UNIVERSITY OF BUEA

FACULTY OF SOCIAL AND MANAGEMENT SCIENCES

DEPARTMENT OF ECONOMICS

B.Sc. IN ECONOMICS

COURSE CODE: ECN313

COURSE TITLE: INTERNATIONAL ECONOMICS

AN EXPOSES ON CONTEMPORARY ISSUES IN INTERNATIONAL FINANCE AND

GLOBAL FINANCIAL CRISES

PRESENTED BY

GROUP ONE

Course Lecturer:

Dr. ETAH EWANE (Ph.D.)

December 2024
GROUP ONE MEMBER NAMES

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 TABLE OF CONTENTS
INTRODUCTION TO EMERGING MARKETS FINANCIAL DEVELOPMENT .................................... 3
EMERGING MARKET................................................................................................................... 3
FINANCIAL DEVELOPMENT ........................................................................................................ 3
THE ROLES OF EMERGING MARKETS IN THE GLOBAL ECONOMY ............................................. 3
FINANCIAL MARKETS IN EMERGING ECONOMIES ..................................................................... 4
TYPES OF FINANCIAL MARKETS ................................................................................................. 4
OPPORTUNITIES ......................................................................................................................... 5
CHALLENGES .............................................................................................................................. 6
FOREIGN DIRECT INVESTMENT IN EMERGING MARKET ........................................................... 7
ADVANTAGES OF FOREIGN DIRECT INVESTMENT ON EMERGING MARKETS: .......................... 8
DISADVANTAGES OF FOREIGN DIRECT INVESTMENT IN AND EMERGING MARKET ................. 9
CASE STUDY: GROWTH PROSPECTS AND CHALLENGES IN BRICS COUNTRIES ........................ 10
INTRODUCTION ........................................................................................................................ 10
CHALLENGES AND PROSPECTS................................................................................................. 10
CONCLUSION ............................................................................................................................ 13
REFERENCES ............................................................................................................................. 14

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INTRODUCTION TO EMERGING MARKETS FINANCIAL DEVELOPMENT

EMERGING MARKET
Emerging markets are those countries that are moving from the developing phase to the
developed phase. Some of the biggest emerging market in the world includes BRAZIL,
RUSSIA, INDIA, CHINA, and SOUTH AFRICA. These countries formed an association known as
BRICS which was created in order to improve political relationship and trade between
emerging markets.

FINANCIAL DEVELOPMENT
This is defined as a combination of depth (size and ability of individuals and companies to
access financial services) and efficiency to provide financial service at low cost and with
sustainable revenues and the level of activity of capital.

THE ROLES OF EMERGING MARKETS IN THE GLOBAL ECONOMY

1. ECONOMIC GROWTH

Emerging markets are expected to contribute about 65%of the global economic growth by
2035. They are main drivers of global growth and their performances have a significant
impact on the global economy.

2. GLOBAL TRADE AND FINANCE

Emerging market is increasingly integrated into global trade and finance network. The BRICS
economies have strong trade and financial ties with other emerging markets.

3. INVESTMENT OPPORTUNITY

Emerging markets are expected to provide richer investment opportunities than developed
economies. It also helps to attract foreign direct investment (FDI).

4. INTEREST RATE.

Emerging markets usually have higher interest rate in order to manage the rate of inflation.

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 5. SUPPLIER RESOURCES

Emerging markets are the main suppliers of natural resources such as oil, gas and minerals.

FINANCIAL MARKETS IN EMERGING ECONOMIES

A financial market refers broadly to any market place where securities trading occur,
including the stock market, band market, forex market and derivatives market. Financial
market are vital to the smooth operation of capitalist economies by allocating resources and
creating liquidity for businesses and entrepreneurs .the market make it easy for buyers and
sellers to trade their financial holdings.

TYPES OF FINANCIAL MARKETS

They are several types of financial markets namely,

 STOCK MARKETS

These are venues where companies list their shares which are bought and sold by traders
and investors. Stock markets are used by companies to raise capital and by investor to
search for returns.

 BOND MARKETS

A bond market is a security in which an investor loans money for a defined period at a pre-
established interest rate. Bonds are issued by corporations as well as by municipality’s
states and sovereign government to finance projects and operations.

