TEL  Vol.4 No.1 , February 2014
International Crises, Characterization of Contagion and Social Well-Being in Developing Countries: A Theoretical Model
ABSTRACT

This paper has two objectives: to characterize the exposure of developing countries to the international income, prices and monetary shocks and to calculate the social well-being in the period of contagion. Firstly, we develop a theoretical model with a world composed of two countries (developed and developing countries) and measure the level of the exposure of income in developing country to the external shocks trough external trade, international tourism, migrant transfers, external debt, foreign aid, FDI and other private financial flow channels. And, we characterize imported inflation in studying the effect of the international shocks on real exchange rate. Secondly, we search the social well-being. The results suggest that economic disequilibrium in developing country is socially optimal and that the dependence of its income to the domestic industry is necessary to reduce contagion. This conclusion is important for African countries because they import finished products for the households’ consumption. In these conditions, they are exposed to the imported inflation. The domestic monetary and tax policies are not adapted to fight against inflation. Also, they produce and export raw materials essentially toward industrialized economies. Thus, they must develop the domestic industry in order to influence the demand (or prices) of raw materials and to substitute imports by domestic goods in period of hyper-inflation in advanced economies in order to reduce imported inflation.


Cite this paper
G. Ella, "International Crises, Characterization of Contagion and Social Well-Being in Developing Countries: A Theoretical Model," Theoretical Economics Letters, Vol. 4 No. 1, 2014, pp. 72-77. doi: 10.4236/tel.2014.41011.
References
[1]   J.-M. L. Page, “Crises Financières Internationales & Risque Systémique,” Questions D’économieet de Gestion, De Boeck, 2003.
http://ses.ens-lyon.fr/crises-financieres -internationales-et- risque-systemique-25628.kjsp

[2]   R. Boyer, M. Dehove and D. Plihon, “Les Crises Financières,” Conseil D’analyse Economique, La Documentation Française, 2004.
http://www.ladocumentationfrancaise.fr/var/storage/rapports-publics/044000560/0000.pdf

[3]   Ph. Hugon, “La Crise financière et la Faiblesse des Politiques Face aux Forces du Marché,” Les Notes de L’institut de Relations Internationales et Stratégique, 2011.
http://www.iris-france.org/docs/kfm_docs/docs/2011-09-crise-financiere.pdf

[4]   G. A. Ella and C. B. Gilles, “Canal du Commerce Extérieur, Politiquespubliquesetspécialisation des PED Africains: étudeempirique,” XXIXemes Third World Association Conference, Informal Economy and Development: Employment, Financing and Regulation in a context of Crisis, University Paris-Est Creteil, Créteil, 2013.
http://www.erudite.univ-paris-est.fr/evenements/colloques-et-conferences/atm-2013-communications-full-papers /?eID=dam_frontend_ push&docID=25188

[5]   M. AyhanKose and R. Riezman, “Trade Shocks and Macroeconomic Fluctuations in Africa,” Journal of Development Economics, Vol. 65, No. 1, 2001, pp. 55-80.
http://www.iatp.org/files /Trade_Shocks_and_Macroeconomic_ Fluctuations_in.pdf
http://dx.doi.org/10.1016/S0304-3878(01)00127-4


[6]   D. Dutta and N. Ahmed, “Trade Liberalization and Industrial Growth in Pakistan: A Cointegration Analysis,” Applied Economics, Vol. 36, No. 4, 2004, pp. 1421-1429.
http://www.tandfonline.com/doi/abs/10.1080/0003684042000206951#.UrBs-vTuJc4
http://dx.doi.org/10.1080/0003684042000206951


[7]   J. Thurlow, “Trade Liberalization and Pro-Poor Growth in South Africa,” Studies in Economics and Econometrics, Vol. 31, No. 2, 2007, pp. 161-179.
http://reference.sabinet.co.za/document/EJC21443

[8]   J. Mbabazi, C. Milner and O. Morrissey, “Trade Openness, Trade Costs and Growth: Why Sub-Saharan Africa Performs Poorly,” Centre for Research in Economic Development and International Trade Research Paper, CREDIT Research Papers, 2008, No. 06/08, p. 24.
http://www.nottingham.ac.uk/credit/documents/papers/06-08.pdf

