edited by Ashwini Deshpande and Keith Nurse

The Global Economic Crisis and the Developing World

Implications and prospects for recovery and growth

Edited by

Ashwini Deshpande and Keith Nurse

First published 2012

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Simultaneously published in the USA and Canada

by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2012 Selection and editorial matter, Ashwini Deshpande and

Keith Nurse; individual chapters, the contributors

The right of Ashwini Deshpande and Keith Nurse to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or

registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

The global economic crisis and the developing world: implications and prospects for recovery and growth/edited by Ashwini Deshpande and Keith Nurse.

p cm

1 Developing countries–Economic conditions–21st century

2 Developing countries–Economic policy–21st century

3 Global Financial Crisis, 2008–2009 I Deshpande, Ashwini, 1965–

II Nurse, Keith

HC59.7.G56323 2012

ISBN: 978-0-415-67128-6 (hbk)

ISBN: 978-0-203-11943-3 (ebk)

Typeset in Times New Roman

by Wearset Ltd, Boldon, Tyne and Wear

Contents

8 Is renewables a solution? Ethanol and the environment – the

Ö Z G E İ Z D E Ş

11 Comparative regional gendered impacts of the global

economic crisis on international trade and production in the

3.1 Rates of growth for core industrial production, tropical

3.2 Shares of world manufacturing output by region, 1750–2002 547.1 Output growth and contribution of aggregate demand

7.2 Index of primary commodity prices (US dollars, December

7.3 Multilateral real exchange rate (December 2001 = 100) 122

9.3 Latin America relative productivity index and USA

9.4 The knowledge curve: production stricture specialization and

10.1 Trends in economic growth, unemployment and broad

11.2 Selected financial inflows in sub- Saharan Africa, 2000–2009 24512.1 Annual percentage changes in GDP and GDP per capita

12.4 South African Mergers and Acquisitions (Rbn, current

12.5 Private sector credit extension by all monetary institutions by

12.6 Gross fixed capital formation and finance and insurance

12.7 Net capital flows to South Africa as percentages of GDP 265

12.8 Credit extension and investment as percentages of GDP 266

Figures xv

12.9 Capital allocated to capital formation by sector, Rbillions 266

12.11 The main sources and uses of capital in corporate business

12.12 Trends in household consumption, government consumption,

investment and trade, 1970–2007 (Real 2000, Rmillions) 270

12.14 Change in capital stock from 2000 to 2006 for all economic

12.15 Derivative market futures contracts (Rbillions, current

13.2 International comparison of inequality and unemployment 279

13.5 Unemployment and earnings inequality amongst the

15.1 Latin America and the Caribbean (developing countries):

remittance inflows as percentage of selected indicators 331

15.2 Aggregate remittance to CARICOM countries (million US$) 33215.3 Remittances to CARICOM countries as a share of GDP, 2008

15.4 Guyana remittance inflows as a percentage of select

15.5 Haiti remittance inflows as percentage of selected indicators 337

15.7 Remittances to Jamaica from source country (US$ millions) 339

15.8 Percentage of remittances to Jamaica from source country 340

15.9 Remittance inflows, FDI and ODA to Barbados 1992–2009e 34115.10 A comparison of Barbados’ percentage GDP and remittance

15.12 Barbados facilitation unit for returning nationals: statistics for

1.1 Income gains or losses from the terms of trade of selected

developing and transition economies, by trade structure,

2.6 Evolution of average tariffs for various groups of industries

4.1 The South African economy viewed sectorally by value of

5.1 Results of Model 1 regressions (first block: large

5.2 Results of Model 1 regressions (second block: restricted

5.3 Results of Model 2 regressions (first block: large

5.4 Results of Model 2 regressions (second block: restricted

7.1 Growth in output and aggregate demand and external and

7.2 External impulses to the Argentina economy: output and

trade growth in the world economy and changes in

Tables xvii

7.3 Production and exports in selected sectors and main crops in

7.5 (Moderate) positive primary commodity shocks and

domestic adjustment alternative exchange rate and closure

7.6 Positive exogenous and supply shocks and alternative

7.A1 Parameter value of the CGE model: parameter values,

8.1 Ethanol production from 1970–71 to 2005–2006 (millions

10.1 Predictions on employment indicators for women across

10.A5 Changes in labor market indicators across economic cycles

10.A6 Changes in labor market indicators across economic cycles

10.A7 Female employment change according to official

unemployment rates (economic cycles determined according

10.A8 Decomposition of female employment change according to

official unemployment rates (economic cycles are

determined according to GNP cycles and unemployment

10.A9 Decomposition of female employment change according to

official unemployment rates (economic cycles determined

10.A10 Decomposition of female employment change according to

broad unemployment rates (economic cycles determined

11.1 Declining export growth rate in major commodities in

xviii Tables

13.1 Static decomposition of current earnings inequality by

13.2 Dynamic decomposition of earnings inequality by

13.3 Dynamic decomposition of earnings inequality by

14.2 Description and frequencies of variables used in the reduced

14.4 Logistic regression results – ungrouped dependent variables:

15.3 Caribbean remittance inflows (in US$ millions, %

15.4 Annual percentage GDP growth rates for CARICOM

15.6 Short- term diaspora strategies focusing on remittances 349

Aldo Caliari is the Director of the Rethinking Bretton Woods Project at the

Washington- based Center of Concern He has a Masters in International Policy and Practice from George Washington University (2007), with a focus

on economics and finance He also holds a Masters degree from the ton College of Law, American University, on International Legal Studies (2000), where he was honored with the Outstanding Graduate Award He has been staff at the Center of Concern since 2000, where he has focused on global economic governance, debt, international financial architecture, human rights in international economic policy, and linkages between trade and finance policy He has done considerable public speaking for a variety of audiences that range from popular workshops to academia and closed govern-ment briefings He has edited three books on linkages between trade and finance, and one on regional and global liquidity arrangements Other writ-ings of his have been featured in books, academic and specialized journals, and the media He has been a consultant to several intergovernmental organi-zations – such as UNCTAD, UNDP, UN DESA and the Office of the High Commissioner for Human Rights – in addition to governments, civil society networks and foundations

Washing-Elisa Calza is a research assistant within the Unit of Innovation and ICT of the

Division of Production, Productivity and Management at the UN Economic Commission for Latin America and the Caribbean (ECLAC) Having gradu-ated in Economics from the Universitá Bocconi (Milan, Italy), she also obtained a MA in Development Economics at the University of Sussex (UK)

in 2008 Her research activities focus on innovation and development, STI policies and institutions, industrial development and new technologies

