American Journal of Economics

p-ISSN: 2166-4951    e-ISSN: 2166-496X

2018;  8(1): 47-68

doi:10.5923/j.economics.20180801.07

 

Preserving the Future and Global Trade Relations: Impacts of Recent Global Developments

Marianne Ojo (PhD)1, Jim Di Gabriele (PhD)2, Sana Moid (PhD)3, Meeta Ganguly (MBA)3, 4

1George Mason University, USA

2Montclair State University, USA

3Amity Business School, Amity University, Lucknow, Uttar Pradesh, India

4Welingkar Institute of Management Development & Research, Mumbai, India

Correspondence to: Marianne Ojo (PhD), George Mason University, USA.

Email:

Copyright © 2018 Scientific & Academic Publishing. All Rights Reserved.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

Abstract

As the United States looks set to order an imposition of tariffs on aluminum (10%) and steel (25%) imports during the first week of March 2018, the announcement does not only appear to be unsettling financial markets, but also triggering further questions relating to whether the announcement signifies the era of protectionist stances – as well as repercussions over possible retaliations by its closest trading partners - and whether the intended aims of such tariffs – namely the protection of jobs, will eventually be countered by detrimental impacts to technological firms and industrial companies. How do we address challenges presented by unequal distribution of the benefits of globalization? Such that the imposition of unduly high tariffs – as well as anti-dumping measures, do not offset positive gains to be derived from trade liberalization and globalization. This special issue highlights progress, rationales and developments attributed to world trade rounds such as the Uruguay and Doha trade rounds – as well as challenges and shortcomings of these rounds. It also aims to highlight and address challenges presented to global trade relations as a result of the failure of central bankers to appreciate fully the consequences and impact – as well as contribution of emerging economies to all time low levels of inflation. This has not been demonstrated in the build up to the 2008 Financial Crisis, but also prompting the introduction of Basel III regulations – and particularly the 2010 Basel leverage ratio.

Keywords: Trade relations, Information technology, Bilateral agreements, Shadow banking, Crypto currencies, Sustainable development, Shadow banking regulation, Current account deficit, Multilateral trade agreements, Bilateral agreements, Doha Trade Round, Tariffs, CETA (EU-Canada Comprehensive Economic and Trade Agreement), Minority government, NAFTA

Cite this paper: Marianne Ojo (PhD), Jim Di Gabriele (PhD), Sana Moid (PhD), Meeta Ganguly (MBA), Preserving the Future and Global Trade Relations: Impacts of Recent Global Developments, American Journal of Economics, Vol. 8 No. 1, 2018, pp. 47-68. doi: 10.5923/j.economics.20180801.07.

Article Outline

1. Introduction
    1.1. Boeing -Bombardier Trade Dispute: An Indication of the Growing Importance of Regional Agreements?
    1.2. Impacts of Regional and Bilateral Trade Agreements on other Global Trading Partners
2. Background and Literature Review on the Modern Economy and Emerging Economies’ Impact on Globalization (Part I)
    2.1. Why the Knowledge Based Economy2 is the Modern Economy
    2.2. Knowledge Base and Knowledge Resources
    2.3. Transferable and Non Transferable Skills
    2.4. Aims and Objectives of this Section
    2.5. The Educational Sector
    2.6. Main Issues: Federal Financial Aids: Has this Really Exacerbated the Problem of “Spiraling Costs and Declining Value” in Higher Education?
3. Background and Literature Review on the Modern Economy and Emerging Economies’ Impact on Globalization (Part II)
    3.1. Diamonds and “the Golden Flute”8: From the Golden Age of Prodigies and Geniuses to the Knowledge Based Digital Economy
    3.2. Prodigies, Inventions and Discoveries
4. Future Recommendations
    4.1. Engaging Non Governmental Organizations and Actors in Sustainable Development (I)
    4.2. Engaging Non Governmental Organizations and Actors in Sustainable Development (II)
    4.3. Aims and Objectives of this Section
    4.4. Contribution to the Literature
    4.5. Issues to be Addressed
    4.6. Suggestions and Further Research Recommendations
5. Addressing Regulatory and Monetary Policy Issues
    5.1. Unregulated Financial Markets and the Shadow Banking Narrative: China, India and the United States9
    5.2. Background to the Literature
    5.3. What Contributed to the Rise of Shadow Banking in China?
    5.4. Types of Shadow Banking Products and Its Source of Origination
    5.5. Why Shadow Banking in China Needs to be Reined in
    5.6. Us vs the Chinese Shadow Banking System
    5.7. Shadow Banking in the Indian Context
    5.8. Issues and Problems to be Addressed
    5.9. Financial Performance of NBFCS’s
    5.10. NBFC & Private Equity Funds
    5.11. Interconnectedness & Concerns
    5.12. Further Recommendations and Future Areas for Research
6. Conclusions
7. Further Comments
ACKNOWLEDGEMENTS
About the Contributors
Notes

