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- Convenors:
-
Emily Jones
(University of Oxford)
Ken Mitchell (Monmouth University)
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- Location:
- E59 (Richmond building)
- Start time:
- 6 September, 2017 at
Time zone: Europe/London
- Session slots:
- 1
Short Abstract:
This panel examines the political economy of banking and finance in developing countries. Papers will focus on the role of the state, examining the ways in which developing country governments shape relations between domestic and global financial markets and financial sector development.
Long Abstract:
Since the 1980s, unprecedented capital mobility has linked the financial markets of developing countries into an ever more tightly interconnected global system. In many developing countries, including in sub-Saharan Africa, finance is undergoing rapid transformation and expansion, changing the architecture of domestic financial systems and redefining their links with global markets. Connections to global financial markets are evolving and deepening, and the majority of financial flows to developing countries now come through private rather than official channels. Integration brings opportunities but exacerbates vulnerabilities. Developing countries are having to navigate the end of the commodity super-cycle and the 'normalisation' of United States' monetary policy; questions about the sustainability of new sovereign debt issuances; and global financial standards are having unintended adverse effects, including on remittances.
Scholars have examined the liberalisation and integration of developing countries into global financial markets. The papers in this panel seek to go beyond this, examining the important role of the state in shaping the trajectory of financial sector development. Particular questions to be addressed include: to what extent, and in what ways does the international financial system structure the environment in which firms and governments in developing countries operate? How is the international and domestic political economy of finance shaping regulatory decisions? How and why does this vary across countries? What are the policy dilemmas and trade-offs that governments face, and how are they resolving them? What is the intersection between this debate and other debates on financialization or globalization and the state?
Accepted papers:
Session 1Paper short abstract:
The paper studies overall banked population rates, formal and informal consumer market trends, and consumption tax performance in Argentina, Brazil and Chile. It illuminates how consumption tax revenue influenced overall levels of tax collection when commodity prices were high and low.
Paper long abstract:
This paper studies how the increase in formal banking participation has led to an increase in the access to (and use of) electronic payments (e.g., credit cards and debit cards), which is positively correlated with higher value-added tax (VAT) collection revenue in Argentina, Brazil and Chile. Since the introduction of VAT in these countries (Argentina and Chile in 1975, Brazil in 1967) it has become an important source of tax revenue. We use fixed-effects regression to test the influence of changes in the banked population and electronic payments on VAT revenue from 2002 to 2014. We find that changes in formal banking participation rates and increased credit card and debit card use are correlated with an increasing percentage of personal consumption from informal (hard to tax) markets into formal (easier to tax) markets. As a result, VAT collection has increased—even though VAT rates did not change and economic growth slowed when the commodity boom ended in 2011.
Paper short abstract:
The external financing of domestic government expenditure faces a transformation dilemma in most developing countries, which often results in convoluted and contradictory dynamics in the power relations that condition such external flows. This begs a rethink of the political economy of development.
Paper long abstract:
In most developing countries, the external financing of domestic government expenditures through aid, other official flows, or even commercial sources of finance, faces what can be called a monetary transformation dilemma. This refers to the fact that external flows are in foreign currency and hence cannot be directly used for expenditures in domestic currency. Nor do domestic expenditures require foreign currency given that they can be financed through conventional domestic monetary and fiscal operations. The extent to which external flows are actually able to fund domestic expenditures therefore involves a range of macroeconomic management concerns, which are in turn prone to exacerbate many of the political economy dimensions involved in the global and national management of such financial flows. Alternatively, the rhetorical reasons for seeking such external flows often does not conform to the actual uses of such flows. This calls for a serious rethink of many of the accepted premises in the political economy of external finance for development, particularly with respect to the often convoluted and contradictory external dynamics that domestic actors must contend with in the power relations that condition these external flows. Several examples are highlighted in this paper, including: muddled evaluations of the absorption of external flows; mismatches between absorption and the notional domestic spending of such flows; tensions between absorption and reserve accumulation, and between spending external flows and restrictions on domestic spending; and the exacerbation of concerns about fungibility, transparency and accountability.
Paper short abstract:
How have states shaped, and been shaped by, payments companies when delivering welfare payments, and what are the implications of this? This is developed using the example of the South African social grant payments system.
Paper long abstract:
Financial inclusion is often taken to mean increasing the access of 'unbanked' populations to loans, investments or bank accounts. But increasingly, financial inclusion can also refer to the access of poor or banked populations to cashless payment methods. These practices are supported and promoted by international NGOs such as the 'Better than Cash Alliance', international development organisations and multinational payment companies. One way that states have sought to promote access to cashless payments for their poor populations is to partner with national and multi-multinational payment companies, using cashless technologies to make welfare transfers. By creating bank accounts for recipients and handing out associated cards, states can rapidly incorporate their unbanked populations into financial circuits. They are also able to use the technologies to pursue social policy objectives, as well as ensuring valuable and reliable income streams for the associated providers. However, these policies are accompanied by important concerns about privacy and exploitation, often related to poverty or an absence of basic financial literacy. This argument is demonstrated using the experience of the South African Social Grant system set up in 2012 with the South African state MasterCard, and national banks and payment companies. As well as creating a bank account for over 10 million recipients, biometric details are taken and are required to access the monies.