Mario Cimoli is the Director of the Division of Production, Productivity and

Management at the UN Economic Commission for Latin America and the Caribbean (ECLAC) He gained his DPhil at the SPRU (University of Sussex) with a thesis that analyses the effect of technological gaps and trade on growth in developing economies; since 1992 he has been Professor of Eco-nomics at the University of Venice (Ca’Foscari) In 2004 he was appointed Co- Director (with Giovanni Dosi and Joseph Stiglitz) of two task forces:

xx Contributors

Industrial Policy and Intellectual Property Rights Regimes for Development (Initiative for Policy Dialogue, Columbia University, New York) He makes speeches and writes and publishes books and articles on economics issues, including industrial as well as science, technology and innovation related

topics The following works are remarkable and stand out: Innovation and

Economic Development: the Impact of Information and Communication Technologies in Latin America (Edward Elgar, 2010); Industrial Policy and Development, The Political Economy of Capabilities Accumulation (Oxford

University Press, 2009) (with G Dosi and J.E Stiglitz (eds); ‘Structural

Change and the BOT Constraint: Why did Latin America fail to converge?’ (Cambridge Journal of Economics, 2010); ‘Global Growth and Implicit Reci- procity: A structuralist perspective’ (Cambridge Journal of Economics,

2010); ‘Elites e inercia estructural en América Latina: una nota introductoria

de la Economía Política del Desarrollo’ (Journal of Economic Issues, 2008);

La apertura comercial y la brecha tecnológica en América Latina: Una trampa de bajo crecimiento (with J.A Ocampo, eds), Más allá de las refor- mas, dinámica estructural y vulnerabilidad macroeconómica (Stanford Uni-

versity Press, 2005); Structural Reforms, Technological Gaps and Economic

Development: A Latin American Perspective (with J Katz, Industrial and

Corporate Change, Oxford, 2003); and Developing Innovation System:

Mexico in the Global Context (Pinter Publishers, 2000).

Vanessa da Costa Val Munhoz received a BA in economics from the Federal

University of Minas Gerais, Brazil (2003), an MA in economics from the Federal University of Uberlândia, Brazil (2006) and a PhD in economics from the Federal University of Minas Gerais, Brazil (2010) Vanessa da Costa Val Munhoz works as a professor of economics at the Federal University of Uber-lândia, Brazil Her main areas of interest are macroeconomics, international finance, the Post- Keynesian approach, capital flows, external vulnerability

and volatility She has been awarded grants from the Institute for Applied

Economic Research (IPEA- 2005) and the Brazilian Federal Council of nomics (COFECON- 2006 and 2010) She has published Brazilian journal art-icles and a chapter of a book, and works in the proceedings of conferences

Ashwini Deshpande is Professor of Economics at the Delhi School of

Eco-nomics, University of Delhi, India Her PhD and early publications were on the international debt crisis of the 1980s Subsequently, she has been working

on the economics of discrimination and affirmative action issues, with a focus

on caste and gender in India, as well as on aspects of the Chinese economy: the role of FDI in the reform process, regional disparities and gender discrim-ination She has published extensively in leading scholarly journals She is

the editor of Boundaries of Clan and Color: Transnational Studies of Inter-

group Disparity (with William Darity, Jr), Routledge, London, 2003; balization and Development: A Handbook of New Perspectives, Oxford

Glo-University Press, New Delhi, 2007 (hardcover) and 2010 (paperback);

Capi-tal Without Borders: Challenges to Development, Anthem Press, UK, 2010

Contributors xxi

(hardcover) and 2011 (paperback) Her latest book is Grammar of Caste:

Economic Discrimination in Contemporary India, Oxford University Press,

2011 She received the EXIM Bank award for her outstanding dissertation in

1994, and the 2007 VKRV Rao Award for Indian economists under forty- five

Bill Freund has a PhD from Yale University in history, achieved in 1971 He

has taught in the USA, Nigeria and Tanzania, and from 1985 to 2004 was Professor and Head of Department, Economic History, University of Natal

He is currently teaching in the Corporate Strategy and Industrial ment Programme, University of the Witwatersrand, Johannesburg, South

Develop-Africa His best- known books are The Making of Contemporary Africa, first published in 1984, and The African City: A History (Cambridge University Press, 2007).

Özge Izdeş holds a BA and an MA in Economics from Istanbul University, and

started a second MA in Economic History (ATA) at Bhosphorus University, which was terminated by her PhD in Economics at the University of Utah, Salt Lake City She has worked with the International Working Group on Gender, Macroeconomics and International Economics (GEM- IWG) on con-ference organization and research projects since 2006 She has taught eco-nomics at Istanbul University, the University of Utah and Kadir Has University, and is currently teaching at Arel University She is the author of a number of articles on economic crises, gender and employment, labor market transformations, poverty, women and the economy She is an active participa-tor in the Women’s Movement in Turkey, and is especially active in cam-paigns on gender and labor Recently she has been working on employment- oriented development strategies She is a member of the Amer-ican Economic Association (AEA), Women’s Labor and Employment Initi-ative (the KEIG Platform), IAFFE, the GEM- IWG, ASSA, EEA and URPE

Jason Jackson is a PhD Candidate in the Political Economy of Development at

the Massachusetts Institute of Technology He has an AB in Economics from Princeton University, an MSc in Development Economics from the Univer-sity of London School of Oriental and African Studies and an MPA from the Harvard Kennedy School He has won fellowships from the Social Sciences Research Council in the US and the Overseas Development Institute in the

UK, and has worked on issues of social and economic development with a variety of private, non- governmental and international organizations in the Caribbean, South Africa and the United States

Jessica Jones is a Research Consultant with the Shridath Ramphal Centre for

International Trade Law, Policy and Services, University of the West Indies, Cave Hill Campus, Barbados As a Consultant for the International Organiza-tion for Migration (IOM), Jessica Jones has authored manuals providing policy advice to strengthen technical capacity in migration management for the Government of Trinidad and Tobago Jessica Jones has also worked with

xxii Contributors

the IOM Headquarters in Geneva, interning with the Migration Policy, Research and Communication Department, on projects relating to Migration, Climate Change and Environmental Degradation, Migration and Develop-ment, and Labor Mobility Holding an advanced degree in International Rela-tions from the University of the West Indies, Jessica Jones is also an alumna

of the Graduate Institute of International Studies (HEI, now IHEID), Geneva, Switzerland and the Comparative Regional Integration programme of the Centre for European Integration Studies (zEI), Germany Jessica Jones is the Project Manager of the IDRC- funded project examining “Strategic Opportun-ities in Migration Management for the Caribbean: Brain Circulation, Diasporic Tourism and Investment”, for which a key outcome has been the

documentary Forward Home: The Power of the Caribbean Diaspora.