 MONEY MARKETS

Typically, the money market trade in products with highly liquid short- term maturities ( less
than one year ) and are characterized by a high degree of safety and a relative lower interest
return .

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  DERIVATIVE MARKET

A derivatives is a contract between two or more parties whose value is based on an agreed
upon underlying financial assets or set of assets.

 COMMODITY MARKET

Commodity markets are venues where producers and consumers meet to exchange physical
commodities such as agriculture products, energy products, precious metals , or soft
commodities. These are known as spot commodity market, where physical goods are
exchanged for money.

Financial market in emerging economies offer a mix of opportunities and challenges, here
are some breakdown

OPPORTUNITIES

1. RAPID GROWTH

Emerging economies often experience rapid GDP growth, creating opportunities for
investment and financial market development.

2. INCREASE DEMAND

Growing middle classes in emerging economies drive demand for financial service such as
banking, insurance, and investment.

3. INNOVATION

Emerging economies can leverage technology to develop innovative financial solution such
as mobile payments and digital lending.

4. GOVERNMENT SUPPORT

Many emerging economies offer incentives and support for foreign investment such as tax
breaks and investment promotion agencies.

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CHALLENGES
Emerging economics faces several challenges in their financial market, including;

 STRUCTURAL CHALLENGES
 Underdeveloped infrastructure: Inadequate trading clearing and settlement
system can hinder market efficiency.
 Inadequate regulations: weak regulatory frameworks can lead to Market
instability and investor miss-trust
 MACRO-ECONOMIC CHALLENGES
 High inflation: high inflation rate can erode investor confidence and reduce
the attractiveness of financial market.
 Currency volatility: Exchange rate fluctuations can increase uncertainty and
risk for investors.
 Fiscal deficit: large fiscal deficit can lead to higher borrowing costs and
reduce investors’ confidence
 INSTITUTIONAL CHALLENGES
 Weak cooperate governance: Poor cooperate governance practices can
deter investors and reduce market performance
 Limited investor cooperation: limited inadequate investor protection
mechanism can increase risk of investment and reduce market participation.
Also corruptions can under mind market integrity and investor mis-trust.
 TECHNOLOGICAL CHALLENGES
 Limited Access to Technology: limited access to technology such as online
trading can hinder market participation.

Furthermore, cyber security risk, emerging economies may be vulnerable to cyber security
risk which can compromise market integrity.

 Global challenges:
 Global economic uncertainty: Emerging economy are often more
vulnerable to global economics shock such as trade wars and economy
down turns.

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  Capital Flow Volatility: Sudden stops or reversals of capital flows can
have devastating effects on emerging economies.

 Climate Change: Climate change can have significant impacts on

emerging economies, particularly those with economies heavily reliant on
agriculture or natural resources.

FOREIGN DIRECT INVESTMENT IN EMERGING MARKET

Foreign direct investment refers to an investment that is made by foreign entities,

individual in businesses, infrastructure or other ventures in another country. Foreign Direct
Investment often focuses on industries with high growth potentials such as manufacturing,
infrastructure, technology, and natural resources.

FACTORS THAT DIRECT FOREIGN DIRECT INVESTMENT IN EMERGING

MARKETS
 NATURAL RESOURCES:

Rich in resources: Emerging markets with resources like soil, gas, minerals, and agricultural
land attract FDI from multinational corporations.

Examples:

Energy and mining: Countries like Brazil, Nigeria, and Indonesia receive investments in
resource extraction industries due to their vast reserves.

Agriculture: Fertile land in emerging markets attracts FDI for food production and export.

 . MARKET POTENTIAL:

Emerging markets often have large and growing populations, including a rising middle class
with increasing purchasing power.

Effect: Creates opportunities for foreign investors to access new consumer markets and
expand global reach.

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  . COST EFFICIENCY:

Emerging markets offer lower costs for labor, production, and raw materials as compared to
developed economies. FDI investors leverage this cost to Increases profitability in labor-
intensive industries like manufacturing, textiles, and electronics. In addition, Lower
operational costs make it flexible to produce goods more competitive for both local and
global markets.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT ON EMERGING MARKETS:

 ECONOMIC GROWTH:
FDI boosts economic growth by creating jobs, transferring technologies, and providing
access to global markets.

