Globalisation, Investment, and Global Economic Growth: Examining the Causes of Recent Banking Crises

Globalisation, Investment, and Global Economic Growth: Examining the Causes of Recent Banking Crises

Shefali Virkar (University of Oxford, UK)
DOI: 10.4018/978-1-4666-8274-0.ch015
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Abstract

For any economy to be healthy, a strong financial system is required to efficiently move funds from unproductive to productive economic agents. Banks play an important role in this respect as their presence and structure reduces the problems of adverse selection, moral hazard, and asymmetric information. Recent decades have been overshadowed by a series of systemic banking crises that have left many parts of the developing world gasping for breath. In particular, economies like Mexico and the East Asian tigers have been hit hard both during and in the aftermath of such financial misadventures. This chapter thus attempts to examine the causes of banking crises in the light of available evidence. More specifically, the research enumerates and analyses the role of both macroeconomic and microeconomic factors in precipitating such crises through a critical examination of the existing literature, and illustrates each factor with examples from key pan-global financial catastrophes.
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Financialisation And Global Financial Meltdown

The global economy has, over the past two decades, experienced profound changes and, in recent years, has found itself newly emerged from a protracted phase of economic and financial over-accumulation (Montgomerie, 2008; McNally, 2009). The dominant feature of this era has been the dramatic changes that have transpired in the realm of finance, where the pervasive crisis of over-consumption has been characterized by chronic excesses of productive capacity in the manufacturing and financial sectors of national and regional economies relative to the overall level of effective global demand, and has coincided with the rise of the East Asian and Latin American economies as major manufacturing exporters (Brenner 2006; Lucarelli, 2004).In consequence, both the size and the importance of global financial transactions have been growing continuously, and the lack of effective demand for products and services worldwide has led to the growth of readily available monetary liquidity that has been increasingly channelled into the world’s financial markets and has financed burgeoning levels of global debt (Montgomerie, 2008). Financial markets and agents have thus increasingly acquired a prominent position in the global economy, where both the size and profitability of national financial sectors have increased, and the incomes derived from financial sources have grown in contrast to those from non-financial ones. Total debt within economies has also skyrocketed, as also the measure of engagement of non-financial corporations (NFCs) in financial business transactions, and the level of their investments in financial assets and financial subsidiaries (Orhangazi, 2008).

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