Gilberto Libânio received a BA in economics from the Federal University of

Minas Gerais, Brazil (1994), an MA in economics from the Federal sity of Rio de Janeiro, Brazil (1998), and a PhD in economics from the Uni-versity of Notre Dame, USA (2006) He works as a professor of economics at the Federal University of Minas Gerais, Brazil His main areas of interest are macroeconomics, central banking, growth theory and international finance, with a regional focus on Latin America He has been awarded grants and fel-lowships from the Kellogg Institute for International Studies, the University

Univer-of Notre Dame, the Global Development Network, and the National Council for Scientific and Technological Development (CNPq, Brazil), among others

Gilberto Libânio is the author of Three Essays on Aggregate Demand and

Growth (VDM Verlag, 2009), and has published journal articles, chapters of

books and book reviews in Brazil, the UK and the USA

Seeraj Mohamed is an academic economist and writer with more than twenty

years’ experience working on economic, industrial and finance development issues He has been active in the research and formulation of economic pol-icies for a democratic South Africa since democracy in 1994 He is Director

of the Corporate Strategy and Industrial Development Research Programme

at the University of the Witwatersrand (Wits University), where he also has been involved in designing and teaching new postgraduate degrees and courses in the School of Economic and Business Sciences He is a member of the Executive Committee of the Global Labour University (GLU) at Wits University, and teaches a core course in the GLU Masters programme Seeraj was appointed Special Advisor to the South African Minister of Trade and Industry in 2010 He also advises the South African Labour Movement on economic policy issues, and is a member of the Economist Advisory Panel of Cosatu – the country’s largest trade union federation He is a member of the Board of Directors of the Development Fund of the Development Bank of Southern Africa He is involved in a number of progressive international net-works working on economic development and finance For example, since

2009 he has been a member of the Economist Advisory Council of the Task Force on Global Financial Integrity, an international coalition of more than

Contributors xxiii

fifty international civil society organizations and governments working together to address inequalities in the global financial system He is a frequent commentator on the South African and global economy, and has written a

weekly column called Global Account for the business magazine Engineering

News and the website www.Polity.org.za since 2002 He attended the

Cam-bridge Advanced Programme on Rethinking Development Economics (CAPORDE) in 2003, now teaches in the African Programme on Rethinking Development Economics (APORDE) in South Africa, and has participated in their alumni conferences, the Annual Conference on Development and Change

Luiz M Niemeyer is currently Associate Professor at the Economics

Depart-ment of the Catholic University of Sao Paulo (PUC- SP) and Faculdades Campinas (FACAMP) He has PhD in Economics from the New School Uni-versity (2000) In 2005, he was a Visiting Professor at Denver University – Graduate School of International Studies In 2003, he was Deputy Director of the Third Cambridge Advanced Program on Rethinking Development Eco-

nomics Luiz has published several articles in Brazil, and a book, Brazil’s

External Debt in the 1990s in a Historical Perspective: The Role of Short- term Portfolio Investment and the Shifting Character of the Brazilian State during Debt Crises, which is available in English through University Micro-

film, Ann Arbor, MI His research areas are international finance, economic development, and monetary economics

Keith Nurse is director of the Shridath Ramphal Centre for International Trade

Law, Policy and Services at the Cave Hill Campus (Barbados) and currently holds the World Trade Organization Chair at the University of the West Indies (UWI) Keith is one of the founding members of the recently established World Economics Association and has served on the advisory board of several inter-national organizations, such as the World Trade Organization Chairs pro-gramme, the OECD Knowledge Networks and Markets project, the ACP Intra-Regional Observatory on Migration and the OAS Inter-American Cultural Policy Observatory He is on the advisory board of academic institutions like the MA in Technology Governance at the University of Tallinn, Estonia and the Diploma for Advanced Studies in Trade Negotiations and Governance, Uni-versity of Geneva He has served on the editorial board of the academic journal

Tourism and Cultural Change and the Anthem Press Other Canon Series He is

the author of Heritage Tourism in the Caribbean (Caribbean Tourism ization 2008), Festival Tourism in the Caribbean (Inter-American Development Bank 2003) and The Caribbean Music Industry (Caribbean Export Develop-

Organ-ment Agency 2003) Keith has published several scholarly articles on the trade policy dimension of the clothing, banana, tourism, climate change, diaspora,

copyright and creative industries He is also the co-editor of Caribbean

Econo-mies and Global Restructuring (Ian Randle Publishers 2002) and Globalization, Diaspora and Caribbean Popular Culture (Ian Randle Publishers 2005) and

co-author of Windward Islands Bananas: Challenges and Options under the

xxiv Contributors

Single European Market (Freidrich Ebert Stiftung 1995) He is also the

execu-tive producer of the documentary Forward Home: The Power of the Caribbean

Diaspora which is an outcome of the IDRC funded project entitled Strategic

Opportunities in Caribbean Migration

Annalisa Primi has been an economist at the OECD (Paris, France) since 2009

From 2003 to February 2009 she worked for the United Nations Economic Commission for Latin America and the Caribbean (CEPAL), in Santiago Her areas of expertise are innovation policy, industrial policy and intellectual property for development She earned a Masters degree at the University of Pavia (Italy) in International Cooperation and Economic Development, and a degree in Economics of Institutions and Financial Markets at the University

of Tor Vegata (Rome, Italy) She has a record of official and academic cations and extensive experience in technical assistance to governments on innovation and industrial policy

publi-Sebastián Rovira is Economic Affairs Officer within the Unit of Innovation and

New Technologies of the Division of Production, Productivity and ment at the UN Economic Commission for Latin America and the Caribbean (ECLAC) Between 2006 and 2007, he was consultant for the Unit of Indus-trial Development at ECLAC He obtained his degree in Economics at the Universidad de la República Oriental del Uruguay and has an MA in Eco-nomics from the Universitá degli Studi di Siena (Italy), where he is currently

Manage-a PhD cManage-andidManage-ate in Economics His mManage-ain reseManage-arch interests concern economic development, innovation and industrial dynamics, structural change and ICT

Leandro Serino is an economic analyst at Aerolineas Argentinas He has been a

researcher and assistant professor of economics at the Institute of Sciences, University of General Sarmiento, Argentina, and between 2008 and 2010 he collaborated with the Ministry of Economy and Public Finances in Argentina

in relation to the international crisis and the development of an applied CGE model Serino obtained his PhD from ISS- EUR in 2009 for an applied analy-sis of alternative policies to encourage productive diversification in wage- goods exporting countries His research interests are development economics theory, international finance and applied macroeconomics

Mehdi Shafaeddin is a development economist with a DPhil degree from the

University of Oxford, the former head of the Macroeconomics and ment Policies Branch of the United Nations Conference on Trade and Devel-

Develop-opment (UNCTAD), and the author of Trade Policy at the Crossroads The

Recent Experience of Developing Countries (Palgrave Macmillan, 2005) and Competitiveness and Development (Anthem Press, forthcoming) He has

authored many articles in international journals on trade and development issues, and the development of China, Africa and oil- exporting countries He was, until recently, an international consultant affiliated with the Institute of Economic Research, University of Neuchatel, Switzerland, and runs a train-ing course on Building- up Competitive Industrial Capacity

Contributors xxv

David Tennant, PhD, is a senior lecturer in Economics at the University of the

West Indies, Mona Campus, and was previously an economist in the can Ministry of Finance and Planning He has a strong background in quanti-tative and qualitative research methodologies His areas of specialization include: Financing Development in Emerging Markets; Financial Crises; Micro, Small and Medium Enterprise (MSME) Development; and Pensions

Jamai-Reform He has published papers in journals such as The Journal of

Eco-nomics and Business; The Journal of International Financial Markets, tutions and Money; World Development; Applied Economics; Applied Financial Economics; The Journal of Developing Areas; Empirical Eco- nomics Letters; The Journal of Economic Issues: and Social and Economic Studies.

