Financial Globalisation and Emerging Markets Volatility

The volatility of capital flows to emerging market (EM) countries and frequency of financial crises have imposed high welfare costs on the countries involved. The empirical literature provides, at best, a mixed picture on the relationship between long‐run EM country growth and financial integration. Meanwhile, the prevailing policy discourse regarding reform of the international financial system remains incomplete: the focus has largely been on either institutional and policy measures required of EM countries or international crisis‐resolution procedures. The role played by private financial markets and institutions in the developed world has not received adequate attention. This paper describes some of the structural features inherent in today's financial markets that directly contribute to the instability in EM capital flows.     

Globalisation of the World's Wine Markets

This paper is a revision of an Invited Paper for the Australian Conference of Economists, Adelaide, 1‐3 October 2002. The research on which the paper draws was funded by the Grape and Wine Research and Development Corporation, the Rural Industries Research and Development Corporation, and the Australian Research Council. Thanks are due to Nick Berger for his pioneering work in developing a prototype of the database and model used in this paper (see Berger, 2000 ) and to an anonymous referee for helpful comments.     

Globalisation,Women's Economic Rights and Forced Labour

Globalisation critics are concerned that increased trade openness and foreign direct investment exacerbate existing economic disadvantages of women and foster conditions for forced labour. Defenders of globalisation argue instead that as countries become more open and competition intensifies, discrimination against any group, including women, becomes more difficult to sustain and is therefore likely to recede. The same is argued with respect to forced labour. This article puts these competing claims to an empirical test. We find that countries that are more open to trade provide better economic rights to women and have a lower incidence of forced labour. This effect holds in a global sample as well as in a developing country sub‐sample and holds also when potential feedback effects are controlled via instrumental variable regression. The extent of an economy's ‘penetration’ by foreign direct investment by and large has no statistically significant impact. Globalisation might weaken the general bargaining position of labour such that outcome‐related labour standards might suffer. However, being more open toward trade is likely to promote rather than hinder the realisation of two labour rights considered as core or fundamental by the International Labour Organisation, namely the elimination of economic discrimination and of forced labour.     

Banks,Financial Liberalisation and Financial Crises in Emerging Markets

The East Asian financial crisis has raised a series of important issues. Amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises. How do weaknesses in the domestic banking sector, when combined with both domestic and international financial liberalisation, engender currency crises? What is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed. This paper seeks to provide just such a framework. Within it, international financial liberalisation can be seen as fuelling a boom in domestic credit, which leads to acute balance sheet problems for domestic banks, and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows, which banking weaknesses may itself trigger.     

The Effects of Globalisation on the US Labour Mark'et: Service Sectors Considered

How has globalisation affected employment and wages in the United States? Existing studies largely ignore the intersector labour movement between the manufacturing and service sectors by focusing only on the intrasector movement within the manufacturing sector. However, by decomposing the aggregate labour demand in the United States, we find that the intersector movement is more substantial than intrasector movement. Motivated by the decomposition results, this study presents a three‐sector model that includes a manufacturing sector and two service sectors at varying skill intensities. The model shows that offshoring might translate into smaller‐than‐expected wage changes because of the intersector labour movement. In line with the theoretical predictions, two notable empirical results are presented. First, an occupation's exposure to offshoring has non‐significant, albeit negative, effects on wages. Second, the more an occupation is exposed to offshoring, the lower its employment in the manufacturing sector as a share of its total employment. Furthermore, these effects are larger for more routine occupations or those requiring less education.     

Liberalisation and Competition in UK Energy Markets: the Spur to Innovate

This article assesses the main issues for the energy industry over the next decade, and particularly for the British gas industry. Supporting a carbon tax as a way of counteracting market trends towards lower energy prices, the author argues that the agreements at the Kyoto summit will lead, within a decade, to "an effective framework for restricting greenhouse gases". He welcomes the British Government's recent consultative document on utility regulation and calls for the gas industry to provide serious analysis to allay concerns about diversity of supply in Britain. He foresees accelerating liberalisation in the EU, based not on central agreement but on a Jeffersonian process whereby regulatory changes in one EU state lead to pressure for similar changes in neighbouring states. He concludes by speculating about the energy industry's equivalent of the PC or mobile phone.     

The returns to value and momentum in Asian Markets

Two unique experiments are conducted. First, we evaluate returns to the best value and momentum strategies combined by: (i) a long portfolio of stocks classified as both value stocks and winner stocks; and (ii) a short portfolio of stocks classified as both growth and loser stocks. Second, we put all sample stocks of four representative Asian markets (Hong Kong, Korea, Singapore, and Taiwan) into one basket to undertake a regional level one-basket approach. Interestingly, the combination of best value and momentum strategies does not provide a significant improvement over the value or the momentum strategy evaluated separately. One immediate conjecture is that value stocks and winner stocks are not necessarily moving in tandem. Likewise, growth stocks and loser stocks may offset their effectiveness. Value premia under the one-basket approach are all insignificant regardless of the weighting scheme used.     