[9]   A.C. F. Puente, M. B. and A. C. Poncela, “How Changes in International Trade Affect African Growth,” Economic Analysis Working PapersVol. 8, No. 1, , 2009, p. 17.
http://www.econstor.eu/bitstream/10419/43405/1/628572 999.pdf

[10]   J. L. Eugenio-Martin, N. M. Morales and R. Scarpa, “Tourism and Economic Growth in Latin American Countries: A Panel Data Approach,” FEEM Working Paper No. 26, 2004.
http://www.feem.it/userfiles/attach/Publication/NDL2004/NDL2004-026.pdf

[11]   J. Mitchell and C. Ashley, “Pathways to Prosperity: How Can Tourism Reduce Poverty? A Review of pathways, Evidence and Methods,” Draft Report for the World Bank, 2007.

[12]   B. Fayissa, C. Nsiah and B. Tadesse, “The Impact of Tourism on Economic Growth and Development in Africa,” Tourism Economics, Vol. 14, No. 4, 2008, pp.
807-818. http://dx.doi.org/10.5367/000000008786440229

[13]   K. OlayinkaIdowu, “Tourism-Export and Economic Growth in Africa,” 13th African Econometrics Society (AES) Conference, Pretoria, July 2008, 32 Pages.
http://www.africametrics.org/documents/conference08/day1/session2/kareem.pdf

[14]   J. Jongwanich, “Workers’ Remittances, Economic Growth and Poverty in Developing Asia and the Pacific Countries,” United Nations Economic and Social Commission for Asia and the Pacific Working Paper, 2007, No. WP/07/01, p. 27.
http://www.unescap.org/pdd /publications/workingpaper/wp_07_01.pdf

[15]   M. A. Ajayi, M. A. Ijaiya, G. T. Ijaiya, R. A. Bello, M. A. Ijaiya and S. L. Adeyemi, “International Remittances and Well-Being in Sub-Saharan Africa,” Journal of Economics and International Finance, Vol. 1, No. 3, 2009, pp. 078-084.

[16]   P. A. Garcia-Fuentes and P. Lynn Kennedy, “Remittances and Economic Growth in Latin America and the Caribbean: The Impact of the Human Capital Development,” Southern Agricultural Economics Association 2009 Annual Meeting, Atlanta, 2009.
http://www.microfinancegateway.org/gm/document-1.9.34527/13.pdf

[17]   B. Fayissa and C. Nsiah, “The Impact of Remittances on Economic Growth and Development in Africa,” American Economist, Vol. 55, No. 2, 2010, 19 Pages.

[18]   A. K. Fosu, “The Impact of External Debt on Economic Growth in Sub-Saharan Africa,” Journal of Economic Development, Vol. 21, No. 1, 1996, pp. 93-108.

[19]   B. Clements, R. Bhattacharya and T. Q. Nguyen, “External Debt, Public Investment, and Growth in Low-Income Countries,” IMF Working Paper WP/03/249, 2003.
http://www.mafhoum.com/press6/176E15.pdf

[20]   C. Patillo, H. Poirson and L. Ricci, “External Debt and Growth,” Review of Economics and Institutions, Vol. 2, No. 3, 2011. http://www.rei.unipg.it/rei/article/view/45

[21]   C. Burnside and D. Dollar, “Aid, Policies and Growth,” American Economic Review, Vol. 90, No. 4, 2000, pp. 847-868.
http://www.jstor.org/ discover/10.2307/117311?uid=2620192&uid=3738016&uid=2620184&uid =2&uid=3&uid=67&uid=62&uid= 5909928&sid= 21103227878283
http://dx.doi.org/ 10.1257/aer.90.4.847


[22]   R. Almeida and A. Fernandes, “Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys,” Journal of Development Studies, Vol. 44, No. 5, 2008, pp. 701-727.
http://www.tandfonline.com/doi/abs/10.1080/00220380802009217
http://dx.doi.org/10.1080/00220380802009217


[23]   M. Schiff and Y. Wang, “North-South and South-South Trade-Related Technology Diffusion: How Important Are They in Improving TFP Growth?” Journal of Development Studies, Vol. 44, No. 1, 2008, pp. 49-59.
http://www.tandfonline.com/doi/abs/10.1080/00220380701722282#.UrB7I_TuJc4
http://dx.doi.org/10.1080/00220380701722282


