How the Crowding-out Effect Hypothesis Stands Under a Financial System Liberalised: The Mexican Economy Case

This paper revisits the financial-liberalisation hypothesis predicting one negative effect of public investment on private investment, which led to the de-regularisation of the financial system in Mexico and many other Less-developed Countries (LDCs) so as to probe whether such tenet hold today even when the role played by the public sector has evolved from having a direct intervention in credit allocation scheme to the fulfilment of a limited duties such as the surveillance of the money and capital markets under a financial liberalization environment. Considering Mexico as a case study, an econometric exercise over the 1970-2019 period is tried crunching official statistical data. Besides a brief introduction, the second section discusses theoretical issues concerning the effects of public investment on private investment, likewise some empirical work done in this field. The third section develops the methodology used to taste the net effect of public investment on private investment and presents also the results estimates. Finally, some conclusions derived from the empirical evidence found in the analysis and a brief discussion are laid down.

How Plausible the Predicted Superiority of Private Over Public Investment Still Stands, If Ever?

This essay aims to test the hypothesis held by the Theory of Financial Liberalisation in the sense that financial resources diverted by non-market forces are inefficiently allocated, ergo, public investment is less productive than private investment. The relationship between public and        private investment and the productivity in both the public and the private     sectors are then analysed in search of empirical evidence to discern the endurance of such hypothesis throughout the changing evolution of the Mexican financial system since 1970 up to 2019. The paper is arranged in four sections. Firstly, some historical financial liberalisation events are put forward. Secondly, theoretical issues concerning the concept    of productivity of the two types of investment are discussed. It also reviews empirical work done on the productivity in less-developed countries. Thirdly, an attempt to measure productivity of both public and private investment in Mexico is made. It then describes the methodology and the estimation results obtained for Mexico are launched. Finally, main conclusions are delivered.

Review of financial liberalisation policies in developing countries from 1986 to 2016

By the late 1980s, most sub-Saharan African (SSA) countries had undertaken policy reforms to abolish financial sector controls. While studies have produced several liberalization indices, available measures are limited in scope and time coverage. The purpose of this research is to address this limitation by constructing a new set of indicators that tracks the magnitude, pace, and timing of reform aspects in 26 countries between 1986 and 2016. The paper uses questions and coding rules from a framework developed by Detragiache, Abiad, and Tressel (2008) to collect and analyse data on seven liberalization policies: credit controls, interest rate controls, entry barriers, state ownership of banks, capital account restrictions, prudential regulation and supervision, and securities market policy. Results indicate that interest rate liberalization is the most advanced dimension, followed by the abolition of entry restrictions. The least advanced dimension is bank supervision and prudential regulation. An aggregate liberalization index constructed using principal component analysis (PCA) confirms advancements in financial liberalization over time. This study is significant as it provides indicators critical for policy formulation in developing economies whose performance hinges on sufficiently developed and stable financial sectors. The study recommends implementing further reforms to update and modernise prudential regulation and supervision of banks in line with good governance.

When homes earn more than jobs: the rentierization of the Australian housing market

This article develops the concept of housing market ‘rentierization’ to describe the shift in the treatment of housing away from its use as a consumption good to an asset from which economic rent can be extracted, with Australia as a canonical example. Rentierization encompasses, but goes beyond, the financialisation of housing that has been the focus of attention in recent political economy literature as it involves policy changes and coordination across the land and housing market, fiscal-policy as well as financial policy spheres. In addition, we argue, rentierization offers a better explanation of rising house prices than the decline in real interest rates which has come to the fore in the recent economics literature. Our study of Australia examines the returns to land and housing over time and traces the roots of rentierization to developments that preceded the financial liberalisation of the 1980s, including the privatisation of public housing in the 1960s and 70s. We consider some of the reasons for the resilience of Australia’s rentier-oriented housing model, and policy alternatives which might help reduce the logic of rentierization and, in doing so, reduce housing-related inequalities.

Financial Liberalisation, Political Stability, and Economic Determinants of Real Economic Growth in Kenya

This study aimed to analyse financial liberalisation, political stability, and economic determinants of Kenya’s real economic growth using time series data over the period of 1970–2016. The authors specified quadratic and interactive models to be estimated by employing a quantile regression analysis. The traditional and quantile unit root test was used in testing the stationarity issue. The co-integration findings indicated that the capital account openness and financial development impede on real economic growth; and the political stability also had potential influence on the real economic growth of Kenya. Interestingly, there is a nonlinear U-shape link between financial development and real economic growth that undermined the real economic growth at its onset, but as it advanced, it enhanced the growth of the country in the long run. The policymakers should ensure that the capital account is more liberalised so that it will continue to stimulate the financial development. In the same way, the liberalisation of the domestic financial market should be taken in earnest to overcome the negative effects of financial repression in totality, while maintaining the stable political atmosphere.

Determinants of Income Shares and the Stable Middle in post-Socialist China

This paper offers a historical analysis on how post-Socialist China’s transition to a globalised mixed-market economy led to class restructuring and estimates the drivers of its inter-decile income shares over the period 1978-2015 using Piketty et al. (2019)’s dataset. The key negative determinants of the bottom 50 percent are government consumption, trade openness and unemployment rate. The stable middle 40 percent is explained by the positive effects of government consumption, financial liberalisation and public indebtedness that compensate for the adverse effects of trade openness. Further, we find that government consumption, trade openness, and unemployment rate are positive determinants of the top 10 percent. More strikingly, trade openness disproportionately benefits the top 10 percent and this suggests that even China’s pragmatic world integration has been partial to business elites. Several policy ideas follow. First, China must overhaul its middle class urban-biased fiscal expenditure and second, the pension system must extend to the entirety of its income distribution. Third, stronger social welfare is required in the context of globalisation.