Abstract
Dear Readers,
Welcome to the May 2014 issue of the Global Journal of Emerging Market Economies.
We are piloting a new feature, a guest column in which we invite international experts to share their views about developments in emerging markets. In this issue, Dr Claudio Loser, Director of Centennial Group Latin America and Senior Fellow at the Inter-American Dialogue, remarks on the recent outburst of pessimism about emerging markets. Do the doomsayers have a point or are investors’ fears overblown?
We then pick up on the theme of Africa from our last few issues to round out our discussion of development issues on the continent. James Bond and Jose Fajgenbaum discuss the challenges of building on Africa’s endowment of natural resources as the continent finds its place in an ever-evolving global economy in “Harnessing Natural Resources for Diversification.” The authors warn against exaggerating the magnitude of Africa’s resource endowment; with few exceptions (gemstones, titanium, and bauxite), Africa has a fairly modest global reserve position. However, this does not mean that these natural resources cannot make a substantial contribution to Africa’s economic growth. High risks, investment, infrastructure costs, and corruption weaken African government’s ability to negotiate positive resource rent-sharing terms of natural resource production contracts. Addressing these problems, as well as introducing stabilization/liquidity funds and wealth funds, will help African governments translate resources into returns for the people. This article will be of particular interest to policy makers and researchers concerned about the so-called “resource curse.”
In the second article, John Murray McIntire furthers Bond and Fajgenbaum’s discussion of natural resources by exploring the various paths that African agriculture could take in the next 35 years. Land and water, which exist in abundance in some places in Africa and great scarcity in others, must be carefully managed to sustain growth. In “Transforming African Agriculture,” McIntire lays out the connection between development and agricultural productivity: increasing the competitiveness of Africa’s commercial farming will improve income, inequality, and nutrition across the continent. Agriculture’s competitiveness depends on several factors directly related to farming, including promoting irrigation and the acceleration of the development of advanced fertilizers and biotechnology and developing state policies that incentivize people to pursue agriculture, as well as factors less obviously related: reducing population growth and mitigating climate change. On such a diverse continent, there is not one path to success, but as McIntire argues, reconsidering how best to pursue agriculture is key to pushing and sustaining economic development in Africa.
This issue then turns to South Asia. Written by scholars from the region, two articles use econometric analysis to examine public policy in the post-reform period in the region. In “Do Openness and Human Capital Affect Total Factor Productivity? Evidence from the South Asian Region,” Badri Narayan Rath and Purna Chandra Parida examine the relationship of two variables, trade openness and human capital, and total factor productivity in five countries—India, Pakistan, Sri Lanka, Bangladesh, and Nepal. While the region has largely succeeded in improving education, which serves as a proxy for human capital, intra-regional trade remains low, despite efforts such as the South Asian Association of Regional Cooperation and the South Asian Preferential Trading Arrangements. The authors’ econometric analysis indicates that trade openness is relatively more valuable in increasing total factor productivity than human capital. A large part of the region’s economic growth in the post-reform period can be attributed to an increase in productivity in the services sector; this article suggests that the economic policies of increasing openness will lead to further growth in this sector, as well as throughout the economy.
In “Public Sector Disinvestment in India: Price Reaction and Underpricing Issues,” authors Sanjay Sehgal, Muneesh Kumar, and Priyanshi Gupta evaluate the stock market performance of Indian Public Sector Undertakings (PSUs) that were privatized through stock offerings between 2002 and 2013. This process was part of larger reform process and was intended to decrease public debt and the fiscal deficit and increase economic efficiency of the enterprises concerned by reducing government interference. While the government was, and is, actively pursuing disinvestment policy, the authors argue that refining policy to capture these firms’ full potential will provide a greater boost to the Indian economy. The results of their econometric analysis indicate that in order to reap the full rewards of PSU disinvestment, the government should attempt to correct informational asymmetries that stem from the disinvestment of PSUs in tranches: selection and PSU pricing should be done more carefully, improved corporate governance, better surveillance of PSU offerings, greater public disclosure of relevant information, and more coverage of PSU disinvestment by investment firms.
This issue serves as a reminder that the biggest enemy of growth is complacency. Without careful reflection and innovation, development—whether agricultural, human, or economic—will stagnate. Here at the journal, we aim to continue contributing to that dialog by publishing thought-provoking scholarship on a wide range of issues. We encourage our readers to take this discussion further by applying an idea found here to their own work, or submitting a paper that reflects their views on these important topics.