GROWTH AND FDI

 GROWTH  AND FDI

A.K.Tiwari(2011) conducted an empirical analysis in the framework of a panel for 23 Asian countries by employing data from 1986 to 2008. He also incorporated a two-way effect model for the analysis, as the assumptions of fixed and random effects across countries and over time are extremely plausible. He also
examined nonlinearities associated with exports and FDI in the economic growth of Asian countries. Further, as he had studied a large sample of Asian countries, he tried to minimise the country-specific heterogeneity by imposing two-way dummies, i.e., in case of two-way fixed- and random-effect models by using time-country dummies. He has also checked the robustness of the results by analysing different models. However, by imposing dummies of
cultural aspects and religion he might have gotten more robust results, and an extended study in this area should incorporate these issues. There are studies which have found that cultural and religion aspects of a country have considerable impact on the economic growth on the respective countries (see, for example, Dieckmann 1996, Griffin 1999, Casson and Godley
2000, Marini 2004, Grier 1997, Blum and Dudley 2001 and Barro and McCleary 2003).
The results of his analysis show that FDI and exports enhance the growth of Asian countries and also that labour and capital help in that process. This implies that Asian countries that are moving ahead for globalization might choose to go ahead. However, when we analyzed the case of nonlinearity associated only with FDI, he found that this variable enhances growth. On the other hand, the investigation of the nonlinearity in both cases, i.e., exports and FDI, show a significant and positive impact of exports only on the economic growth of panel countries.
This suggests that to achieve a higher and higher growth path, moving ahead with exports is more feasible in Asian countries. This is true, particularly for countries that do not have sufficient resources to bring more advanced technology to private homes. The more advanced technology would create an attractive environment for FDI, but would also require an extensive investment for large improvements in the country’s infrastructure.
Further, there are studies that have found that FDI has a negative impact on economic growth and income distribution. Hence, he suggests an export-led growth path, particularly at the initial stage of growth, in the later period, dependence on FDI might be feasible option. This finding can be defended based on two arguments (see Afzal 2010). First, the exports promotion incentives determine a specialization of the economy accompanied by the scale benefices. Second, the augmented exports may stimulate the country to import high-value inputs, products and technologies. By consequence, these elements may have a positive impact on the productive capacity of the economy.

ON ECONOMIC CORRUPTION,POLITICAL CORRUPTION AND FINANCIAL CRISIS

ON ECONOMIC CORRUPTION, POLITICAL CORRUPTION AND FINANCIAL CRISIS

Full transcript of the video “On Economic Corruption, Political Corruption and Financial Crisis”: https://www.youtube.com/watch?v=4kot_GHdIMU (Excerpt from “The financial crisis, guilt of the market or the State?” -full video in Spanish-, discussion organized by Dante A. Urbina in the course of Macroeconomics II, Faculty of Economic Sciences of the Major National University of San Marcos (Lima - Peru) on November 28, 2013).

It is said that the State is a conglomeration of individual interests. Precisely there is a theory about this, which is the Public Choice Theory. Well, in this context it is assumed that each person is the best judge of his own welfare. The point is this: we realize that if each person is an agent seeking to maximize their welfare and may even be involved in corruption in order to maximize this welfare... if that is true regarding the State, why would automatically false regarding the market? Is there no corruption in the market? Or rather: is there not a systemic relationship between corruption in the market and corruption in the State? Are separate phenomena?

It was mentioned that some people in the State who had some particular economic interests had also important positions. But what is the problem here: the State itself, the institution itself, or rather the corrupt economic environment which dominates the State, the State capture?

It is said: “Banks take riskier positions because the State allows it”. Correct. But why the State allows it? The State allows it, for example in the U.S., because the lobby is legal. What is the lobby? It means that companies can “solve” their problems by giving money to Congress members so that they promote certain types of policies. And the same occurs in the Executive. When the crisis emerged there was a general problem of moral hazard. I mean, is not as simple as that the State is saying “Give me money, give me money to do what you want”. There is not only someone behind the door waiting for money to carry out corrupt actions but also there are also lots of private companies knocking on the door in order to corrupt. Where corruption exists there must be corrupt and corrupting people.

