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22. Explaining Turkey’s Current Economic Crisis
- Author:
- Erinc Yeldan
- Publication Date:
- 02-2020
- Content Type:
- Working Paper
- Institution:
- Political Economy Research Institute (PERI), University of Massachusetts Amherst
- Abstract:
- Turkey entered a new phase of recession-cum-real economy crisis starting in the last quarter of 2018. In contrast to the previous crisis episodes of 1994, 2001 or 2009, when the economy had abruptly shrunk with a spectacular collapse of asset values and a severe contraction of output, the 2018- crisis is characterized by a prolonged recession with persistent low (negative) rates of growth, dwindling investment performance, debt repayment problems, secularly rising open unemployment, a spiraling currency depreciation and high inflation. Popular explanations from the mainstream tradition attribute this dismal performance to a lack of “structural reforms” and/or exogenous factors. Per contra, our analysis shows that the underlying sources of the crisis are to be found not in the conjunctural cycles of reform fatigue, but rather in the post-2001 neoliberal speculative-led growth model with excessive reliance on hot money flows and foreign debt accumulation. We argue that following the post-2001 orthodox reforms, a foreign-capital-inflow-dependent, debt-led, and construction-centered economic growth model dominated the economy and caused a long buildup of imbalances and increased fragilities.
- Topic:
- Emerging Markets, Financial Crisis, Financialisation, and Economic Crisis
- Political Geography:
- Turkey and Middle East
23. This Time Was Different: The Global Safe Asset Shortage and Shadow Banking in Socio-Historical Perspective
- Author:
- Photis Lysandrou and Anastasia Nesvetailova
- Publication Date:
- 01-2020
- Content Type:
- Working Paper
- Institution:
- City Political Economy Research Centre (CITYPERC), University of London
- Abstract:
- Safe assets and shadow banking are two closely linked phenomena in contemporary finance. The link is loan securitisation: at a time of a global safe asset shortage, it falls on the shadow banking system to help make good that shortage by manufacturing extra quantities of asset backed securities. When these quantities cannot keep up with volume of safe asset demand, the shadow banking system comes under pressure to manufacture the type of complex structured securities that can potentially cause a financial crisis. That potentiality became reality with the great financial crisis of 2007-8. If a further financial crisis of this scale is to be averted, the regulation of the shadow banking system should be informed by an understanding of the contemporary socioeconomic circumstances that continue to cause a global safe asset shortage. This paper attempts to contribute to such an understanding.
- Topic:
- Financial Crisis, Banking, Securitization, and Safe Asset
- Political Geography:
- Global Focus
24. Causal Mechanism and Explanation in Social Science
- Author:
- Renate Mayntz
- Publication Date:
- 04-2020
- Content Type:
- Working Paper
- Institution:
- Max Planck Institute for the Study of Societies
- Abstract:
- In the social sciences, the development of a specific social event or structure is often ex- plained by a statistical correlation between an independent variable and a variable assumed to be dependent upon it. This mode of explanation is contested by a methodology of causal reconstruction that operates with the concept of mechanisms. A mechanism is a process in which a set of linked steps leads from initial conditions to an outcome or effect. Mechanisms are general concepts, subjecting individual cases to a general category. Except for the litera- ture dealing specifically with the concept, the term “mechanism” is often used without defi- nition of its substantive content; there is no agreement with respect to the unique or plural character of the initial conditions, nor to the structure of the causal path leading to a specific outcome. Nevertheless, mechanisms have played a crucial role in detailed causal analysis of complex historical events, such as the financial crisis of 2008 and German unification of 1989.
- Topic:
- Cold War, Nationalism, Financial Crisis, and Unification
- Political Geography:
- Europe, Germany, West Germany, Central Europe, and East Germany
25. Sovereign debt restructuring: The centrality of the IMF's role
- Author:
- Sean Hagan
- Publication Date:
- 07-2020
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Over the past 40 years, the International Monetary Fund (IMF) has played a central role in the sovereign debt restructuring process. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. The paper analyzes how IMF policies have evolved to shape the incentives of sovereigns and their creditors at each stage of the sovereign debt restructuring process. It also identifies a number of issues that the IMF will likely have to address as a result of the pandemic, including (1) assessment of debt sustainability in a macroeconomic environment of considerable uncertainty, (2) treatment of official bilateral creditors, and (3) potential benefits—and challenges—of introducing additional incentives to maximize creditor participation in any debt restructuring.
