Finance and Competitiveness in Developing Countries

By José María Fanelli; Rohinton Medhora | Go to book overview

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Finance and competitiveness

Framework and synthesis

José María Fanelli and Rohinton Medhora

The issues of international competitiveness and integration in the global economy play a central role in the discussion on development and there is no indication that their importance will decline in the near future. At the analytical level, and often at the policy level as well, competitiveness is seen largely in real or trade terms, at the expense of the key roles that financial factors, and institutional and other micro-level features play in determining how successful a country's trade and competitiveness position is. Trade theories are for the most part silent on financial issues while policy makers cannot afford the luxury of seeing the two as separate or, worse, unconnected. Likewise, once financial issues are brought into the picture it is not possible to ignore the role of the macroeconomic factors and their interaction with the microeconomic structure of the economy.

The main goal of the research project whose results are presented in this book is, precisely, to contribute to filling the theoretical and empirical gap which exists in the development literature regarding the linkages of trade, finance and macroeconomic factors. The project comprised eight country studies (Argentina, Brazil, Uruguay, Indonesia, India, the Philippines, Tunisia and South Africa) which were elaborated according to the same framework and four thematic papers that analyzed the relationship between competitiveness, finance and trade at a more abstract level. In this chapter we present a framework for our analysis and an overview of the key results of the studies. This chapter has two sections. In the first section we discuss why 'achieving competitiveness' is an important policy goal in the developing world and why it is closely associated with the process of catching up. Then, we discuss four stylized facts characterizing developing countries that explain why it is necessary to analyze the relationship between trade, finance and macroeconomic issues. In the second section, we elaborate on our view of the micro/macro and trade/finance linkages. We conclude with the three most important questions that have been targeted in the project.


1.Competitiveness and the developing world

The challenges of economic policy

There are three facts that are crucial to understanding the ongoing debate on development strategies and on economic policy in developing countries. The first

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