China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Emerging markets and a strong dollar

May 27, 2024

Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This inflow can be done in the three following ways:

¤ by receiving currency reserves via foreign direct investment (which often does not work as an available or sufficient financial source),

¤ by borrowing money in foreign currency (mostly in U.S. dollar, USD), or

¤ by selling stocks, bonds, etc to foreign investors (if such financial products exist in the emerging country and foreign demand for these papers is there).

Statistics show that emerging markets borrow the lion share of their foreign credits in USD which may be challenging in times when the American dollar is strong on global currency markets. This is actually the case. Serving existing debt in USD uses to be even much more challenging.

By the way: During a meeting the other day with American financial analysts, I heard the view that the USD historically tended to be strong when investments in research and development (R&D) in the U.S. were high. This is explained by an increasing demand for American technology stocks and also foreign action for FDI in the U.S., thus leading to a high demand for the dollar and therefore to the strengthening of the American currency. I am not quite sure about the general validity of this suggested correlation. But it can be observed that such conditions can be found these days.

Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD. However, this is not easy to achieve since USD markets function by far as the biggest global supplier of new loans, also to emerging markets. 

The ongoing situation with the strong dollar is, of course, particularly difficult for emerging countries with high indebtedness in USD. Such countries may be found in all continents – countries that are or have been reporting growing pressure on their currencies in 2024 such as the Nigerian Naira, the Egyptian Pound, the Turkish Lira, the Indonesian rupee, the Argentine peso or the Brazilian real (watch for this the following IMF table: Of course, some of these and other weak currencies of emerging markets have also been impacted by other negative factors than the strong dollar, for example domestic political ones.

At the same time, there are also countries trying to reduce their exposure to the dollar (which also can be seen in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve – but Thailand actually managed it in the past few decades. Perhaps another option may gain momentum as it is currently the case in South East Asia, i.e. trying to expand borrowing within the region at the expense of the USD.  

Conclusion: Analysts of emerging markets should watch the further development of the USD and its impact on indepted emerging markets.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

India – Modi wants to win the election and act as the voice of the South

March 26, 2024

One month from now – on April 19 – general elections will start in India and include altogether seven stages until June 1. Almost one billion people are invited to vote – 150 million people more than last time.

Opinion polls point at a new victory for current Prime Minister Narendra Mori and his Hindi right wing Bharatiya Janata Party (BJP) together with BJPs coalition partners (see my article from February 22 this year with the title “India isn’t easy to analyze and to deal with”, including comments on the economic development and challenges, Most observers expect the oppositional alliance called INDIA to weaken the position of the BJP – but not strongly enough to win.

Strengthening India’s voice of the South

There is no doubt that Modi during his assumed third mandate period aims at further strengthening India’s role as voice of the South, certainly in competition with China. Both countries appear to be quite different in their political approach vis-à-vis the southern world.

India seems to see the South in a collective view with visions of necessary common achievements in important areas such as less poverty, better health and environment but also non-violence in Gandhi’s historical spirit.

More exactly, the Indian government made the following comment in this context: ”India hosted a special virtual Summit, called the Voice of Global South Summit under the theme – ‘Unity of voice, Unity of purpose’ from January 12-13, 2023. It was a new and unique initiative that envisaged bringing together countries of the Global South and share their perspectives and priorities on a common platform across a whole range of issues…”.

India obviously strives to integrate the global South more visibly with the Western hemisphere – in line with its philosophy to see the whole world as one family (Vasudhaiva Kutumbakam).

China’s strategies on the other hand tend to base quite openly on commercial objectives, for example by producing and financing new infrastructure projects and by receiving in return access to important commodities or Taiwan issues. However, China also uses, for example, BRICS and the trade agreement RCEP as platforms for meeting the South multilaterally.

It may be interesting to see how India and China will compete in the South in the longer run. It seems to be on the cards that this competition will become fiercer.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

Science and female equality – reflections on the International Womens’s Day

March 6, 2024

The International Women’s Day (IWD) on March 8 has become a global phenomenon – widely acknowledged and celebrated. Theoretically, there is a broad understanding in most countries regarding the importance of female equality both politically, institutionally, economically, socially and psychologically. Practically, much more could be done for female equality – and should be done! Both in advanced and emerging countries.

Science has a lot to tell

In my view, science can give different explanations for the benefits of improving female equality. The following five conclusions from scientific research could be mentioned in the first place – most of them having an impact on economic growth and well-being (which is not the same):

¤  The impact of improved institutions on economic growth.
Research has shown for quite a number of years that improved institutions mean a lot to the quality and sustainability of economic growth. Nobel Prize winners such as R. Coase, D. North, E. Ostrom and O. Williamson are particularly famous in this respect. More lately, D. Acemoglu / J.Robinson, D. Rodrik and T. Persson have done extended work on the importance of institutions. Looking more closely on institutional research reveals clearly that better institutional conditions also mean improved conditions for economic growth – but also that extended female participation in these processes logically works as a driver of such desirable economic developments. Examples for progress may be better institutional conditions for female education, health, wages, and child care. 

¤  The impact of female human capital formation on economic growth.
Research has shown for quite some time (R. Lucas, R. Barro, P. Romer, G. Mankiw, etc.) that improvements of human capital formation (education) also outside the pure institutional sphere can contribute substantially to better economic growth. Consequently, when further focus on female capital formation happens, we have a widened source of economic growth.

¤  The impact of enlarged female labor supply. 
A substantial number of countries in the world have already – or will have – increasing demographic problems in the forthcoming decades (China, Japan, Russia, Germany, the Baltic countries, and a number of other European countries, see

 A major contribution to a future solution of the enormous burden of labor force shortage can most certainly emerge from an increasing female labor participation, both in volume and in quality terms. Such a development can also contribute to better international competitiveness.

¤  The impact of psychological satisfaction on productivity. 
Psychology often plays a neglected role in economic analysis, even, for example, in productivity studies for scientific work (J. Astegiano). Particularly important is the potential role of improved female labor productivity and what it means to economic growth (OECD, see

¤  The impact of better economic conditions on the society. 
Since an extended and broadened female labor market participation leads to better medium- and long-term GDP growth, chances of a stable society with good ethics should increase as well (B. Friedman). 

Conclusion – science shows the importance of women in the economy
Putting together the brief reflections above should demonstrate that there is sufficient scientific analysis that underlines the positive impact on economic developments by increasing  and improving gender well-being and improved female participation on labor markets. These processes should be considered as win-win developments – on both macroeconomic and microeconomic levels. This conclusion can be applied to both more advanced and emerging countries.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board