Someone might say: “Well, but why governments are not honest? Why don’t they stop the corruption?”. The issue is: the market is not an abstract entity; the market also exists in a set of power relations. Individuals who manage the big banks may also have control over media. If they have power over media, have the power to show the image of the governments to the people and, in a democratic system, as the people is ultimately who vote, this allows them to manipulate the image of the government. If the government behaves well with respect to their economic interests, their media will say that this government does things right, whereas if the government begins to contradict their economic interests, their media (in which they are the owners) could show the government in a negative way.

It was also mentioned that President Carter supported to leftists and forced the banks to give loans to insolvent people. But if we see a documentary like, for example, “Capitalism: A Love Story” by Michael Moore, we will find that the process of the current crisis can be understood from the deregulation which came in the 80s with Reagan, which was not supported by leftists but rather by rightists. He gave the banks free rein to do whatever they want.

The point is that government officials are also people who have been working on these big banks. Henry Paulson, the Secretary of the U.S. Treasury, was CEO of Goldman Sachs and, moreover, the President Reagan's chief economic adviser was Chairman of Merrill Lynch.

Well, then it’s very important understanding that exist an interrelationship between corruption in market and state corruption, they are not separate phenomena.

THE DEPOLITIZATION OF THE ECONOMICS

THE “DEPOLITIZATION” OF THE ECONOMICS (Part 3) 

 Dante Abelardo Urbina Padilla

The triumphant neoliberalism

On November 9, 1989 a historic event of great importance did happen in the world: the fall of the Berlin Wall. That same year Francis Fukuyama published his famous article “The End of History” in which he argues that “we are witnessing the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of government” (15). Thus, neoliberalism trumps all other alternatives civilizational and consecrated itself as the final form of political-economic organization of the “New World Order”.

In this context of globalization, the economic theory becomes a mere instrumental knowledge (technocracy) thinking itself essentially as a “tool-box”, constituted by models and theories to be conveniently used by economist to fix up the “mismatches” of economical machinery. No longer examines content issues of economics. Only the functional relationships are considered important. In other words, it does not matter to know what is X and what is Y but only how they relate functionally to manipulate variables “instrument” and thus achieve the desired results with the “target variables”. Hence the preponderance has Econometrics in the analysis and current economic policy.

This new approach of the economics as a knowledge essentially instrumental has clear epistemological implications because  not given importance to the explanatory power of theories -which necessarily lead us to the plane of Political Economy- but only to their predictive power. Therefore, it is not strange that a liberal economist as Milton Friedman hold that it is not necessary to consider the realism of the assumptions or the explanatory power of a theory when examining its scientific validity but only its “predictive power” because “positive economics is or may be an objective science in the same sense as any of the physical sciences”. (16)

The “depoliticization” of the Economics

After all this historical analysis of the evolution of economic theory and epistemology in the context of different social and political events, is that we can see clearly that the economists never could get separate science from ideology. The process of “depoliticization” of the economy was clearly an ideological process that sought to eliminate the explicit political element of economic analysis to replace it with an implicit (camouflaged) form of policy based on utilitarian individualism, the doctrine of minimum State and the liberalism bourgeois.

So it is not surprising that economists now called “neoclassical” decided to change the name of economic science from “Political Economy” to simply “Economy”, so that the separation between economics and politics, between market and State, is final. Thus, the Economy become a “pure” science. But that claim is clearly an ideological choice that, as Immanuel Wallerstein explains, “has to do with the dominant ideology during the nineteenth century. Basically, the dominant view of liberalism worldwide was that the State, market and society were three distinct entities. They operated with different logical and therefore should be studied separately, and in a sense, stood apart in the real world. So the scholars had to segregate their knowledge of such aspects. Overall this was what happened, and what was already established in 1945 as an organizing principle for the social sciences at leading universities”. (17)

However, as it explains Oscar Lange “the ideological element in scientific research is not necessarily an obstacle in obtaining results with objective validity” to the point that “the ideological motive can also stimulate the development of science” (18). Therefore, to make an objective judgment about the legitimacy (or illegitimacy) of neoclassical economists's attempt to eliminate the political factor of the Economy will be examined, to speak in terms of epistemology lakatiana, if from this are built scientific research programs “progressives” or “regressives”. (19)

To answer this question it will be necessary to understand the nature of the relationship between economics and politics and then examine the epistemological and practical implications that flow from this.

