Shalendra D. Sharma

Dealing with the Contagion: China and India in the Aftermath of the Subprime Meltdown

What began as a downturn in the US housing sector in the summer of 2007 had mushroomed into a global financial crisis by September 2008: the most severe since the 1930s. Developing countries, including China and India, at first seemingly sheltered from the worst of the turmoil, have not been immune to the contagions spillover effects. What are China and Indias precise vulnerabilities, and what can each do to better insulate their economies from the vagaries of global financial marker turmoil? Equally important, what long-term strategies must each country adopt to make their economies more resilient to global market downturns?

Shadow Banking, Chinese Style

Shadow banks are broadly defined as entities which conduct credit intermediation outside the formal banking system. Poorly regulated, engaging in opaque forms of intermediation, deeply interconnected with the official banking system, and operating with implicit government guarantees, they pose a major source of systemic risk. Yet shadow banks provide an important service by channeling credit to excluded investors, and can complement the formal banking sector. What explains the rapid proliferation of shadow banks in China? How large are they and what forms do they take? What types of risks do they pose to the financial system? And how best can China utilise the services of shadow banks while at the same time ensuring that they do not create systemic risks for the financial system?

FDI Location and the Relevance of Spatial Linkages: Evidence from Provincial and Industry FDI in China

In this study both aggregate and industry-level foreign direct investment (FDI) data are employed to investigate the spatial dependence of FDI hosts. The analysis contributes to the existing literature by focusing on the heterogeneous spatial correlation of FDI in different industries. Using more comprehensive FDI data across multiple industries and multiple provinces in China from 1999 to 2007, the results show a significant spatial correlation among provinces. Aggregate FDI tends to be regional trade platform oriented indicating neighboring provinces become competitors for FDI. In contrast, results based on industry-level provincial FDI show stronger support for vertical or complex vertical FDI.

Democracy, neoliberalism and growth with equity: Lessons from India and Chile

Abstract This essay questions the still pervasive view that democratic regimes are ill‐suited to reconciling economic growth with distribution. Drawing on the experiences of post‐liberalization India (1991–1999) and post‐authoritarian Chile (1990–1999), it posits the question differently: what explains why Chiles new democracy (the Concertacion) has been able to judiciously combine market‐guided or neoliberal economic policies with reformist and distributive programs, while India, the developing worlds largest democracy, has failed to combine its far‐reaching economic liberalization program ‘with a human face’. Moving beyond conventional arguments that stress the merits of authoritarian systems over democracies, the following comparative case study illustrates that it is the states organizational and institutional capacities that really matter. For countries engaged in economic restructuring, the message is unambiguous: building and reinvigorating the states administrative and institutional capacities...

The Missed Lessons of the Mexican Peso Crisis

The author argues that the Mexican peso crisis of the mid-1970s was a direct forerunner of the Asian crises of 1997. The Mexican miracle collapsed just a year after NAFTA was signed, and the author looks back to learn lessons that are applicable today.The author argues that the Mexican peso crisis of the mid-1970s was a direct forerunner of the Asian crises of 1997. The Mexican miracle collapsed just a year after NAFTA was signed, and the author looks back to learn lessons that are applicable today.

Credit Default Swaps: Risk Hedge or Financial Weapon of Mass Destruction?

Credit default swaps (CDSs) are contracts between buyers and sellers of protection against default. They are a form of debt insurance, or more precisely derivatives contracts that investors buy to either insure against or profit from a default. In this way CDS contracts act as a form of debt insurance in that they provide a means of protection against credit risk. In the aftermath of the global financial crisis, the CDS earned the reputation of a ‘financial weapon of mass destruction’. Why? Is this charge justified? This paper shows that the reality is more complex: CDSs carry benefit as well as costs, and the risks associated with them can be mitigated through prudent supervision.

The Arab world amidst the global financial crisis of 2008–2009

When the problems in the United States housing sector mushroomed into a global financial crisis by September 2008, it was assumed that Arab countries would remain immune: the oil‐rich Gulf Cooperation Council (GCC) countries because of their massive financial reserves, and the resource‐poor countries because of their limited linkages to the global economic system – in particular, the global financial markets. However, this assumption has proven to be false. The US subprime mortgage collapse not only pushed the advanced economies into recession, but also it shattered global economic confidence, resulting in a massive financial contagion around the world. What explains the Arab Worlds vulnerability to the crisis? How has the crisis impacted both the resource rich and the resource poor? How have Arab countries responded to the crisis, and what must they do to insulate their economies better from the vagaries of global financial markets? This paper addresses these questions.

‘India Rising’ and the Mixed Blessings of Globalisation

India has been a major beneficiary of economic globalisation. Yet, integration into the global economy has also made India vulnerable to the unpredictable swings in market sentiment. Nevertheless, the ultimate effects of cross-border economic forces also depend on the robustness of domestic policies. Potential vulnerabilities such as disruption in trade or financial flows can be mitigated by sound macroeconomic policies. Although ‘licence raj’ and ‘export pessimism’ is now a thing of the past, India’s quasi-protectionist policies, coupled with the failure to deepen its integration into the global economy, have made the economy increasingly vulnerable to external forces—as seen when the United States Federal Reserve announced its decision to unwind its stimulus programme in mid-2013, resulting in deep sell-offs in emerging economies, especially India’s currency, bond and equity markets.

Why Ireland's Luck Ran Out and What this Means for the Eurozone

Given its impressive economic performance over the past two decades, Ireland earned the title, the ‘Celtic Tiger’. However, as the contagion from the subprime-induced global financial crisis spread, Irelands boom went bust. In short order, Ireland (like Greece before it), had to seek financial assistance from the EU and the IMF to stave off sovereign default and national humiliation. How did Dublin and the eurozone respond to the crisis and what lessons can be learned from Irelands experience? While Ireland grapples with its huge public debt, the EU needs to instill confidence in the markets before the current rolling debt crisis becomes a systemic threat to the eurozone.

Japan, China, South Korea, and India: Why No Immunity from the Subprime Credit Crisis?

Abstract When the subprime-induced financial crisis broke out in the U.S. housing sector in the summer of 2007 and mushroomed into a global financial crisis by September 2008, it was widely believed that the Asian economies, especially the “big four”—Japan, China, South Korea, and India—would remain largely immune from the worst of the crisis. However, this assumption has proven to be false. All four countries have felt the negative impact of the financial contagion—albeit differently. Whereas China and India have been moderately impacted, Japan and South Korea have experienced heightened financial instability, sharp economic contraction, and a deep recession. What explains the big fours vulnerability to the crisis, and why have Japan and South Korea been affected more negatively than China and India? How have the four countries responded to the crisis, and what can they do to further insulate their economies from the vagaries of the global financial markets? In this article, the author addresses these interrelated issues.