Crisis in emerging markets: A case of missing markets?

Andres Velasco of Harvard University has written a number of papers on emerging markets, crisis, policies etc. His focus is on Latin American countries. He is currently the Finance Minsiter at Chile and has used his economics expertise to limit the impact of crisis in Chile.

I have just started reading his work and is already high on the recommendation list. I finished this paper coauthored with Ricardo Hausmann (another noted growth economist).

This paper is so good that one would want to read it again and again. In nutshell it says the crisis in emerging markets is not because of the usual economic reasons cited by most economists. But because emerging markets lack certain markets (missing markets). The duo review a number of crisis in Latin America, South East Asian Crisis etc and point that the economic variables in most cases were sound. Most economists also agreed that all was well (baring a few exceptionals). These became darlings of Wall Street and Bankers did rounds of respective governments designing fancy securities etc. And then came a sudden storm and all things collapsed and economists started looking for reasons (economic reasons off course).

The missing markets he highlights are adequate risk management markets which leave emerging markets dry suddenly. This dryness worsens the crisis further. They add developed economies have these markets and as a result find it easy. Though things have changed a lot in this crisis for developed economies as well.

An excellent paper with tons of insights on EME crisis.

3 Responses to “Crisis in emerging markets: A case of missing markets?”

  1. Role of external balance sheets in Currency crisis « Mostly Economics Says:

    […] last finding is pretty interesting (this is what Velasco has said in his excellent paper). However, not much is written in the paper on […]

  2. Role of external balance sheets in Currency crisis | charles munger Says:

    […] last finding is pretty interesting (th&#105&#115&#32is what Velasco has said in his excellent paper). &#72&#111&#119ever, not much is written in the paper on […]

  3. Chile the next developed economy..?? « Mostly Economics Says:

    […] Velasco is a very good economist as well and has written some excellent papers on crisis and emerging economies. I covered one paper here. […]

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