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81. Channelling household savings to productive uses through the capital markets

Author:
Geetima Das Krishna, Vardhana Pawaskar, and Ankit Bhardwaj
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Centre for Policy Research, India
Abstract:
Savings provides the means for investments. Typically, investments are primarily funded through domestic savings and the rest through foreign capital inflows. Domestic savings are from three sources -- households, private and public sector. Household savings form the largest part of total savings. As domestic savings contributes the most to capital formation, it can also be a limiting factor to investments. The paper deals with changing pattern of Household savings, its shift away from capital (financial) markets towards unproductive assets like gold and possibilities of channelization household savings to investment rather than speculative assets. The paper looks at the current policy incentives in terms of tax to boost capital market investment and whether it has served the purpose of long term capital formation. The current savings environment indicates a high proportion being in physical rather than financial assets. Within financial assets derivatives are preferred over the cash equity. We propose that an investment of incentive structure should support a pyramid where the small investors would hold maximum in the less risky assets and reduce the holdings as they move towards risky assets. Our paper is organized as, section (2) studies trends in current macro-economic scenario in terms of the savings; section (3), deals with, the capital formation and share of capital markets in terms of raising new capital. In section (4), we look at the current investment pattern in Indian capital markets and the incentives provides to boost trading in the equity and derivative products. Section (5) we give our proposal on the layered approach to investment architecture. Finally, section (6) concludes the paper.
Topic:
Finance, Economy, Capital Flows, and Investment
Political Geography:
South Asia, India, and Asia

82. Macroeconomic Update: Early Signs of Rise in Investment

Author:
Geetima Das Krishna and Rajiv Kumar
Publication Date:
07-2015
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
Economic recovery remains fragile on the back of a weak consumption demand. Sustained high growth will be achieved only with an upturn in the investment cycle. The government seems to have understood the importance of pump-priming the capex cycle directly through higher public capital expenditure and front loading the expenditure. While private investment remains muted due to stressed corporate balance sheets, weak external and domestic demand prospects and commercial banks’ cautious approach to expanding credit, there are some early signs that the private investment cycle is likely to turn around in the next six to nine months.
Topic:
Government, Economic growth, Banks, Investment, and Macroeconomics
Political Geography:
South Asia, India, and Asia

83. Digital Single Market. SMEs and the Juncker Investment Plan for the European Union

Author:
Juan Antonio Pavón Losada
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Fundación Alternativas
Abstract:
A few months ago (25/11/2014), the European Commission disclosed the mechanism for its much-heralded €315 billion investment plan, revealing how a a scarce €21 billion of initial public money is intended to lift fifteen times as much in capital. In March 2015, EU finance ministers agreed upon delivering on the commitment they took at the European Councils in October and December 2014, to wind-off Juncker's flagship investment plan. The idea was to create a new European Fund for Strategic Investments (EFSI), with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds designed to secure a further contribution of 16 billion Euro from the institutions. The €8 billion guarantee will come over a three-year period from the Connecting Europe Facility (€3.3 billion); Europe’s research programme Horizon 2020 (€2.7 billion) and socalled “budget margin”, or unused funds, worth €2 billion. On the one hand, the EFSI plans to generate investments into the European economy of about €315 billion, by providing guarantees for higher-risk projects which aim at developing telecommunications and transport infrastructure, energy efficiency projects, research, education and innovation activities to finally generating about 240 billion in long-term investments, showing a timid responsiveness for the claims against austerity over the past years. On the other hand, the alternative purpose of the Fund is to provide financing to SMEs to enhance the viability of new venture capital injections, loan guarantees, securitisations and seed financing designed to offer micro-loans to SMEs, to fund start-ups or offer mid-cap companies venture capital, projected to generate €75 billion for those SMEs and mid-cap firms over the period 2015-2017. In addition, the Commission aims to attract private investors to the Fund. Nevertheless, private investors seem sceptical about investing and assuming greater risks when the returns are not guaranteed. In fact, the basis for most longterm infrastructure or energy efficiency projects will most likely remain public funding -his is especially true of the newer EU member states, where the private sector is not strong enough-. In fact, the EU executive believes that more financing can be provided by individual member states. Two ways are being discussed: Capital contributions, which are not limited to the respective Member State and may entail voting rights and a claim on the fund´s return (if any); and that participation in investment platforms that can be restricted to the Member State itself. As an incentive, this amount will be then discounted from the calculations of their deficits within the European Semester. There is a rising concern between Member States that the new fund will turn into a parallel EU budget -where voting rights could be purchased- not subject to enough democratic control, since this is fund is expected to be managed by Commission and the EIB and. In order to prevent such situation, the Commission has announced that the fund will not consider to make investments on the basis of geographical distribution, but rather based on quality and viability. This may convince member states who fear the introduction of a parallel budget, but it might also raise problems of transparency and for those countries who wish to contribute voluntarily to the EFSI. Several alternatives to the current functioning of the EFSI -that still need to pass the European Parliament filter- has been tabled: e.g. the possibility that the EFSI regulation could establish mandatory national contributions in order to increase the credibility of the ratio 1:15; also, transforming the fund into a permanent financing system with legal personality, so it could access financial markets for funding; and that but not least, turning the EIB's contribution to EFSI into a regularly one rather a one-off, as it has been agreed so far. In any case -often accused of relying on leverage private investment unrealistic projections, lacking ambition, means and clear goals- this Juncker's investment plan goes along with several batteries of measures seeking to facilitate a boost in business activity, removing the obstacles hampering private investment in Europe.
Topic:
Infrastructure, Budget, European Union, and Investment
Political Geography:
Europe and Brussels