Insti-Fiona Tregenna is an associate professor in the Department of Economics and

Econometrics at the University of Johannesburg, South Africa She holds a PhD in Economics from the University of Cambridge, a Masters degree in Economics from the University of Massachusetts (Amherst), and earlier degrees from the Universities of the Witwatersrand and Natal (now Kwazulu- Natal) in South Africa In the past she has worked for, among others, the National Labour and Economic Development Institute, the Congress of South African Trade Unions, universities in South Africa and abroad, and as a con-sultant to various research institutes and international organizations Her

research has been published or is forthcoming in journals including The

Review of Political Economy; The Cambridge Journal of Economics; Applied Economics; The International Review of Applied Economics; The South Afri- can Journal of Economics; Development Southern Africa; The European Journal for the History of Economic Thought; The Review of African Political Economy; and Industrial and Corporate Change, as well as a number of book

chapters Fiona has presented her research at conferences and seminars in the United States, Brazil, Japan, Greece, Finland, Chile, Cuba, Turkey, Spain, India, China, Switzerland, Ghana, The Netherlands, the United Kingdom and elsewhere

1 Global economic crisis and the

developing world

An introduction

Ashwini Deshpande and Keith Nurse

This introduction is being written at a time when the “Occupy Wall Street” movement is in its third week and continues to gather momentum in the United States of America On the other side of the Atlantic, European leaders have delayed by two weeks the summit to finalize the bailout plan for Greece and the wider eurozone debt crisis And to add more drama to the sequence of events,

the cover story of this week’s issue of The Economist is entitled “Be Afraid”,

with the tagline stating “unless politicians act more boldly, the world economy

will keep heading towards a black hole” (The Economist, 2011) Also of note is

the passing of the US Senate bill aimed at punishing China and other countries that the US deems are undervaluing their currencies The Chinese response through its official news agency Xinhua stated that the “US legislation was remi-niscent of the Smoot- Hawley tariff act in 1930 that is widely credited with wors-

ening the Great Depression” (Financial Times 2011a).

In an unrelated but topical bit of trade news it is reported that Chinese exports, now considered a barometer for the health of the global economy, fell in September by seventeen percentage points – the biggest drop since 2009 – due

in large part to the decline in orders from the EU and the US, China’s biggest

export markets (Financial Times 2011b) Coupled with this is the latest

employ-ment news that the global economy has lost twenty million jobs since the break of the financial and economic crisis in 2008, and that a further twenty million jobs could disappear by the end of 2012 based on current trajectories (ILO/OECD 2011) The specter of rising unemployment, declining consumer demand (and confidence), reduced investor confidence and constricting govern-ment spending are the key challenges facing the recovery effort after the furor of bank bailouts, stimulus packages and debt restructuring that defined the policy response in the immediate aftermath of the financial and economic crisis

There is now a foreboding sense that the volatile mix of fiscal austerity, rising social discontent and political gamesmanship may lead to the further growth of low- intensity protectionism, or worse yet, the return of beggar- thy-neighbor pol-icies (e.g currency wars), thereby further threatening the already fragile global economic recovery As the prospects of a double- dip recession become more evident and the predictions of sustained recovery fade there is increasing recognition that the global economy is in the throes of a global economic crisis

2 A Deshpande and K Nurse

reminiscent of the great depressions of the 1930s and possibly that of the 1870s and 1820s As such, the current crisis should be seen not just as a period of financial and economic instability but as a more fundamental shift in the geo- economic and political moorings of the contemporary global economy (see Nurse 2010) For example, Gourevitch, in his seminal work on comparative responses of five governments (United States, United Kingdom, France, Germany and Sweden) in the advanced economies during international economic crises, noted that each of the previous crises exhibited similar tendencies, such

as there was in each case a major downturn in a regular investment/business cycle; a major change in the geographical distribution of production, and, lastly

a significant growth of new products and new productive processes (Gourevitch 1986)

What is observable in the contemporary conjunctural shift has been the ficant shift in economic power away from the advanced economies towards the emerging and developing world For instance, the share of global GDP of the G7 countries dropped from 50 percent in 1990 to 40 percent by 2008 while the share

signi-of the G20 emerging economies rose from 11 percent to 17 percent in the same time period (Canuto and Yufa Lin 2011) It is also critical to note that the main source of growth in the global economy has come from emerging economies fol-lowed by developing countries, generally

The growth performance and the prospects for recovery are uneven and largely dependent on the trade structures of the respective developing countries (see Table 1.1) The economies most severely affected are the net food and energy importers, on account of the rise in food and energy prices in global markets The countries worse affected are the small and island economies due to the high dependence on imports in these areas Exporters of manufactured goods also suffered during the downturn depending on the extent of their exposure to the advanced economies that are in a recession Exporters of fuel and exporters

of minerals and other mining products experienced the most favorable terms of trade, followed by the exporters of agricultural products

Trade in international services, a sector where many developing countries are highly dependent, was also impacted by the economic downturn, as reflected in data for 2009 Travel and transport, which together account for half of the world trade in services, had respective declines of 9 and 16 percent The next most

Table 1.1 Income gains or losses from the terms of trade of selected developing and

transition economies, by trade structure, 2002–2010 percentage of GDP

Source: UN World Economic Situation and Prospects, 2011: 51.

An introduction 3

negatively affected sectors were personal, cultural and recreational services (11 percent), financial services (16 percent) and construction services (20 percent) The only areas that experienced growth were trade in computer and information services (3 percent) and royalties and licence fees (19 percent) (United Nations 2011a)

In total, world trade took a major and unprecedented hit, with a decline of minus 11 percent in 2009 The last time world trade fell by this much was during the Great Depression of the 1930s (see Figure 1.1) However, data and analysis

of the global trade imbalances (GTIs) suggest that the trade problem is structural rather than episodic, showing that the average annual growth of GTIs for the period 1990 to 2007 was 11 percent as compared to 1 percent in the prior two decades (Freund 2011) From this standpoint, rebalancing current account imbal-ances is a critical feature of the post- crisis policy framework if sustainable growth is to be achieved (Serven and Nguyen 2011) Achieving coordination in this arena is no mean task, given the divergence of perspectives from the key actors For example, the US points to the under- valued Chinese currency, whereas China and the other emerging economies argue that the greater distor-tion is the excessive quantitative easing, particularly in the US (United Nations 2011b)

From a regional perspective, an analysis of the growth performance in the last few years provides a very compelling picture of the unfolding context of growth and recovery As Figure 1.1 illustrates, overall world output experienced a major

Figure 1.1 Growth of world output, by region, 2004–2012 (source: UN 2010, 2011).

