How Inflation Impacts Reinsurance
The key economic theme which has dominated virtually all of the economic discourse in 2022 has been inflation. Countries around the world have seen inflation rise to record levels. Countries like the United States have taken stringent measures to combat inflation. A record number of interest rate hikes have been undertaken by the American central […]
How Stock Market Volatility Affects Insurance Companies?
The average consumer believes that most of the money that insurance companies collect in the form of premium ends up in their bank accounts as profits. The reality is that this is not really the case. The reality is that most of the money, collected from premiums has to be paid back either in the […]
Systems Model of Change Management and Continuous Change Process Model
Systems Model of Change The Systems Model of Change or Organization-Wide Change lays more emphasis on the fact that a change must be implemented organization-wide instead of implementing it in piecemeal. This model provides a whole new dimension to the concept of organizational change and describes the role played by six interconnected or interdependent variables […]
Provisioning in Credit Risk Management
The primary purpose of credit risk management is to avoid credit losses i.e. credit events that negatively impact the cash flow of the lender. However, since managing credit risks is not a perfect science, there is always a possibility that all credit risks will not be avoided. Some of these risks will actually materialize and […]
ERG Theory of Motivation
To bring Maslow’s need hierarchy theory of motivation in synchronization with empirical research, Clayton Alderfer redefined it in his own terms. His rework is called as ERG theory of motivation. He recategorized Maslow’s hierarchy of needs into three simpler and broader classes of needs: Existence needs- These include need for basic material necessities. In short, […]
It is debatable whether the reforms in emerging and developing markets drive the entry of international businesses into those markets or whether the international businesses with their strategies drive reforms in these markets. Of course, the bottom line requirement for any international business to enter the emerging markets is that the market economy in that country must be open to foreign investment. Hence, this is the b basic requirement that drives the entry of the international business. However, many emerging markets stop at this reform and do not make their economies friendly to foreign investors beyond a certain extent.
In other words, once a country allows foreign businesses in some sectors, it does not automatically follow that it would open all the sectors to international businesses.
On the other hand, many international businesses once they gain entry into developing countries push for further liberalization of the economy in terms of investment friendly policies related to profit repatriation, increase in stake of the international business in the joint ventures, tax breaks, and convertibility of the local currency.
Indeed, as the experience of India shows, the country initially opened up some sectors to foreign investment, then stopped shy of full convertibility and is now at a stage where it is taking a gradated approach to opening up its economy.
Further, the entry of the multinationals in India was accompanied by these companies putting pressure on the government to liberalize the economy further and hence, in the case of India it can be said that both aspects of the question posed in the topic are true.
However, the case of China is different. It went in for full liberalization and made its investment climate so friendly that multinationals just started to flock to the country.
Further, the reforms in China were not halfhearted like in the case of India. Moreover, the Chinese government was free to implement reforms unlike India that is hamstrung by political considerations and the fact that policy paralysis has set in because of bad governance. Of course, this is not to say that one example is better than the other and vice versa because each country has its own set of factors in the political economy of development.
Apart from these considerations and drivers, it needs to be mentioned that once the genie is out of the bottle, it is difficult to undo the reform process. This has been the experience of countries like the Maldives where once foreign investment was allowed by a particular government, it was not possible for the successor government to go back on its commitment. This is also the case with India where despite opposition to foreign investment, the broad policy framework is supportive of foreign investment.
Finally, as mentioned earlier, the specifics of development are unique to each country because of historical, cultural, societal, and political factors apart from the baseline factor of economics. Hence, the approach to reforms and which aspect drives the other has to be done in a manner that suits the country.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