84. Alternative Investment Regimes for Direct Foreign and Domestic Investments in Russian Subsoil

Author:
Andrei Konoplyanik
Publication Date:
01-2013
Content Type:
Working Paper
Institution:
The Harriman Institute
Abstract:
This paper examines the evolution of the Russian investment regime in the subsoil in its both key – legal and tax - components starting from the very beginning of post-Soviet Russia in early 1990s up to the present day. We will discuss what are the prospects of its further development on a “slightly different” (or alternative) basis compared to the one that exists today.
Topic:
Foreign Direct Investment, Legal Theory, Tax Systems, and Investment
Political Geography:
Russia, Europe, and Eastern Europe

85. Financing Water in Africa

Author:
Kate Bayliss
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
Despite repeated policy initiatives from donors and governments, the human and economic cost of continued lack of access to safe water and sanitation in sub‐Saharan Africa remains high. This paper shows that a radical reorientation of policy is needed to achieve a significant increase in investment finance in order to raise access levels. Rather than continuing to pursue policies that have failed for the past two decades, such as bringing in the private sector and raising prices to cost recovery levels, attention needs to shift to wider aspects of domestic revenue mobilization to support public investment.
Topic:
Privatization, Water, Inequality, Investment, and Private Sector
Political Geography:
Africa

86. Capital Flows to Emerging Markets: An alternative Theoretical Framework

Author:
Bruno Bonizzi
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper represents a theoretical contribution to the analysis of international capital flows. It outlines an alternative theoretical framework based on Post-Keynesian monetary theory, and in particular on Hyman Minsky’s Wall Street paradigm and concept of Money-manager capitalism and Jan Toporowski’s theory of capital market inflation. The key aspects of such an approach are, firstly, that in a monetary analysis capital flows need to be understood as “flows of funds”, as opposed to the traditional understanding of capital flows based on “real” decision, such as saving and investment. A consequence of this is the need of focusing on gross rather than net capital flows. Secondly, when considering emerging markets, the asymmetric nature of the international monetary system must be stressed. Thirdly, it is important to understand the specific forms that capital flows take: in today’s world, pension funds and other institutional investors — alongside banks — are key players in the financial markets, and their role in shaping capital flows to emerging markets must be explicitly recognised. This paper synthesises these elements by understanding capital flows as the result of institutional investors portfolio choice. Along the lines of Minsky and Toporowski, portfolio choice by institutional investors need to be assessed in relation to their balance sheet structure, beside risk/return trade-offs and general state of risk aversion
Topic:
Emerging Markets, Capital Flows, Investment, and Economic Theory
Political Geography:
Global Focus