In general terms we can define economics as the discipline that studies the management of resources to meet human needs and politics as the art of government. However, since resources are limited, there will always be needs that will remain unmet and this will lead to individuals to make decisions about how to distribute and use these resources. This has to do necessarily with the political structure of society in terms of the organization, distribution and institutionalization of the power of the different agents interacting in it, which obviously leads to the plane of politics and, therefore, can be said of consistently that the economy is intrinsically linked to the political and, consequently, that economic theory -if it want to be realistic- must become inescapably in Political Economy.

The epistemological implications of the above line of reasoning are extremely important because it follows that the only coherent and consistent way to study economic phenomena is through of a multidisciplinary analysis because in reality there are no “economic”, “sociological” or “political” problems but only “social problems” and they all have an irreducible complexity, it being understood it as that none of the aspects (political, psychological, ethical, economic, etc.) that compose it can be analyzed in isolation with respect to the other because each one of them have always and necessarily a constant and intrinsic relationship with the others.

The traditional way that neoclassical economists have to get rid of these difficulties has been and still is say that they work only with so-called “economic factors”. But taking into account the above we can say that it is absolutely wrong because it is not logically possible to isolate a part of reality denominating it simply as “economic” when in fact exist as such only insofar as it are interrelated with the legal and the political structure (institutional) of society. Moreover, the appeal to the isolation of the “economic factors” as a criterion of demarcation does not solve anything because it is like a pettitio principi falacy. And is that the single definition of “economic factors” involves scrutiny of all the factors involved, including the “non-economic”, which is only done once defined a priori the concepts used.

With respect to the practical implications of recovering the political approach in Economic theory we have to say they are as or more important than epistemological. As the prestigious epistemologist argentine Mario Bunge says, any study of Economics as if an autonomous and isolated is doomed. Clear example of this is the unfortunate experience they have had and still have several Third World countries with economic planners who ignore the non-economic components of society and the system of values and norms inherent therein. Most development plans designed for these countries are due to economists who have ignored the circumstances and the cultural and political values of those societies, deliberately sacrificing their cultural and political aspirations in order to reach one goal all costs: industrialization, stabilization of the currency or some other purpose of economic policy. No wonder, then, that such plans have usually lacked popular support and, in most cases, have not achieved their goals. A successful development plan should be considered only as a component of a much broader, inclusive and comprehensive social plan.

In conclusion, it is absolutely necessary to recover the political dimension of economics to deal explicitly with greater accuracy, breadth and depth the problems we face. In this sense, the pretension of neoclassical economists to construct an economic theory "chemically pure" is nothing more than an counterproductive ideological attempt which conceals the political nature of the economy in order to avoid the uncomfortable political consequences (for certain group) that could result from economic analysis.

Therefore, the kind of economist who need the world of the future and that should be taught in our universities should be like that Keynes's describing, in his biography of Marshall, when wrote that “has to reach far in different directions and must combine powers natural which is not always found together in the same individual. He must be in some degree mathematician, historian, statesman and philosopher. He must understand symbols and speak with ordinary words. He must contemplate the particular in terms of the general and the abstract and concrete touching on the same flight of thought. He must study the present in the light of the past and facing the future. No part of man's nature or his institutions must be completely out of his consideration. He must be simultaneously intentional and selfless as idealistic and as incorruptible as an artist, yet sometimes as near the earth as a politician”. (20)

References

15. Francis Fukuyama, “The End of History”, The National Interest, No. 16, Summer 1989, p. 4.

16. Milton Friedman, Essays in Positive Economics, Chicago University Press, Chicago, 1953, p.10.

17. Immanuel Wallerstein, "Open the Social Sciences", lecture delivered on 24 October 1995 for the Social Science Research Council in New York.

18. Oscar Lange, “Field and Method of Economics” (1945-1946), in: Economic Quarter, No. 58, Fondo de Cultura Economica, Mexico.

19. See: Imre Lakatos, The methodology of scientific research programs, Alianza, Madrid, 1989, p.9.

20. John M. Keynes, “Essays on Biography”, in: The Collected Writings of John Maynard Keynes, vol. X, Macmillan, London, 1972.


You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)