[24]   D. Herzer and O. Morrissey, “The Long-Run Effect of Aid on Domestic Output,” University of Nottingham Discussion Papers, CREDIT Research Papers, No. 09/01, Nottingham, 2010, p. 42.
http://www.nottingham.ac.uk/credit/documents/papers/09-01.pdf

[25]   M. Carkovic and R. Levine, “Does Foreign Direct Investment Accelerate Economic Growth?” In: T. H. Moran, E. M. Graham and M. Blomstrom, Eds., Does Foreign Direct Investment Accelerate Economic Growth, Institute for International Economics and Center for Global Development, Washington DC, 2005, pp. 195-220.
http://www.iie.com/publications/chapters_preview/3810/08iie3810.pdf

[26]   A. B. Ayanwale, “FDI and Economic Growth: Evidence from Nigeria,” AERC Research Paper 165, African Economic Research Consortium, Nairobi, 2007.
http://opendocs.ids.ac.uk/opendocs/bitstream/item/2943/RP%20165.pdf?sequence=1

[27]   A. Sukar, S. Ahmed and S. Hassan, “The Effects of Foreign Direct Investment on Economic Growth: The Case of Sub-Sahara Africa,” Southwestern Economic Review, 2007.
http://www.cis.wtamu.edu/home/index.php/swer/article/viewFile/54/48

[28]   J. M. Frimpong and E. F. Oteng-Abayie, “Bivariate Causality Analysis between FDI Inflows and Economic Growth in Ghana,” International Research Journal of Finance & Economics, Vol. 15, 2008.
http://mpra.ub.uni-muenchen.de/351/1/MPRA_paper_351.pdf

[29]   G. De Vita and K. Kyaw, “Growth Effects of FDI and Portfolio Investment Flows to Developing Countries: A Disaggregated Analysis by Income Levels,” Applied Economics Letters, Vol. 16, No. 3, 2009, pp. 277-283.
http://www.tandfonline. com/doi/abs/10.1080/13504850601018437#. UrBsWfTuJc4
http://dx.doi.org/ 10.1080/13504850601018437


[30]   J. Brambila-Macias, I. Massa and V. Murinde, “CrossBorder Bank Lending versus FDI in Africa’s Growth Story,” Applied Financial Economics, Vol. 21, No. 16, 2011, pp. 1205-1213.
http://www.tandfonline.com/doi/abs/10.1080/09603107.2011.566179
http://dx.doi.org/10.1080/09603107.2011.566179


[31]   G. A. Ella, “Impact of International Income, Prices and Monetary Shocks on Real Exchange Rate in Eight African Economies: An Empirical Study,” The Empirical Econometrics and Quantitative Economics Letters, Vol. 2, No. 3, 2013, pp. 41-54.
http://www.jyoungeconomist.com/images/stories/05_EEQEL_V2_N3_September_ 2013_pp_41_54_Assoumou_Ella.pdf

[32]   D. E. Thomas and R. Grosse, “Country-of-Origin Determinants of Foreign Direct Investment in an Emerging Market: The Case of Mexico,” Journal of International Management, Vol. 7, No. 1, 2001, pp. 59-79.
http://www.sciencedirect.com/science/article/pii/S1075425300000405
http://dx.doi.org/10.1016/S1075-4253(00)00040-5


[33]   W. Naudé and A. Saayman, “Determinants of Tourist Arrivals in Africa: A Panel Data Regression Analysis,” Tourism Economics, Vol. 11, No. 3, 2005, pp. 365-391.
http://mpra.ub.uni-muenchen.de/16479/

[34]   R. H. Adams Jr. and H. Richard, “The Demographic, Economic and Financial Determinants of International Remittances in Developing Countries,” World Bank Policy Research Working Paper 4583, 2008.
http://www-wds.worldbank.org/servlet/WDSContentServer /WDSP/IB/2008/03/31/000158349 _20080331082542/Rendered/PDF/wps4583.pdf

[35]   A. Aslan, F. Kula and M. Kaplan, “International Tourism Demand for Turkey: A Dynamic Panel Data Approach,” Research Journal of International Studies, No. 9, 2009, pp. 65-73.
http://mpra.ub.uni-muenchen.de/10601/1/International_Tourism_Demand_for_Turkey_ A_Dynamic_Panel_Data_Approach.pdf