World output

Developed economies

Economies in transition

Developing economies

Africa

East and South Asia

Western Asia

Latin America and the Caribbean

Least developed countries

4 A Deshpande and K Nurse

drop- off of minus 2.0 percent in 2009, with a recovery of 3.6 percent in 2010 The advanced economies had a below- average performance, with a decline of minus 3.5 percent and a slight recovery of growth in 2010 of 2.3 percent Devel-oping countries, on the other hand, only had a decline to 2.4 percent, rebounding

to 7.1 percent in 2010 and thereby returning to pre- crisis peaks The success of this group is largely determined by the strong export performance of East and South Asia, namely China and India, which have been averaging output growths

of 10 percent and 8 percent, respectively, over the 2004–2010 period Africa’s average was closer to 5 percent, whereas Western Asia and Latin America and the Caribbean hover around 4 percent

What Figure 1.1 depicts is what has been described as the “two- speed global recovery” process and the sustained imbalance between surplus and deficit coun-tries Several emerging economies, namely China, Brazil and India, have built healthy foreign exchange reserves on the basis of solid export performance that generated strong current account positions As for the larger emerging econo-mies, they have been able to rely on large and relatively under- tapped domestic markets or to switch to South–South trade to ride out the slump in external demand from the OECD countries in recent years

On the other side of the equation are the advanced economies that have been mired in low growth with rising unemployment, faltering consumer spending and high debt levels along with widening trade and reserves deficits The US, whose prospects are slightly better than that for Europe and Japan, “has been on the mend from its longest and deepest recession since the Second World War” and the “pace

of the recovery has been the weakest in the country’s post- recession experience” (United Nations 2011c) The Eurozone area is affected by sovereign debt problems, harsh austerity measures and structural and/or technological unemployment, particularly in Portugal, Italy, Ireland, Greece, Spain and the UK The prospects for growth rebounding in these economies are very weak in the short to medium term Most developing countries, other than the fast- growing emerging economies mentioned above, have been affected by the slowdown in traditional export markets and external financial flows such as FDI, aid and remittances, and have had to implement austerity measures Some developing countries have been buoyed by increased commodity demand, from China in particular However, in general it is noted that poverty, hunger and inequality are on the rise in the developing world, in part as a result of the depth of the austerity measures that most governments have been required to implement It is also important to note that developing countries continue to hemorrhage massive amounts of financial resources to the advanced economies One of the presumed benefits of the current crisis is the decline of net transfers of financial resources in 2009 (−$545 billion) and 2010 (−$557 billion) from the peak of −$881 billion in 2007 On the other hand, net private capital flows rebounded from the slump in 2008 ($110 billion) to $386 billion in 2009 and $659 billion in 2010 (United Nations 2011d) Similarly, remittances, which also took a dip in 2009 to US$309 billion, rebounded to pre- crisis levels in 2010 ($325 billion) and are expected to rise in

2011 to $349 billion (Mohapatra et al 2011).

An introduction 5

These shifts have created a new global social redistribution of income quite unlike the post- World War II model, where the North Atlantic economies were the principal drivers of economic growth that provided the demand push behind late twentieth- century economic development While the growth of the emerging economies like the BRICS has been rapid, the largest share of global GDP still comes from the G7 economies and the former countries are still very reliant on these markets

This scenario raises the question of where the new source of world demand and consumption will come from to propel the global economy out of the down-turn Most economies in Latin America, the Caribbean, Africa, the Middle East and Asia, given their levels of external indebtedness, high unemployment and general impoverishment, are not to be that source On the positive side, one of the potential new engines of growth is the global middle class in emerging econ-omies, and this target group has become far easier to tap into with the growth of global media and the Internet economy However, is this demand sufficient to compensate for the fall- off in demand from the advanced economies? In effect, the unfolding context is one where workers in the G20 are producing goods and services for markets that are severely constrained in the current global economic crisis More fundamentally, the situation relates to the tendency for world pro-duction to outstrip world consumption during the latter phases of an economic downturn (see Mandel 1984, Wallerstein 1984)

The combination of these structural shifts in the global economy establishes the basis for major instability as the existing international economic regime is challenged by the weight of unrealistic expectations within and across countries

As such, the difficulties of generating consensus among the major economies and the inadequacy of a unified global policy response make for a dangerous economic and political context Ben Bernanke, chairman of the US Federal Reserve, at the Sixth European Central Bank Central Banking Conference in Frankfurt, Germany in November 2010, argued along similar lines The follow-ing quotation from him is worth highlighting because it captures both the histor-ical dimension of the current crisis as well as the risks of uncoordinated rebalancing of the contemporary global economy:

As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances This problem is not new For example, in the somewhat different context of the gold standard in the period prior to the Great Depression, the United States and France ran large current account surpluses, accompanied by large inflows of gold However, in defiance of the so- called rules of the game of the international gold standard, neither country allowed the higher gold reserves to feed through to their domestic money supplies and price levels, with the result that the real exchange rate in each country remained persistently undervalued These policies created deflationary pressures in deficit countries that were losing gold, which helped bring on the Great

6 A Deshpande and K Nurse

Depression The gold standard was meant to ensure economic and financial stability, but failures of international coordination undermined these very goals Although the parallels are certainly far from perfect, and I am cer-tainly not predicting a new Depression, some of the lessons from that grim period are applicable today In particular, for large, systemically important countries with persistent current account surpluses, the pursuit of export- led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account

(Bernanke 2010)Regardless of the contending perspectives, it is undeniable that the burgeoning protest movements, on both sides of the North Atlantic and in the South, capture public outrage at the fact that a large share of the working classes (the industrial workers, the middle classes and so forth) are paying a debilitating and unequal price for the crisis, as unemployment and inequality continue to remain high and expand The advanced economies continue to have slow growth, and the policy initiatives are principally focused on imposing stronger austerity measures, rather than stimulating productive economic activity which has the potential to create jobs, boost living standards and significantly mitigate economic hardship These same economies, however, are constrained by ballooning fiscal deficits and worrisome debt- to-GDP ratios on account of the fall in tax revenue and the burden of bank bailouts and stimulus packages

The competition between short- term fiscal austerity measures and longer- term growth and expansion policies reminds us that in hard economic times policy debate and political experimentation is at its sharpest and most controversial (Gourevitch 1986) It is also noteworthy that the global economic crisis has erupted at a time when the global economy is integrated, intertwined and inter-dependent as perhaps never before in history Thus, the impact of this crisis that originated in the advanced industrial countries can be felt sharply in the develop-ing world, which is already grappling with its own internal constraints and struc-tural barriers to sustained development It is on this basis that Krugman (2008) argues “the spread of the financial crisis to emerging markets makes a global rescue for developing countries part of the solution to the crisis.”

