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Peculiarities of economic development

Towards a Capitalist Manifesto

Sung-Hee Jwa

Chapter 2 provides a description of economic development and takes a closer look at the complexity nature of development, and deliberates on implications about what the necessary ingredients for the development of a General Theory of Economic Development would be. More specifically, it compares complexity economics with mainstream economics and discusses the emergence failure of evolution and the synergy market failure of emergent development, which is referred to as market failure. The chapter addresses in depth the idea of externalities in economic analysis, which are viewed as ubiquitous, and also highlights some important differences between markets and organizations.

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Sung-Hee Jwa

Chapter 8 analyses the role of politics and political ideology in economic development. Politics is viewed as an important deciding constraint on economic development. This chapter provides a positive theory of political economy that is used to distinguish countries according to a discriminatory_egalitarian and totalitarian_democracy matrix. The chapter concludes by providing some comments on inequality.

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Producer politics: resource nationalism

The Political Economy of Conflict and Cooperation

Jeffrey D. Wilson

Chapter 4 considers resource policies in the producer countries servicing Asian markets: Australia, Brazil, China, India, Indonesia, the Gulf States, Russia, the United States and the Central Asian republics. It identifies resource nationalism, a governmental strategy to exercise control over mining and energy industries, as one of the defining features of the global boom of the 2000s. It reviews emerging forms of resource nationalism, including state ownership, nationalisations, and restrictive trade and policies, to demonstrate the high levels of governmental control that characterise regional resource markets. These forms of resource nationalism are connected to the securitisation of resources, particularly regime security in authoritarian rentier states, industrialisation strategies in developing economies, and uncertain geopolitical environments. It is argued that resource nationalism has contributed to international conflict by exacerbating resource insecurity, preventing the integration of regional markets, and undermining governments’ commitment to trade and investment liberalisation.

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Regional politics: soft-law cooperation

The Political Economy of Conflict and Cooperation

Jeffrey D. Wilson

Chapter 5 explores the interactions between producer and consumer governments by evaluating regional architectures for resource interdependence. There has been no shortage of efforts to promote resource cooperation in the Asia-Pacific, with many regional organisations (including ASEAN, APEC and their associated bodies) launching new resource security initiatives during the 2000s. However, the outcomes have been decidedly poor. None have moved from talk-shop activities to more impactful forms of cooperation, and many initiatives have either foundered due to poor compliance or been vetoed by governments outright. This is symptomatic of a ‘soft-law’ approach to resource security, where sovereignty-protective vetoes limit cooperation to dialogue and principle-setting activities. These patterns are then traced to the effects of securitisation and economic nationalism, which have meant governments are unwilling to commit to anything but low-cost (but arguably ineffective) dialogue-based responses to resource insecurity. The absence of effective cooperation means the potential benefits of regional interdependence have not been fully exploited and have left the Asia-Pacific without institutions to manage resource tensions between governments.

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Securitising rare earth minerals

The Political Economy of Conflict and Cooperation

Jeffrey D. Wilson

Chapter 8 provides a case study of a mineral resource at the heart of the ‘economic-security nexus’ in the Asia-Pacific: rare earth minerals. These are a group of metals essential for a range of applications in both the consumer electronics and aerospace/defence industries; and while not geologically rare China controls 98 percent of world production. Hitherto uncontroversial, rare earths shot to the top of the international agenda in 2010 when the Chinese government announced a series of policies which restricted supply to foreign customers. Justified by the Chinese government as an environmental protection initiative, many affected parties have alleged the policies are instead a Chinese attempt to economically blackmail the United States, Japan and European Union. The result has been an intense series of international disputes, including a frantic US rush to sponsor rare earths production ‘anywhere but China’, a series of Sino-Japanese diplomatic clashes, and a landmark dispute at the World Trade Organization (WTO) that has recast the principles of international trade law for natural resources. The rare earths dispute highlights how the securitisation of resources is multilayered, connecting domestic debates over sharing the benefits of resource exploitation to international concerns over geopolitics.

