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Development Finance in the age of Financial Mercantilism

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  • Gianni Vaggi

    (Department of Economics and Management, University of Pavia)

Abstract

On September 2015 the UN General Assembly approved a resolution sometimes called Agenda 2030, with 17 Sustainable Development Goals, SDGs, to be attained by 2030. The achievement of the SDGs could require hundreds of trillion dollars. Financial flows to developing have greatly increased since 2000, in particular Foreign Direct Investments and remittances, but also Portfolio flows. A lot of the money seems to be available in financial market. However today international finance is characterized by Financial Mercantilism, FM. There are many similarities between the operation of the seventeen century merchants and today financial intermediaries. Resorting to notions derived from history of economic ideas the paper identifies the elements which characterize FM and which portray the role of finance in the present phase of the capitalist system. Financial Mercantilism is not the ideal setting for long-term development finance and to channel funds towards developing countries, which could be hurt by a the debt crisis similar to that experienced in the eighties. The paper shows how to mitigate the possible negative impacts of Financial Mercantilism on development finance. Policy recommendations are hinted in the conclusive part of the paper. Financing for development cannot be left to international financial markets, but it requires some specific tools and instruments. The paper briefly discusses the case of indexed bonds and contends that development finance should take place on separate markets. It is a long paper and the reader might wish to focus on some issues. If you are interested on Financial Mercantilism go to sections 3 and 4. If you are interested on financing for development focus on sections 5 and 6. The index will help. Section 1 deals with the means of financing needs the Sustainable Development Goals and with the problem of how to finance developing countries Section 2 examines the lessons which could have be drawn from the debt of the eighties. Section 3 examines the evolution in of international finance since the seventies while in section 4 there is an analysis of the main features of Financial Mercantilism. Section 5 examines the role of sovereign bonds in development finance and section 6 presents three proposals to make development finance more sustainable and more equitable.

Suggested Citation

  • Gianni Vaggi, 2018. "Development Finance in the age of Financial Mercantilism," DEM Working Papers Series 157, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0157
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    References listed on IDEAS

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    Keywords

    Development Finance; Financial Mercantilism; Sustainable Development;
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