Why Did Argentina's Currency Board Collapse?

This paper sheds light on the risks associated with currency board arrangements, referring to the severe liquidity crisis that emerged in Argentina in November 2000. The inability of the Argentinean economy to grow because of an overvalued peso and the massive borrowing needs of the government in the context of rapidly rising borrowing costs seriously undermined the credibility of the fixed‐exchange rate regime. Given the widespread dollarisation of the financial sector on the liability side, Argentina had arguably little choice but to stick to the currency board. A series of measures aimed at reviving growth were implemented but with no signs of upturn in demand, increasingly distrustful international investors and growing social unrest, the country was forced into default in December 2001, putting an abrupt end to its decade long experiment with hard money. This study shows that with rigid labour markets, a lack of fiscal discipline and the absence of a natural anchor currency, Argentina was never a strong candidate for a hard peg.     

Argentina's Currency Board Collapse: Weak Policy or Bad Luck?

Two basic views can be discerned in post‐mortems of Argentina's currency board: (1) that weak fiscal policy was fundamentally to blame, and (2) that the peso had become too severely overvalued for the peg to survive. This paper evaluates the evidence for these rival interpretations. The real effective exchange rate index did not indicate massive overvaluation, but this index does not capture the effects on the equilibrium rate of the ‘sudden stop’ in capital flows to emerging markets after 1998. It also understates the amount of adjustment required for Argentina to reach the equilibrium rate, because neighbour countries’ dollar exchange rates were held up by Argentina's overvaluation, as is indicated by their depreciation in 2002. Argentina was particularly vulnerable to the sudden stop because of the extreme volatility of its portfolio inflows. Fiscal policy simulations suggest that, even with a substantially improved primary balance from 1994 onwards, loss of investor confidence would still have triggered unsustainable debt dynamics once the recession began to bite after 1998. The stagnation of output and prices in Argentina created a yawning gap between the interest rate on debt and the rate of growth of nominal GDP. Had the currency been floated in, say, 1995, the real devaluation of the peso would still have pushed up the debt/GDP ratio, but higher output would have left greater scope for addressing this by running a sizeable primary surplus. Moreover, the more gradual depreciation under floating might have allowed the economy to adjust to higher debt service payments without resort to default. The IMF has criticised itself for not pressing for tighter fiscal policy in the 1990s. A more fundamental criticism would be that it was seduced by the bipolar model into complacency about adjustment to real shocks and forgetting the teachings of optimum currency area theory.     

Are Emerging Markets Catching Up With the Developed Markets in Terms of Consumption?

ABSTRACT

The study tests the consumption convergence hypothesis between developed and emerging markets over a 30-year period (1980–2009) with eight consumption variables: consumer expenditure on food, consumer expenditure on household goods and services, average consumption of calories per day, average consumption of protein per day, and possession of four durables: dishwasher, microwave oven, refrigerator, and washing machine. Socioeconomic influence on consumption convergence is also tested with income, energy consumption, life expectancy, and trade. The regression results indicate that the emerging markets are catching up in terms of consumption but the rate is very slow. Consumption of durables shows slightly faster convergence than other variables. All four socioeconomic variables exert some degree of influence on consumption convergence, with income showing the greatest effect. Knowledge about convergence should be useful to managers for demand estimation and forecasting and for market penetration, segmentation, and positioning strategy.     

How Does Stock Market React to Dividend Surprises? Evidence from Emerging Markets of India and Russia

In this article the authors empirically investigate information content of dividends announcements and average reaction of emerging markets of India and Russia to dividend surprises on the postcrisis period 2010 to 2014. The study applies an analysts’ expectations-based approach rarely used in academic literature. The authors conclude that the Russian market on average reacts negatively to good and bad dividend surprises; good dividend surprises on average trigger positive abnormal returns on Indian stocks, whereas bad and no surprises are associated with negative reactions of the Indian market. Results of the study are discussed from the perspective of dividend signaling theory, market efficiency, and investor behavior.     

Can Modernization Explain the Consumption of Durables in Emerging Markets?

Abstract

The study investigated the penetration of six consumer durables in twenty emerging economies during a 24-year period (1977-2000) using correlation, regression and factor analysis. Findings show that modernization significantly influences the consumption of durables in emerging markets. The dimensions of modernization, as revealed from the factor analysis, are industrialization, openness, and quality of life in the country. All three factors, at varying degree, affect the consumption of durables. Marketers need to consider the level of modernization and the above socioeconomic factors in designing their marketing strategy in emerging/developing markets.     

How chilling are network externalities? The role of network structure

In an influential paper, Goldenberg, Libai, and Muller (2010) use an agent-based model to demonstrate that network externalities have a “chilling” effect on new product diffusion, i.e. they slow down new product adoption since many consumers wait before enough people have adopted. They perform their simulations using theoretical Moore lattices as the underlying social network of consumers. However, it has been demonstrated in other contexts that network structures can significantly affect the dynamics of new product diffusion, and hence it is worth investigating the same considerations for network externalities as well. I use the diffusion model of Goldenberg et al. (2010) to perform simulations on actual social networks to demonstrate that the chilling effect of network externalities is somewhat offset by increasing network size and average degree of the nodes, but accentuated by increased clustering in the network. My simulations also reveal that the diffusion model used by Goldenberg et al. (2010) does not have the chilling effect tautologically “baked” into it; rather network externalities do tend to slow down new product adoption most of the time, but not always.     

Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises

This paper has a number of purposes. First, it revisits the older theory of reserve adequacy and optimality to see whether this can still be used and perhaps strengthened in ways that would inform the current debate. Second, it explores the connection between reserve adequacy and currency crisis in the light of recent experience and empirical research. Third, it critically investigates alternative rule‐of‐thumb measures of reserve adequacy. Fourth, and drawing on the foregoing analysis, it examines the extent to which crisis countries should seek to replenish and build up their international reserves in the post‐crisis period. Additional owned reserves represent a guaranteed and unconditional source of liquidity; is this what is needed?     

Are Foreign Institutional Investors Good for Emerging Markets?

Portfolio flows channelled via institutional investors were the most dynamic capital flows to emerging markets in the 1990s. We use an asymmetric information framework to derive five propositions about the effects of the activities of foreign institutional investors on emerging markets. We confront these propositions with existing empirical evidence on the financial sector of emerging markets and conclude that institutional investors do not automatically generate benefits for emerging markets. Therefore, capital account and financial market liberalisation needs to be accompanied by careful regulation.     

How competent are consumers? The case of the energy sector in France

This paper discussed the notion of value co‐creation and the concept of customer competence as suggested by this notion. This led us to consider the competent customer as a social construction related to managerial representations. In order to examine this issue, a longitudinal exploratory research based on participant observation and in‐depth interviews with employees of a French energy supplier was conducted to explore whether customers are perceived as competent or incompetent market actors. The data analysis revealed four categories illustrating customers' profiles coping with the new situation of the ‘Utility X’ group in the energy sector. ‘Utility X’ employees define their customers according to four profiles: myopic, ignorant, uncreative and organizer of company resources. Even if the marketing studies that share the Service‐Dominant Logic point‐of‐view suggest that the customer would be competent at all times, our findings showed that customer competencies are in fact socially constructed and emerge partially from managerial representations. Therefore, the adoption by companies of a marketing philosophy (‘market with’ philosophy), in which the customer and supply chain partners are collaborators in the entire marketing process, seems only possible if they recognize customers' competencies and identify situations when customers do not activate their competencies or do not have the resources that enable them to develop their competencies.     

Standardization Versus Adaptation in Global Markets: Is Channel Strategy Different?

The argument over standardization versus adaptation of marketing strategy in international markets has raged for several decades. This argument has generally taken place at the aggregate level to include all four strategic areas of the marketing mix (product, price, promotion, and place) taken together. This article disaggregates the standardization-versus-adaptation argument by focusing on just one strategic area of the marketing mix—channel strategy. We argue that three underlying phenomena or forces in global markets (culturally distant distribution behavior, distributive institution rigidity, and international functional fragmentation) inhibit a firm's ability to standardize channel strategy in global markets to a greater degree than is the case for product, price, and promotional strategies.     

Does Corporate Social Responsibility Matter in Asian Emerging Markets?

This study addresses the question whether corporate social responsibility (CSR) matters in Asian Emerging Markets. Based on CSR scores compiled by Credit Lyonnais Securities (Asia), we assess the CSR performance of major Asian firms over a period of 3 years, from 2001 to 2004. The results show that there is a positive and significant relation between CSR and market valuation among Asian firms. We further find that CSR is positively related to the market valuation of the subsequent year. More importantly, Asian firms are rewarded by the market for improving their CSR practice.     

How Does Legitimacy Operate in Emerging Capital Markets? Investigating the Moderating Effects of Premium Listings and Firm Size on Risk

Drawing on an institutional theoretical perspective, we investigate the impact of the origins of organizational legitimacy on systematic risk using a sample of 358 Brazilian companies between the years 2002 and 2007. We regard three origins of legitimacy—formal–regulatory (presence in premium listings), cultural–cognitive (board of directors), and normative legitimacy (reputation)—to empirically investigate how a company's size and adherence to premium lists moderate other sources of legitimacy. Our results indicate that only under apparently better quality corporate governance conditions—presence in premium listings—do corporate reputation and the board of directors reduce systematic risk. In addition, we show that the effect of reputation on risk is positively moderated by firm size. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

Political Marketing: The Cause of an Emerging Democratic Deficit in Britain?

SUMMARY

Political marketing, as a set of techniques for policy design and development, was welcomed as a route towards a more participatory form of democracy. However, as New Labour attempted to rebrand itself to suit key segments of the electorate, we find that voters are not participating to any greater extent. In fact sections of the electorate are rejecting the democratic process, feeling that parties have little care for those outside their target segment. This paper questions the way New Labour employed marketing and, drawing on primary data, relates this to the dramatic fall in turnout in 2001.     

Emerging Economy MNEs: How does home country munificence matter?

Multinational Enterprises (MNEs) from emerging economies (EEs) are establishing operations in advanced economies (AEs), apparently departing from traditional models of internationalization. We explore an under-explored difference between EE MNE and their AE counterparts concerning their country of origin: EEs have less munificent business environments. This leads EE MNEs to make different location choices than AE MNEs when entering AEs, specifically because they are more deterred by barriers to entry. We therefore predict EE MNEs to be relatively more deterred by distance and weak intellectual property protection and relatively more attracted by diaspora of migrants and by markets. Our empirical results are consistent with these predictions.     

Do Foreign Investors Promote Stock Price Efficiency in Emerging Markets?

This paper examines the role of foreign investors in promoting stock price efficiency in emerging stock markets relying on the fact that stock prices in these markets are influenced by both local and global factors. We employ a data sample of Vietnamese‐listed firms on the Ho Chi Minh City stock exchange over the period from 2006 to 2015. We utilize the panel data estimation analysis. The results show that foreign investors accelerate the incorporation of available information into local stock prices. The finding reinforces the important role of foreign investors in domestic stock markets of emerging economies.