Emergent debates about resurgent protectionism, currency wars and ative reserve currencies suggests that the global economy has entered a phase

altern-of heightened geo- economic and political change which will transform the development “equation” in varied and diverse ways Indeed, the economic and financial crisis is but one element of the global transition, given what is referred to as the “triple crisis” of finance, development and environment with challenges like climate change that underscore the limits of the global economy It is imperative at this time that development economists and policy- makers should engage with two crucial questions: the implications of these changes for the developing world and the prospects for “development” for the majority of people in the developing world This volume hopes to contribute to this engagement

An introduction 7

The scope of the book

This is the third volume to emerge from the rigorous academic research and lively discussions among young scholars associated with the Annual Conference

on Development and Change (ACDC) The ACDC is an international network of

heterodox young scholars, mainly development economists, but not exclusively,

as it includes sociologists and non- academic practitioners as well The network has had four conferences, and this volume contains selected chapters from the fourth conference, which was held in Johannesburg in April 2010 Space con-straints prevented us from including all the papers presented; we hope this selec-tion showcases the wide variety of angles and approaches with which participants approached the discussion on the global economic crisis and its impact on the developing world The book is divided into six parts, with one of the parts turning the spotlight on South Africa, given that the conference was held there

Part I: Insights from history

The first part takes a historical view of some components of globalization and their impact on the developing world There is also an attempt to understand the current crisis as a part of a longer history of crises In the opening essay, Mehdi Shafaeddin examines the link between trade liberalization, industrialization and development Trade liberalization, variously defined as a package consisting of removal of quantitative restrictions on imports, easing (or, in some cases, removal) of import tariffs, removal of export taxes and subsidies, and a general outward orientation, is one the key pillars of neo- liberal prescriptions and is assumed to bring unmitigated benefits and gains from trade, especially for devel-oping countries Shafaeddin argues for not making this an orthodoxy, and sug-gests that trade policy should be one of the core ingredients of industrial and development policies Under this arrangement of integrated and complementary policies, trade liberalization could be used, selectively and gradually, to ensure that industries achieve competitiveness and higher levels of efficiency through technological upgrading On the other hand, if trade liberalization is seen as an orthodox mantra and as a magic cure, and hence undertaken rapidly and across- the-board and when the industrial foundation of the domestic economy is not ready to take advantage of the opportunities that it offers, the result could be de- industrialization and unemployment In some cases, it could lock countries into production and export of primary commodities or natural resource- based, extrac-tive industries, or into labor- intensive production, low in the value chain

Shafaeddin finds that the historical evidence on the performance of successful early and late industrializers is not supportive of the unmitigated benefits of rapid and across- the-board trade liberalization He shows how Britain protected its industries for nearly 200 years before opening them up to external competi-tion He recognizes that late industrializers do not have the luxury of time, that they are tremendous pressure to catch up, especially given the reservoir of

8 A Deshpande and K Nurse

technology that is already available in the developed world Also, he strates how the policy space for developing countries has shrunk dramatically,

demon-an argument made elsewhere by Chdemon-ang (2002) For several developing countries, specifically the least developed countries, the inability to resist rapid trade liber-alization has not only failed to boost economic growth but also resulted in de- industrialization (defined as the ratio of Manufacturing Value Added to Gross Domestic Product) In the newly industrializing economies of East Asia, since trade liberalization was gradual and selective, undertaken after these countries had reached a level of industrial maturity, the effects were more favorable The chapter focuses on the contrasting experiences of Mexico and China to demonstrate two alternative paths to trade liberalization with dramatically differ-ent consequences Mexico was the poster- boy for the neo- liberal school, with rapid and across- the-board liberalization In contrast, China pursued a more gradual path, using functional and targeted government intervention, focused on

“learning- by-doing” and on enhancing capabilities of domestic firms in strategic sectors More importantly, China’s case illustrates the use of trade policy as an integral part of a larger policy framework, rather than as an end in itself

Keith Nurse’s chapter argues that as the world battles yet another “bone- crushing recession” (quote from Krugman, 2008: 181), we need to take a longer view of the crisis by looking at the historical trends in booms and recessions of capitalism If capitalist development is marked by long- term cyclical trends, then

in retrospect, we can argue that this recession was imminent, not a “blip on the curve of business as usual” Nurse discusses the analysis of W Arthur Lewis who suggests that Kondratieff cycles (long waves of forty to sixty years) can provide the key to understand the dynamics of growth in the core economies (the engines of growth); the changes in the terms- of-trade between agriculture and industry and the consequent changes in the core–periphery relations Nurse sug-gests that we need to understand and be aware of the consequences of the crisis,

in terms of institutional changes, relocation of industries to the periphery as well

as the impact on the periphery, as the “engine of growth”, namely the core omies, slows down The premise of the engine- of-growth theory is that countries already on the escalator pull others along as well However, this logic would break down in the recessionary or downswing phase of the long cycle

In view of these long- term tendencies, Lewis’ argument is that countries of the periphery could either follow the example of the core and engage in indus-trial deepening and upgrading, or rely on international trade for commodity export Nurse draws our attention to the fact that Lewis had shown how the former option is open to the relatively large developing countries, like India or China, but not really to smaller economies or the “tropical world” The implica-tions for developing countries in the context of the current economic crisis are clear: if countries rely on trade as the engine of growth, they are bound to suffer significant decline of output, employment and export revenues during down-swings, which are inevitable features of capitalist growth over the long run Nurse’s chapter provides detailed empirical evidence on these propositions in the context of the current crisis, in addition to discussing the rise of new centers

An introduction 9

of economic activity (as witnessed by the rise of China) and the consequent shift

in the global balance of power

Continuing the historical discussion, Bill Freund discusses the dependency theory in view of the African experience during colonialism and thereafter He argues that contrary to the experience of other colonies (and of Lenin’s analysis), African colonies, barring exceptions, were not targets for metropolitan invest-ment, as their societies could not absorb profitable large- scale investments Thus, the continent by and large specialized in export of raw materials, much in line with the dependency arrangements (another manifestation of which were the imperial preference arrangements), and was thus drastically hit by the precipi-tous decline in prices during the 1930s depression However, large parts of Africa were still characterized by largely self- sufficient peasants, basically outside the purview of the colonial/cash economy Some African economies were abundant in gold and these were able to enjoy unprecedented prosperity, in contrast to agriculture- based societies