87. Improving the Future of Maternal and Child Health in Sub-Saharan Africa by Investing in Adolescent Girls

Author:
Shelley Clark
Publication Date:
01-2013
Content Type:
Policy Brief
Institution:
Institute for the Study of International Development, McGill University
Abstract:
The premise of this policy brief is simple: The most effective way to dramatically reduce maternal and child mortality in sub-Saharan Africa over the next decade is to invest in adolescent girls’ educational and economic opportunities today. The goals set forth by MDG 4 (decrease child mortality by two thirds) and MDG 5 (reduce maternal mortality ratio by 75%) are already unlikely to be reached by 2015. What is more, we will continue to fall short of these objectives over the next ten years if the developmental needs of adolescent girls continue to be neglected. Continued investment of resources to improve access to high quality health services, medical treatments, and technology development are necessary and important to reach these goals. But they are not sufficient as long as the root causes of poor maternal and child health outcomes remain unaddressed. Devoting resources to improving the social and economic opportunities of adolescent girls offers a proactive approach with multiple long-lasting effects on not only these girls directly, but also on their future families and communities. The profound effect of women’s education on child survival is well-established. Improvements in women’s education account for half of the decline in child mortality since 1970. Other equally impressive effects are less well-known. Girls who attend secondary school, for example, delay sexual debut, pregnancy, and marriage by several years, resulting in lower rates of sexually transmitted infections (STIs) and HIV, teen pregnancy, unsafe abortions, and single adolescent motherhood. Consequently, increasing girls’ schooling will make their pregnancy and motherhood experiences safer and reduce maternal mortality. Alleviating adolescents’ poverty and developing their income-generating skills will also offer girls alternatives to early motherhood and marriage and provide them and their families with the economic resources to improve their nutrition, sanitation, and utilization of health services.
Topic:
Development, Health, Children, Women, Youth, and Investment
Political Geography:
Africa

88. Corporate Liquidity and Financial Fragility: The Role of Investment, Debt and Interest

Author:
Jan Toporowski
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The paper addresses the issue of how debt deflation may arise in a capitalist economy with a sophisticated credit system. It argues that the standard argument of debt deflationists, that debt-financed investment causes a build-up of unsustainable investment, fails to recognise that debt is back by credit. A corollary of this is that the rate of interest is not a factor in investment decisions. Financial fragility is caused by heterogeneity of balance sheets, debt financed operations in financial markets and insufficient debt-financed investment, rather than too much such investment.
Topic:
Debt, Markets, Investment, and Credit
Political Geography:
Global Focus

89. Functional Distribution of Income and Economic Growth in the Chinese Economy, 1978-2007

Author:
Ricardo Molero Simarro
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
This paper seeks to analyse the relationship between functional distribution of income, aggregate demand and growth in Chinese reform economy. For this purpose the Bhaduri-Marglin Model is used, stating the theoretical possibility of both profit-led and wage- led growth regimes. Subsequently, the principal literature on the evolution of factor‟s shares in China is reviewed. The statistical series for the period 1978-2007 are reconstructed in order to carry out our analysis of the relations between capital‟s share and investment, on one hand; and labour‟s share and consumption, on the other. Supported by the Model‟s preliminary estimations, it is argued that Chinese growth has been largely profit-driven. Finally, the implications are presented vis-a-vis concerning Chinese economic prospects.
Topic:
Development, Economics, Reform, and Investment
Political Geography:
China and Asia

90. Continental Drift: China and the Global Economic Crisis

Author:
Sangaralingam Ramesh
Publication Date:
01-2010
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The economic prosperity associated with the Coastal regions of China has not ‘trickled’ down to the Western and Central regions sufficiently enough to eliminate the disparities in income between the regions. Indeed, the disparities between China’s Coastal regions and its other regions continue to deepen. In the Mao period, central planners held the mistaken belief that investment in the railways and development of heavy industry in the interior parts of China would bring prosperity. In the reform period and beyond, the focus of economic development in China has been to take advantage of China’s low labour costs. In the earlier part of the reform era the focus of economic reforms centred on the development of Special Economic Zones (SEZ’s) .In the second phase of reform policies were centred on the High Technology Development Zones [NHTIDZ’s].A characteristic feature of both SEZ’s and NHTIDZ’s is that they represent a concentration of infrastructure within a predefined spatial area. The current global economic crisis has presented China with a unique opportunity to deepen the economic transformation of the coastal regions by shifting the focus of economic development to its interior regions. Indeed, the government’s efforts to stave off the effects of the global crisis on the Chinese economy by attempting to maintain economic growth above 8% by utilising an expansive fiscal stimulus has had the effect of initiating the transformation of the interior Chinese economy. This then represents China’s third stage of economic development since 1949. This paper will examine the factors leading to China’s third stage of economic development which has resulted from the global economic crisis – the Continental drift of the economic development of China.
Topic:
Infrastructure, Global Financial Crisis, Investment, Stimulus, and Prosperity
Political Geography:
China and Asia