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Western extended economic development

Towards a Capitalist Manifesto

Sung-Hee Jwa

Chapter 4 overviews the so-called extended (or gradual) Western economic development experiences in Britain and Europe, and later in the United States since the Industrial Revolution. It also argues that the limited liability joint-stock company or corporation was critical in the rise of Western economic development.

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Mohammad Ashraful Mobin and Abu Umar Faruq Ahmad

Islamic microfinance provides an alternative model for a significant number of underprivileged people who are not served by conventional microfinance. In order to give access to sustainable services with a greater extent, the Islamic microfinance is in paramount need of the adoption of innovative business models and sound practices into the industry. To this end, the research seeks to propose a two-tier mudarabah model based on cash waqf as an alternative to Islamic microfinance institutions. The objectives of the study are twofold: (1) help develop and implement an appropriate business model; and (2) help make a reform in the present institutional framework for Islamic microfinance and waqf institutions. To test the feasibility and possible implication of the proposed model, this test employed cointegration, vector error correction model (VECM) and the system generalized method of moments (GMM) technique. A total number of 90 conventional and Islamic microfinance institutions are taken as a sample of the empirical study. The study finds that cash waqf-based microfinance institutions can play an important role in financial inclusion and developing socio-economic conditions of the poor and underprivileged people in society.

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Sami Ben Naceur, Adolfo Barajas and Alexander Massara

Financial inclusion has become an increasingly important concern for a vast number of countries worldwide. At the same time, a fast-growing amount of literature has emerged to examine its measurement, determinants and impacts. Governments have made the promotion of it a priority. For example, the World Bank’s 2014 Global Financial Development Report (GFDR), devoted to financial inclusion, reports that more than two-thirds of regulatory and supervisory agencies have been tasked with encouraging financial inclusion, and more than 50 countries have set formal targets. Last year, the World Bank President announced a global target of universal financial access by 2020. Defined as the share of the population who use financial services, financial inclusion has proven to be linked to desirable economic outcomes above and beyond those associated with the more familiar concept of financial depth. In this chapter, we analyse the existing country-level information on both financial inclusion and the penetration or presence of Islamic banking in order to ascertain the extent to which Islamic banking has contributed to financial inclusion. This chapter tests for a possible financial inclusion of Islamic banking relationships across a wide variety of measures. Our findings suggest a weak and tentative evidence of Islamic banking’s positive impact on some types of inclusion. This weakness in the results may be partially related to data issues, including the limited coverage of Islamic banking indicators and of financial inclusion indicators among the Organization for Islamic Cooperation (OIC) countries.

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Fadzlan Sufian, M. Kabir Hassan, Fakarudin Kamarudin and Annuar Md. Nassir

The impact of corporate governance on banking firms has been widely documented in the literature. Noticeably absent is an extensive examination of the impact of country governance on the efficiency of banking firms. This limitation is surprising, given the fact that the banking sector remains the most important channel for savings and allocations of credit in the economy. By using data on 454 Islamic and conventional banks from 19 countries offering Islamic banking and finance products and services, this chapter attempts to fill this demanding gap. We find that voice and accountability positively influence the efficiency of both Islamic and conventional banks. On the other hand, we observe the negative impact of political stability, absence of violence and control of corruption. The findings indicate that government effectiveness, regulatory quality and rule of law negatively influence the efficiency of conventional banks, but not so in the case of Islamic banks.

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Olga Krasicka and Sylwia Nowak

What attracts conventional investors to Islamic financial instruments? We answer this question by comparing Malaysian Islamic and conventional security prices and their response to macrofinancial factors. Our analysis suggests that Islamic and conventional bond and equity prices are driven by common factors. Likewise, especially in crisis years, Islamic banks have responded to economic and financial shocks in the same way as conventional banks, suggesting that the gap between Islamic and conventional financial practices is shrinking.