- Topic:
- Debt, Emerging Markets, Government, International Monetary Fund, Financial Crisis, Macroeconomics, and COVID-19
- Political Geography:
- Global Focus
26. Coping with Disasters: Two Centuries of International Official Lending
- Author:
- Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch
- Publication Date:
- 06-2020
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
- Topic:
- Debt, International Political Economy, War, History, Financial Crisis, Trade, and Banking
- Political Geography:
- Global Focus
27. Global Financial Imbalance: Firm-level Evidence from Korea
- Author:
- Tae Soo Kang, Kyunghun Kim, and Yuri Kim
- Publication Date:
- 05-2020
- Content Type:
- Working Paper
- Institution:
- Korea Institute for International Economic Policy (KIEP)
- Abstract:
- Since the global financial crisis, low interest rates have continued throughout the world. However, financial imbalance has deepened as much of the expanded investment during low interest rates did not lead to increased productivity. This study focused on the increase of marginal firms as a result of the adverse effects of financial imbalances on firms. The marginal firms were identified based on the company's financial statement, and the share of marginal firms by country was compared and analyzed using Worldscope data. As a detailed analysis on the marginal firms, the impact of borrowing interest rate on the possibility of becoming a marginal company was analyzed in the case of Korea with KED data. According to the international comparison, East Asia including Korea, China and Japan has shown a lower share of marginal companies than Europe, South Asia and Latin America. Empirical results through Panel Logit with Sector Fixed Effect Model show that the borrowing rate has a negative correlation with the probability the company will become a marginal company in the case of Korea. However, the impact of an increase in borrowing rates on the likelihood of becoming a marginal company depends on the degree of financial vulnerability. Specifically, an increase in the borrowing rate has a greater impact on the possibility to become ICR<1 in the companies with higher financial vulnerability indexes.
- Topic:
- Financial Crisis, Business, and Business Management
- Political Geography:
- Asia and South Korea
28. International Financial Regulation: Why It Still Falls Short
- Author:
- William White
- Publication Date:
- 07-2020
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- While recent reforms are welcome in many ways, there are still significant reasons to doubt that the post-crisis tightening of international financial regulation guarantees future financial and economic stability. The most important reason is that the reforms have focused too narrowly on ensuring that an unstable financial sector will not aggravate downturns by restricting the supply of credit. More attention needs to be paid to ensuring that an overly exuberant financial system does not weaken other parts of the economy by encouraging a rapid buildup of debt during upturns. Some combination of time-varying monetary and regulatory policies (a macrofinancial stability framework) will be required to do this. In addition, many of the individual regulatory measures taken to date, both macroprudential and microprudential, have shortcomings. Their coherence as a package has also been questioned.
- Topic:
- Political Economy, Financial Crisis, Reform, Banks, and Subsidies
- Political Geography:
- Global Focus
29. Causal Mechanism and Explanation in Social Science
- Author:
- Renate Mayntz
- Publication Date:
- 04-2020
- Content Type:
- Working Paper
- Institution:
- Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
- Abstract:
- In the social sciences, the development of a specific social event or structure is often explained by a statistical correlation between an independent variable and a variable assumed to be dependent upon it. This mode of explanation is contested by a methodology of causal reconstruction that operates with the concept of mechanisms. A mechanism is a process in which a set of linked steps leads from initial conditions to an outcome or effect. Mechanisms are general concepts, subjecting individual cases to a general category. Except for the literature dealing specifically with the concept, the term “mechanism” is often used without definition of its substantive content; there is no agreement with respect to the unique or plural character of the initial conditions, nor to the structure of the causal path leading to a specific outcome. Nevertheless, mechanisms have played a crucial role in detailed causal analysis of complex historical events, such as the financial crisis of 2008 and German unification of 1989.
- Topic:
- Financial Crisis, Reconstruction, Unification, Social Science, and Mechanism
- Political Geography:
- Europe, Germany, and United States of America
30. Venezuela: First episode of the new Cold War?
- Author:
- Slobodan Pajovic
- Publication Date:
- 07-2019
- Content Type:
- Working Paper
- Institution:
- Institute for Development and International Relations (IRMO)
- Abstract:
- Since the beginning of 2019, Venezuela has been in the focus of international politics because of its political and institutional crisis, together with its economic and social collapse generated in 2013, transformed into a regional and international crisis. The exit of some estimated three to four million emigrants mostly to neighboring countries of human rights and democratic values, the authoritarian regime of socialist orientation, the current American strategy of strengthening its political and strategic influence in Latin America, the presence of significant non- regional emerging global factors, as well as the cyclical changes of political parties in power in this part of the world. Accordingly, this crisis tests the hemispheric and global leadership of has additionally deepened the contexts of theUS, the influences of emerging global powers the regional crisis including also the security aspect. In short, the crisis can be described as oscillating between the issues of defense like China, Russia, India or Turkey, recently, and the potential of Latin American regionalism and political consensus.
- Topic:
- Imperialism, Migration, Regional Cooperation, and Financial Crisis
- Political Geography:
- United States, Latin America, Venezuela, and North America