Archive for August 21st, 2008

Is there a differnece between policies in emerging and developed economies?

August 21, 2008

It is pretty fancy to talk about the differences between emerging economies (EE) and developed economies (DE). We often get to hear the speeches from policymakers of emerging markets talking about how certain frameworks don’t apply/need to be modified to their countries. However, with the recent crisis, one wonders whether any of the differences still apply?

I came across this speech from Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand. He says there are two differences between DE and EE.

For emerging markets, there are two stylized facts that are unique to its policy setting. The first is the greater income and consumption volatility that have been observed in emerging markets, both in terms of the level and in terms of growth relative to developed economies. And the second is the fact that economic agents in emerging markets face greater limitations in the ability to smooth consumption in response to shocks.

These two factors lead to different policies. Then he goes on to talk about the different policies needed to manage these two shocks in emerging economies. You can easily replace the problems he associates with emerging economies as problems in developed economies and ask what is this comparison all about?

This point is well taken. I agree EE and DE are different. However, it can’t really be said that the institutions and frameworks in DE are superior to EE as recent crisis has shown. The policymakers have found to be short on every aspect – financial supervision, monetary policy etc. Some might say, the crisis could have been worse if the institutions in DE were like EE. I wonder how much worse? The policies have created a global tremor and it is being seen as the worst crisis since Great Depression in 1929.

I would think it is best to have policies which suit your own country/economy and not ape or compare with the other developed economies.

Assorted Links

August 21, 2008

1/2.  WSJ Blog points out of 7 OECD countries, US has grown fastest.

1. A new blog to understand taxes in India – Indian Tax Guide

2. ACB points a change in ICICI derivatives strategy. It also points to the next big idea – The Gridlock Economy

3. Krugman on eco humor

4. CB points who will grow faster India or China?

5. Fin Prof on hedging in jet fuel prices

6. Lusardi says in US financial illiteracy is pretty high. Read the second question she asks and read my paper on the subject

7. PSD Blog points to a paper which says:

[T]he aid system has generated the same negative shocks to per capita income…in developing countries, and with more frequency, as the two World Wars and the Great Depression generated in developed countries.

8. DB Blog points Poland to become a business friendly country

9. ASB says we should provide certifications as a means to building human capital. Point well taken but the industry hardly values these certificates. He mentions he has met people who took NSE’s NCFM examination and had successful careers in finance. I am not sure what success  means here. To have a successful career, the industry values branded degrees and not certificates. I have seen a lot of people not getting promotions, salary hikes etc despite being superbly talented. Why? they didn’t have the degrees.

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