Example: India became a global leader in software development due to FDI from
multinational companies (e.g., Google, Microsoft).

 TECHNOLOGY TRANSFER:
FDI brings advanced technology and expertise to local businesses, improving productivity
and competitiveness.

Example: In China, FDI in manufacturing brought modern production technologies, which

boosted industries like automobile manufacturing.

 HUMAN CAPITAL DEVELOPMENT

Human capital involves knowledge and competence of work force skills that employees gain
through training experience can boast education and human capital of specific country.

 CREATION OF COMPETITIVE MARKET

By facilitating the entry of foreign organization in the domestic market place foreign direct

investment help to create a competitive environment as well as break domestic monopolist.

A healthy competitive environment pushes firm to continuously enhance their processes

and product offerings, thereby fostering innovation. Consumers also gain access to a wider

range of competitive price product.

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DISADVANTAGES OF FOREIGN DIRECT INVESTMENT IN AND EMERGING
MARKET

 HIGHER COST

When investors invest in foreign countries they might notices that it is more expensive than
when goods are exported. Often times, more money is invested into machinery and
intellectual property than in wages for local employee.

 NEGATIVE EXCHANGE RATE

Foreign direct investment can sometimes affect exchange rate to the advantage of one
country and the detriment of another.

 HINDERS DOMESTIC INVESTMENT

Some foreign direct investment can hinder domestic investment because companies of
domestic countries start losing interest in expanding their company or their products

 POOR PERFORMANCE

Multinational companies have been relying on expatriates rather than training home
workers. This can be as a result of poor education and undertrained workforce.

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CASE STUDY: GROWTH PROSPECTS AND CHALLENGES IN BRICS COUNTRIES

INTRODUCTION
In an era marked by significant shifts in global economic governance, the emergence

of the BRICS bloc (Brazil, Russia, India, China, and South Africa) represents a significant pivot

towards multilateralism, offering a fresh perspective on economic integration and

cooperation among emerging economies.

The Concept of an Optimum Currency Area (OCA) within the BRICS bloc emerges as a

compelling proposition, promising to redefine economic interdependence and enhance

financial stability within this dynamic collective. This group of nations, by virtue of their

rapid economic growth and increasing geopolitical influence, presents a unique case for

exploring the prospects and challenges of enhancing economic integration, including the

ambitious prospect of forming an OCA.

Given the complex interplay of economic policies, structural diversities, and

geopolitical considerations, analysis of the Challenges and prospects of such integration calls

for a comprehensive literature review.

CHALLENGES AND PROSPECTS

The diverse natures of the BRICS economies ranging from commodity driven Russia

and South Africa to the manufacturing and service-oriented economies of China and India

Highlight the first challenge to their OCA potential. This diversity extends to economic

Indicators such as inflation rates, GDP growth, and fiscal policies, which are not

synchronized across the bloc.

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 Despite these challenges, the BRICS members have demonstrated commitment to

policy dialogue and coordination, particularly through their yearly Summit and the

establishment of cornerstone institution such as the New Develop Bank (NDB), and

Contingent Reserve Arrangement (CRA) Achieving a high degree of economic convergence,

aligning monetary and fiscal policies, and building robust financial institutions are

prerequisites that demand sustained Collaborative efforts.

Moreover, the varying levels of economic development, inflation Rates and fiscal

disciplines among BRICS nations pose significant hurdles to the immediate realization of a

common currency.

So, while proponents argue that BRICS share political objectives promote economic

cooperation, enhance infrastructure development, And boost developing nations’ global

economic exposure, others cite heterogeneity in BRICS economies, policy preferences, and

external influences as challenges to currency union viability.

The BRICS group is indeed characterized by a profound economic heterogeneity,

spanning different continents and embodying diverse economic models from resource-

driven economies to global manufacturing hubs.

This diversity extends to key economic indicators, as noted above. Despite these

disparities, the empirical review reveals an intriguing trend towards economic convergence,

driven by strategic trade agreements, Investment flows, and shared development goals

among the BRICS nations. Thus, the Analysis of the BRICS’ economic structures and policies

elucidates both challenges and Opportunities for monetary integration. While the

divergence in economic cycles and Policy responses underscores the complexity of achieving

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policy synchronization, the ongoing policy dialogues and efforts to coordinate responses to

global economic crises hint at an underlying potential for convergence.