The Consequences of Globalisation: India's Software Industry and Cross‐border Labour Mobility1

The Indian software industry is a prime example of globalisation. The industry has been characterised by large cross‐border mobility of its skilled labour force. Using a unique survey of Indian software firms, our paper quantifies the extent and impact of mobility on firm behaviour and performance. Cross‐border labour mobility in the paper refers to both temporary and permanent labour flows by Indian software professionals. The picture that emerges is of a highly mobile world in which temporary mobility has been an important characteristic of the industry. A significant number of workers have work experience abroad in a developed country. Moreover, the share of skilled workers with such experience has been positively associated with the incidence of skilled migration from the firm. This suggests network effects are at work. In terms of the impact on performance – as measured by the change in turnover per worker and the change in the employment size of the firm – the paper finds little evidence of a robust adverse effect. Further, the evidence suggests that there have been important external effects at work, as through changes in the willingness of workers to acquire skills, as well as through increased provision of educational services. These have further abated the risk of a brain drain. However, the software industry may be rather different from other industries. Our results need to be interpreted as the outcome of a particular case of skilled migration and not one necessarily representative of all types of skilled migration and source sectors.     

Financial Liberalisation in Emerging Markets: How Does Bank Lending Change?

Financial liberalisation has often failed in the past due to underestimated problems of structural change. We analyse such changes in lending behaviour of Thai commercial banks during a liberalisation phase by way of unique micro data. Liberalisation has expected positive effects, such as lowering the interest rate spread and collateral requirements. Liberalisation causes structural change, such as a decline in collateral‐based and relationship banking. However, the liberal‐isation evidence is consistent with more risk taking, such as lending to more risky projects and less protection against default. The Thai experience suggests obvious policy lessons.     

Globalisation,Institutional Reforms and Financial Development in East Asian Economies

This study investigates the dynamic effects of globalisation on institutions and financial development in East Asian economies using panel data tests. Our empirical results demonstrate that globalisation has a significant influence on institutional quality, and that institutional reforms in turn facilitate and support financial development, in particular the development of the banking sector in East Asia. Globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel.     

Employment Flexibility,Dual Labour Markets,Growth, and Distribution

Many policymakers and economists have argued in favour of greater labour market flexibility as a part of structural adjustment reforms that are expected to improve economic performance. Existing post‐Keynesian‐Kaleckian (PKK) models are unable to address these issues because they assume away long‐term labour by allowing employment to be short term and adjusting freely with output. This paper introduces long‐term labour into PKK models. We develop a model that provides alternative ways of modelling labour market flexibility and suggest that when aggregate demand issues are important, an increase in employment flexibility is likely to have adverse growth and distributional impacts.     

The Evidence on Globalisation

Globalisation is blamed for many socioeconomic shortcomings. I discuss the consequences of globalisation by surveying the empirical globalisation literature. My focus is on the KOF indices of globalisation that have been used in more than 100 studies. Early studies using the KOF index reported correlations between globalisation and several outcome variables. Studies published more recently identify causal effects. The evidence shows that globalisation has spurred economic growth, promoted gender equality and improved human rights. Moreover, globalisation did not erode welfare state activities, did not have any significant effect on labour market interaction and hardly influenced market deregulation. It increased, however, within‐country income inequality. The consequences of globalisation thus turn out to be overall much more favourable than often conjectured in the public discourse.     

Unemployment and Trade Liberalisation

In contrast to the focus of the public debate over trade liberalisation on job losses there is a widespread view among economists that unemployment and trade issues should be considered separately. This view cannot be justified theoretically, and ignores the growing number of general equilibrium trade models with unemployment. In a simple model with an exogenous wage floor, trade liberalisation can lead to either gains or losses depending on the production technology, severity of the factor market distortion, factor intensities of the industries and conditions in trading partners. Definite results can be derived about gains from liberalising trade with lower wage floors, about relative abundance of the unemployed factor dampening losses when trade is liberalised, and about gains when the good which uses the unemployed factor is exported. The theoretical models are then linked to the policy modelling literature, using the example of recent Australian controversies over liberalisation of trade in automobiles and textiles. It is argued that trade liberalisation would be better advanced by including endogenous employment in trade policy simulation exercises and by discussing employment effects rather than brushing them aside as temporary adjustment problems or regional difficulties.     

Liberalisation and international cooperation

While being a necessary consequence of the ongoing and desirable process of international division of labour, the increasing freedom of international money and capital movements has in recent years impaired the efficiency of national economic policy instruments. In order to overcome this drawback the loss in national economic policy autonomy should be counterbalanced by a gain in economic policy cooperation between the national economies.     

The Liberalisation of Rail Transport in the EU

On 1 January 2007 the European rail freight market, which has long suffered from fragmentation and a declining share of total transport services, will be fully opened to competition. What will be the consequences for the transport sector and the economy as whole? What further measures are needed to stabilise or increase the railways' share in the freight market? * Member and speaker of the EPP-ED Group (Christian Democrats) in the Committee on Transport and Tourism; rapporteur of the European Parliament responsible for railway issues. ** Views expressed here are not those of NDU or Minnesota.