All things considered, Freund argues that the Great Depression meant “lost years” for Africa, where investment and infrastructure suffered, and there emerged a view that development would need to be in focus in order to realize the economic potential of the continent Turning to the current crisis, Freund argues that the African depression, characterized by disinvestment, de- industrialization and a roll back of the state, began far earlier, and that perhaps the entire last quarter of the twentieth century qualifies for that title, as most economies were not able to find a sustainable growth path Freund discusses the turn- around in the first decade of the twenty- first century, especially in mineral- based economies, where he suggests that the rise of newly economically power-ful countries like China, which have contributed to the rise of the multi- polar world, could have played a role in this turn around He also suggests that this crisis should be seen as an opportunity rather than simply a disaster, as it presents an chance to break down the uni- or bi- polar world and move towards the creation of a multi- polar world His chapter ends with a discussion of South Africa, which links directly to Part III which is specifically on South Africa

Part II: The finance and trade dimension

Vanessa da Costa Val Munhoz and Gilberto Libânio examine the vital and hotly debated issue of comprehensive capital controls: should developing countries introduce capital controls? Would that not act as disincentive for entry of foreign capital? Could it be that too much capital might have an adverse macroeconomic impact on the host economy? Mainstream orthodoxy militates against the idea of any kind of control on the movements of private foreign capital However, after the Asian crisis of 1997 this discussion re- emerged on the international scene, and several economists have argued that controls on inflows of foreign capital could reduce vulnerability of these economies to financial instabilities In the wake of the sub- prime crisis, the urgency of regulating capital flows (whether domestic or foreign) cannot be overstated

10 A Deshpande and K Nurse

The chapter provides an in- depth review of the literature on capital controls and makes a cogent argument in favor of capital controls as a means of reducing vulnerability, of providing greater autonomy for monetary policy and a greater ability for the host country to manipulate exchange rates It goes on to discuss definitions and concepts of capital controls – very important in understanding the nuances of the debate In an empirical analysis of fifty- three countries between 1987 and 2007, the authors test for whether capital flows are able to explain the high exchange- rate volatility and loss of monetary policy autonomy The idea is to examine if the macroeconomic impact of excessive volatility of financial flows can justify a position in favor of capital controls They find that for the sample of countries without capital controls, their hypothesis is valid (and for the sample of countries with capital controls, the relationship between capital inflows and exchange rates is weakened) Thus, the authors make a strong case for the adoption of capital controls Seeraj Mohammed’s chapter, in Part V, demonstrates the validity of their argument in the context of South Africa Aldo Caliari’s chapter argues that while the bulk of the policy response to the crisis has focused on the financial measures, the trade dimensions of the crisis tend to be overlooked, except for measures intended to limit protectionism and restore trade finance This chapter links to the points made by Shafaeddin in the first part of the book, and argues for looking at trade and trade policy as an integ-ral part of a wider development strategy Coming after decades of reform in developing countries that placed export- led growth as the central paradigm, Caliari examines the role of trade in developing economies during the boom and recession phases and makes two observations The first is that focus on an improved export performance, without an equal emphasis on the mechanisms by which such exports would yield increased and stable financial gains to the source countries, cannot take the developing countries very far The second is that the success of a trade- led development model hinges not so much on market access

or on trade policy reforms per se, but on redrawing the role of trade in ing country economies and its linkages to a number of external and internal financial structures in those economies For instance, he points out that sub- Saharan Africa delivered its peak export performance of the last three decades between 2003 and 2008, a period that registered no movement in the WTO Doha Round This would seem to suggest that lack of market access is not really the central issue it appears to be in official responses, except maybe at the margins His main suggestion is that trade can be and ought to be seen as a develop-ment finance tool; a tool that helps countries weather, rather than place them at the mercy of, financial cycles He makes the plea that, therefore, the crisis could

develop-be seen as an opportunity to address longstanding issues that have prevented developing countries from a more beneficial trade engagement in the global economy, not only during crises but during more benign times, when it is busi-ness as usual

Leandro Serino’s chapter argues that even though Latin America and several other developing countries have not been as badly hit as during some earlier phases, the crisis has affected them through different mechanisms Some

An introduction 11

developing countries, especially those implementing inflation- targeting regimes and more integrated into the web of global financial markets (e.g Peru and Colombia), suffered from the reversal of capital flows as uncertainty spread out and institutional investors decided to move to “safe” financial assets For several other developing countries, the effects of the crisis have been felt through the trade channel

The most important channel has been the collapse of world trade between the second half of 2008 and the beginning of 2009 Second, developing countries have been affected through falling external demand, as industrialized economies went into recession and, in spite of the good performance of China, world output contracted in 2009 An additional and “paradoxical” mechanism through which the recent crisis has impacted developing countries has been the fast recovery (and sustained expansion) observed in primary commodity prices, which, after falling strongly, increased by 20 percent in US dollar terms between March 2009 and the time of writing, according to the Index of Primary Commodity Prices elaborated by Argentina’s Central Bank This, a priori, constitutes a positive external shock for natural- resource exporting countries (which many developing countries are), and this is linked in part to expansionary monetary policies that rich economies have put in place to overcome the crisis

This chapter discusses the impact of all these changes on the economic formance of Argentina This is an interesting case because the country, first, is a primary commodity exporter, and second, has been implementing a stable and competitive exchange rate regime in recent years The strategy underpinning both these factors is to promote its non- traditional tradable sector and diminish the vulnerability of the economy to the moods of international financial markets This analysis focuses on two connected transformations One is the recovery of the expected 2010 world output growth on the basis of a continuous supportive policy stance and given that persistent vulnerabilities do not undermine the recovery process The other transformation focuses on the rebound in primary commodity prices and associated improvements in the price of Argentina’s tra-ditional exports Using the analytical framework of a structuralist CGE model, the chapter shows that for Argentina these two effects are positive shocks which are likely to be expansionary However, Serino argues for an expansionary fiscal policy to make sure there is life after what he calls the “Great Recession”

per-Part III: The technology and innovation dimension

This part looks at two key issues in the contemporary development challenge: the costs and benefits of bio- fuel production, and the relationship between tech-nology, industrial policies and the process of creative destruction and economic policies

Luiz Niemeyer examines, through the lens of Brazilian ethanol production, the costs and benefits of renewable fuels such as ethanol Brazil has the natural resource base to produce ethanol (given the large volume of sugarcane produc-tion), and indeed renewable fuels such as ethanol are being promoted as viable

12 A Deshpande and K Nurse

alternatives to fossil fuels However, Niemeyer shows how conventional cost–benefit analysis of ethanol production, which declares it viable, disregards important negative environmental impacts First, the economic viability of the ethanol production depends strongly on sustained stable oil prices, which are outside the control of Brazil or, for that matter, any ethanol- producing country Second, he demonstrates a strong negative impact on water quality, as the efflu-ents from ethanol production are discharged into rivers and streams Third, there are naturally competing claims on the use of water and ethanol, contributing to the increasing competition among different types of water users Fourth, the pro-duction and processing of sugarcane for ethanol production has deleterious effects on air quality – another factor which is not taken into account by the con-ventional cost–benefit analysis Fifth, there are trade- offs between food and sug-arcane production, with land and other agricultural resources which could be used for the production of food being used for ethanol This has serious implica-tions for food security for millions of Brazilians

