Low Degree of Macro-Economic Volatility - BRICS Nations

In a study we observe that the positive growth effect on the real sector is reaped out from the financial integration in terms of integration of the financial markets (stock markets) among the BRICS nations. The fundamentals of the economies in the sample are attracting the foreign investment from among the nations in sample. Financial integration allows the capital to be invested in the market which is to give the highest return by reducing the barriers, hence the investors have the incentive to invest and consequently the entrepreneurs also gets the incentive in investing technological innovation. The ever expanding cross country capital flow in equity market is improving the production structure of the economies and influencing the growth of the real sector positively. Factors that fosters the investing in BRICS nations is the low degree of macro-economic volatility relative to the rest of the world. The growth rate of Brazil, China, South Africa and India is quiet high relative to the global market growth rate, especially aftermath of the crisis of 2008.

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The global financial market has become very synthetic in terms of volatility. The member nations of BRICS nation have much more transparency of information and less asymmetry of information about the economy fundamentals and with regard to projects they are investing, since the financial intermediaries have easy access to all kind of information regarding the projects and economy fundamentals. So to reduce the uncertainties of investment the investors of BRICS nation are opting for cross-country investment within and between the BRICS nation. The positive impact of economic growth is found from the analysis, implies that the fundamental endowment of the BRICS nations are almost equal therefore, consequently the growth is taking place in terms of equalization of factor prices.

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Mr. Panchanan Das
Professor of Economics, University of Kolkata
Kolkata, West Bengal, India

Financial Integration and Real Sector Growth in BRICS Nations

by Panchanan Das
 
India - The 1980s and 1990s were characterized by substantial institutional change in financial markets that significantly increased global financial integration. These changes resulted in the emergence of new issues that were not present so far. As a result, we have seen a noticeable increase in the size and variety of studies dealing with these issues. This article is restricted to look into some interrelated issues on financial integration among the BRICS nations. BRICS is an association of five major emerging economies: Brazil, Russia, India, China and South Africa. These five countries together contributed roughly 1/5 of the GDP to the world economy with nearly 40% of the world population in 2015. Initially it was BRIC but later South Africa joined the family to be newly termed as BRICS. The immediate aftermath of the 2008 financial crisis didn’t had much effect on their economies as the emerging powers continued to grow.
Related: What is the state of the BRICS economies?

Image: REUTERS/BRICS Photohost/RIA Novosti

The BRICS countries have little in common in political terms and the degree of openness with regards to the level of globalization and liberalization. The unique and unifying factor is the scale of their economies in terms of gross domestic product (GDP) and their sustained growth rates in the past two decades. The shift from intensive technique to extensive technique way of extracting materials lead to a paradigm shift in development. Although there exists a huge number of studies that concentrate on measuring the level of financial integration and focusing on the issues related to it, there are relatively small number of studies that concentrated on these nations. However, the changing power structure of global economy calls for more attention to the emerging giants. The BRICS is a renewed global partnership for development. The BRICS member countries have converged to work on some common goal and priorities. Being the fastest growing and the largest emerging giants, the BRICS nations account more than half of the global population and contribute majorly in the world GDP growth. Daily changes, 10-year and 25-year averages of the main stock market indices like IBOVESPA, BSE Sensex, RTSi can be followed on www.glarius.com
Related: BRICS Face Their Own Challenges While Meeting As A Bloc

Mr. Panchanan Das is an Economics Professor at University of Kolkata Kolkata, West Bengal, India