[36]   M. Calì and S. Dell’Erba, “The Global Financial Crisis and Remittances: What Past Evidence Suggests?” Overseas Development Institute Working Paper 303, 2009.
http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/4408.pdf

[37]   E. Dabla-Norris, C. Minoiu and L. F. Zanna, “Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence,” IMF Working Paper WP/10/240, 2010.
http://www.imf.org/external/pubs/ft/wp/2010/wp10240.pdf

[38]   R. Jan Singh, M. Haacker and K. W. Lee, “Determinants and Macroeconomic Impact of Remittances in Sub-Saharan Africa,” Journal of African Economies, Vol. 20, No. 2, 2011, pp. 312-340.
http://jae.oxfordjournals.org/content/20/2/312.short
http://dx.doi.org/10.1093/jae/ejq039


[39]   N. Berman and P. Martin, “The Vulnerability of SubSaharan Africa to the Financial Crisis: The Case of Trade,” IMF Economic Review, Vol. 60, No. 3, 2012, pp. 329-364. http://www.palgrave-journals.com/imfer/journal/v60/n3/full/imfer201213a.html

[40]   A. Ugur, “Import and Economic Growth in Turkey: Evidence from Multivariate VAR Analysis,” East-West Journal of Economics and Business, Vol. 11, No. 1-2, 2008, pp. 54-75.
http://www.u-picardie.fr/eastwest/fichiers/art68.pdf

[41]   H. Cetintas and S. Barisik, “Export, Import and Economic Growth: The Case of Transition Economies,” Transition Studies Review, Vol. 15, No. 4, 2009, pp. 636-649.
http://link.springer.com/article/10.1007%2Fs11300-008-0043-0/fulltext.html
http://dx.doi.org/10.1007/s11300-008-0043-0


[42]   S. Ullah, Bedi-uz-Zaman, M. Farooq and A. Javid, “Cointegration and Causality between Exports and Economic Growth in Pakistan,” European Journal of Social Sciences, Vol. 10, No. 2, 2009, pp. 262-272.

[43]   C. Woodruff and R. M. Zenteno, “Remittances and Micro Enterprises in Mexico,” Graduate School of International Relations and Pacific Studies Working Paper (Unpublished, University of California, and ITESM, San Diego), 2004.

[44]   D. Yang, “International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants’ Exchange Rate Shocks,” The Economic Journal, Vol. 118, No. 528, 2008, pp. 591-630.
http://www-personal.umich.edu/~deanyang/papers/yang_migshock.pdf
http://dx.doi.org/10.1111/j.1468-0297.2008.02134.x


[45]   H. Rapoport and F. Docquier, “The Economics of Migrants’ Remittances,” IZA Discussion Paper 2139, Bonn, 2005. http://ftp.iza.org/dp1531.pdf

[46]   O. Stark and D. Levhari, “On Migration and Risk in LDCs,” Economic Development a nd Cultural Change, Vol. 31, No. 1, 1982, pp. 191-196.
http://www.jstor.org/ discover/10.2307/1153650?uid=2620192&uid=3738016&uid=2620184&uid= 2&uid=3&uid=67&uid=62&uid=5909928&sid= 21103228302963
http://dx.doi.org/ 10.1086/451312


[47]   D. Ahlburg, “Remittances and Their Impact’, A Study of Tonga and Western Samoa,” Pacific Policy Paper No.7, the Australian National University, Canberra, 1991.

[48]   R. Chami, C. Fullenkamp and S. Jahjah, “Are Immigrant Remittance Flows a Source of Capital for Development?” IMF Staff Papers, Vol. 52, No. 1, 2005, pp. 55-81.
http://www.imf.org/external/pubs/ft/wp/2003/wp03189.pdf

[49]   C. Amuedo-Dorantes and S. Pozo, “Workers’ Remittances and the Real Exchange Rate: A Paradox of Gifts,” World Development, Vol. 32, No. 8, 2004, pp. 1407-1417.
http://www.sciencedirect.com/science/article/pii/S0305750X04000762
http://dx.doi.org/10.1016/j.worlddev.2004.02.004


[50]   J. Madeley, “Transnational Corporations and Developing Countries: Big Business, Poor Peoples,” The ACP-EU Courier, No. 196, 2003, pp. 36-38.
http://ec.europa.eu/development/body/publications/courier/courier196/en/en_036_ni.pdf

 
 
Top