Thus, if these costs were to be accounted for, it is not clear that ethanol duction would be viable What is needed is a discussion of priorities in the use of scarce resources The demand for ethanol emanates from the top 20 percent of the income distribution – the car owners The competing claims over the same resources would fulfill the needs of the remaining 80 percent The challenge is to put the latter high enough on the development agenda such that policy- makers reassess their priorities

Mario Cimoli, Elisa Calza, Annalisa Primi and Sebastián Rovira discuss the

role of technology and industrial policies specifically in the context of the Latin American response to the global crisis As they demonstrate, the region has been, relatively speaking, less adversely affected than some other parts of the world However, they argue that the crisis will nevertheless have important micro- economic consequences on the strategies adopted by firms, on the production structure, on the re- adaptation of learning processes and so forth In addition, the region has already been dealing with the consequences of the absence of indus-trial policy; and of the weakness in product diversification and the development

of more knowledge- intensive sectors and related technological capabilities They argue, therefore, that the region should take the crisis as a cue to return to pol-icies aimed at building technological capacities and an industrial structure geared towards more competitive technology- intense sectors They draw up a very useful “out- of-crisis roadmap” While their analysis is based on the Latin Amer-ican experience, their conclusion clearly has far- reaching validity

Part IV: The gender and employment dimension

There is ample evidence suggesting that the impact of economic crises is not neutral in its consequences, and particularly that it affects men and women dif-ferently This view is part of a wider feminist scholarship which argues that the way in which economies and institutions function, not necessarily during a crisis,

is gendered According to this view, gender discrimination is not an aberration

An introduction 13

but a systemic phenomenon Izdeş, trained in the feminist tradition, offers this alternative view in her analysis of employment patterns in Turkey Since the financial liberalization in 1989, Turkey has been through three financial crises (1994, 1999 and 2001) and a significant economic contraction in 1991 The crisis- prone structure, together with high and persistent unemployment, contrib-utes to the strikingly low female labor- force participation and employment

Özge Izdeş argues that, a priori, female employment could be favorably or

unfavorably impacted by a crisis Favorable segmentation would occur when increasing female employment during a downswing could either be due to women workers’ concentration in less volatile jobs, or to substitution of cheaper female workers for male workers (the substitution hypothesis), or maybe to a combination of the two Similarly, women may be disproportionately shed because of the vulnerable positions they hold in the labor market (unfavorable segmentation) Decomposition of changes in female employment across cycles allows us to distinguish segmentation (favorable and unfavorable) from the buffer (gender- specific characteristics of women’s participation make them more disposable in times of crisis) and the substitution cases

She finds that, for Turkey, different crises have seen different effects on dered pattern of employment In the first round of the unemployment cycle fol-lowing the 2001 crisis, the burden of the crisis seems to have fallen on male workers However, persistent and high unemployment disproportionately affected women workers in the second round of the unemployment cycle from

gen-2003 onwards Overall, in the 2001 crisis women’s share of employment decreased, and women who preserved their jobs and made small employment gains were in the less cyclically sensitive sectors or occupations (favorable seg-mentation) Her analysis points to the need for a nuanced analysis and the will-ingness to recognize that just as “one size fits all” is not the right dictum for policy, it might not be the correct way of understanding the impact of crises either Effects may vary across time and space, and only rigorous research can pinpoint these differences and help formulate policies accordingly

Jason Jackson’s chapter provides a framework to think more broadly about the gendered impacts in the trade and production sphere during economic crises Despite important differences across countries and regions, Jackson argues that women tend bear a disproportionate share of the burden arising from economic crises due to their gendered responsibilities in households and the community, as well their often- tenuous employment security and limited access to formal unem-ployment benefits The chapter points towards regional variation by comparing the effects of the crisis across sub- Saharan Africa, South Asia, the Caribbean and the Pacific It shows that, regardless of region, developing countries have been affected by the crisis through similar channels: contracting global demand for exports and declining commodity prices, falling tourism arrivals and revenue, as well as declining remittances and increased pressure on already weak fiscal posi-tions However, while the mechanisms of transmission have been similar, differ-ences in local social and economic structures have resulted in important variations

in the ultimate effect of the crisis In line with Izdeş’ contribution, this chapter

14 A Deshpande and K Nurse

argues for recognizing the diversity in outcomes and provides a macroeconomic policy framework that demonstrates how government interventions aimed at pro-moting a recovery can be re- engineered to target vulnerable groups – such as low- income women- headed households – and hence provide more broad- based benefits from stimulus plans and other recovery efforts

Part V: The scenario for big developing states – the case of

South Africa

The two chapters in this part can be linked to Bill Freund’s chapter in the first part of the book, whose historical overview has a special section on South Africa The special focus on South Africa in this volume stems simply from the fact that it was the host country for the conference Seeraj Mohammed’s chapter suggests that despite the reasonable GDP rate of growth of 5 percent per annum, the South African economy was already in a crisis before the onset of the global financial crisis Unemployment had been over 20 percent for a decade; decline in manufacturing employment suggests de- industrialization and there is clear evid-ence of debt- driven consumption The global crisis accelerated unemployment and further aggravated the domestic economic crisis As mentioned above, Mohammed’s chapter provides support to the da Costa Val Munhoz–Libânio argument in Part II by showing how the rapid growth of short- term capital flows can have various undesirable effects on the host economy: currency apprecia-tion, adversely affecting the competitiveness of exports; and increased credit used not for productive investment, but for debt- driven consumption and for speculation in financial and real estate markets Of course, the crisis would not

be as deep as it is had it not been for some inherent weaknesses of the industrial structure (e.g an industrial sector centered on mineral extraction), which the chapter discusses

Fiona Tregenna’s chapter focuses on inequality and unemployment during the growth and recovery process in South Africa This is a country with one of the highest levels of inequality in the world, which is rooted in the country’s apartheid history However, seventeen years of democracy have not enabled a lowering of inequality rates, with some studies suggesting that these might have gone up in recent years In this context, an increase in unemployment during the crisis, ceteris paribus, would result in an increase in inequality, even with the caveat that unemployment is only one of the drivers of inequality It is too soon to empirically examine the role of the global crisis in explaining inequality

in South Africa However, the trends outlined by Tregenna are instructive and revealing, as she analyzes the relative contributions of unemployment and earn-ings dispersion to inequality using both static and dynamic decomposition methods

Tregenna’s analysis, covering the period 2001–2007, finds that not only is there a very strong relationship between unemployment and overall income ine-quality (not surprising given that overall income inequality is calculated for both the employed and unemployed), but also that there is a strong relationship