As noted earlier, the establishment of the New Development Bank and the

Contingent Reserve Arrangement marked significant milestones in the BRICS’ journey

towards economic and financial integration. These institutions are not merely financial

mechanisms but Also platforms for policy coordination, offering the BRICS an opportunity to

align their Monetary and fiscal policies more closely. Such synchronization is pivotal for an

OCA, as it facilitates a unified response to asymmetric shocks and enhances the stability of

the proposed monetary union.

Furthermore, the BRICS’ collective initiatives in infrastructural development and

sustainability projects underscore a shared commitment to long-term economic objectives,

reinforcing the bloc’s potential for deeper integration. The strategic alignment of policies,

particularly in response to external economic shocks, is critical for laying the groundwork for

a successful currency union The motivation behind this inquiry stems from the pressing

need for a global financial Architecture that better accommodates the interests and needs

of developing countries, especially those of the Global South.

1) The current global financial architecture, dominated by the US dollar, poses

limitations, especially in addressing the challenges faced by emerging and developing

economies.

2) Many of these countries grapple with the challenges of fulfilling debt obligations

while some are at considerable risk of defaulting on their loans. According to the United

Nations Conference on Trade and Development (UNCTAD), in 2021 global debt reached and

all-time high of $303 trillion, representing a 10% increase over 2020. The UNCTAD report

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also highlighted the fact that 60% of low-income countries were facing the imminent threat

of debt distress.

3) One must note that the global economic landscape in 2020 was significantly

impacted by the COVID-19 pandemic, resulting in an overall reduction in economic growth

rates worldwide.

4) The international monetary system thus faces multiple challenges, including the

increasing burden of debt, the recurrence of financial crises, and the sluggish pace of

reform. In addition, the dominance of the US dollar in international transactions and its

implications for global debt dynamics, trade imbalances, and financial stability underscore

the relevance of exploring alternative models of economic cooperation and integration.

5) These challenges have led to a renewed interest in currency unions to promote

economic integration and stability in the global financial landscape. This article, therefore,

delves into the discourse surrounding the BRICS’ potential to contribute to a more equitable

and efficient global financial system, through the lens of optimum currency area theory.

CONCLUSION

This article presented a comprehensive literature analysis of the prospects and

challenges of BRICS economic integration, with particular reference to the complexities

surrounding potential common currency establishment among these diverse nations. While

significant economic diversity and policy disparities exist within the BRICS, there’s a trend

towards convergence driven by increasing trade linkages and efforts to coordinate policies.

The establishment of institutions like the New Development Bank (NDB) and the Contingent

Reserve Arrangement (CRA) signals the BRICS’ commitment to economic stability within the

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bloc, laying the groundwork for potential common currency realizations. If indeed the BRICS

aim to establish an OCA, policymakers need to priorities initiatives fostering trade

integration, infrastructural connectivity, and financial stability while embracing flexible

monetary cooperation frameworks.

This analysis acknowledges limitations in fully capturing the complexities of BRICS

integration due to economic, political, and social heterogeneity, as well as the dynamic

nature of global economic conditions. Indeed, this work’s reliance on the OCA theoretical

framework and existing empirical studies might lead to analytical neglect of some relevant

factors affecting the BRICS’ potential as a currency union. These aspects underscore the

necessity for future research that delves into these complex interrelations and emerging

trends. In particular, understanding the specific types of shocks experienced by each

country and their implications for policy coordination and effectiveness would provide

valuable insights regarding the viability of a BRICS currency union.

REFERENCES
 CASE STUDY
 SOUTH AFRICA JOURNAL OF INTERNATIONAL AFFAIRS
 MARIDA NACH AND RONNEY NCWADI
 NELSON MANDELA UNIVERSITY GQEBERHA SOUTH AFRICA
 2024 VOL 31
 OTHER REFERENCES
 CORPERATE FINANCE I INSTITUTE ‘COM
 WIKIPEDIA

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