1. Introduction

1.1. Boeing -Bombardier Trade Dispute: An Indication of the Growing Importance of Regional Agreements?

“………in the long run, the lack of commitment to multilateral trade that sank the Doha round this week, will also start to corrode the trading system as a whole…….
America, the animating spirit behind earlier trade rounds, declared that a bad deal was worse than no deal at all – and meant it…. The underlying rationale of unilateral trade liberalization had been buried and forgotten long ago.” (The Economist, 2006a)
The Uruguay and Doha trade rounds of agreements, do not only accentuate the difficulties of multilateral trade agreements, but also highlight the growing importance of regional agreements. In a phase where new territory is being experienced – particularly with the need for the United States to address its current account deficit, will it be willing to compromise in any deals involving America’s interest – in favor of diplomatic relations or will it stick to the widely held principle in Washington that “no deal at all is better than a bad deal”? Or will the United Kingdom’s involvement in the present trade dispute involving Bombardier and Boeing bring about an unprecedented and unexpected turn in events?
This article aims, amongst other objectives, not only to contribute to the literature on the topic in accentuating how recent global developments such as Brexit and snap elections in the United Kingdom have altered trade relationships, but also highlight broader repercussions of regional agreements and their growing popularity in different jurisdictions.

1.2. Impacts of Regional and Bilateral Trade Agreements on other Global Trading Partners

Power of regional agreements and alliances.1 To what extent do regional trade agreements impact relationships with other trading partners? For instance current negotiations on the re drafting of NAFTA, commitments between parties involved and considerations which may impact commitment to certain obligations?
Further, it appears evident that UK interest in the Bombardier-Boeing dispute would not have been so prominent and necessary if there had been no minority government – a scenario which impacts and determines the ability of the present government to successfully pass legislation. The involvement of Northern Ireland clearly impacts the relationships involved.
Facts
- In 2016, Canadian firm Bombardier won an order to supply up to 125 C-Series passenger jets to US airline Delta. The wings for the C-Series are made at Bombardier's Belfast plant. However, rival aircraft firm Boeing has complained to the US authorities that the deal was unfairly subsidised by the Canadian state. Boeing has also complained about a UK government loan made to the Bombardier plant in Belfast (BBC, 2017).
The US Department of Commerce is due to make a ruling later this month. It could hit Bombardier with punitive tariffs.” (The Economist, 2017a)
It is however, not the first time that airlines have constituted the matter of key trade disputes:
- In 2010 June, the WTO ruled that the European Union had paid illegal subsidies to aircraft giant Airbus after the US lodged a complaint in a long-running dispute between the EU and US.
- In 2010 September, leaks of WTO report were highlighted which indicated it would order more than $20bn of cuts in US government subsidies to the Boeing aircraft manufacturer (BBC, 2012).
The world is currently experiencing a phase where greater engagement in multilateral talks - and more importantly, effective platforms for reaching multilateral agreements, is needed. Even though it was highlighted that the Doha trade round’s “most notable accomplishment” was that it did not collapse as previous gatherings in Seattle in 1999, and Cancun in 2003, it was also conceded that as regards “issues at the heart of the Doha trade talks”, namely (see The Economist, 2005): i) reduction of farm tariffs, ii) freeing trade in industrial goods and iii) proving greater access to services markets, virtually no progress was made.
“In their Nairobi Declaration, ministers cited the “pre-eminence of the WTO as the global forum for trade rules setting and governance” and recognized the contribution the rules-based multilateral trading system has made to the strength and stability of the global economy.
“We reaffirm the need to ensure that Regional Trade Agreements (RTAs) remain complementary to, not a substitute for, the multilateral trading system,” ministers declared, adding that the WTO’s Committee on Regional Trade Agreements (CRTA) would discuss the systemic implications of RTAs for the multilateral trading system and their relationship with WTO rules.” (WTO, 2015)
Would Theresa May have been in a completely different position or reacted differently a year ago – when she was not dependent on DUP votes from Northern Ireland? Even though the ongoing dispute impacts about 4000 jobs in Northern Ireland, the present stance appears to be controversial – particularly given the timing of many related (and probably sensitive) events – particularly NAFTA renegotiations. Whatever the case, it will be very interesting to observe developments that take place in the coming weeks – whether there is reaffirmation or non reaffirmation of the current notion about the impact and influence of regional agreements – as well as the United States’ level of commitment to domestic policies and addressing its current account deficit.

2. Background and Literature Review on the Modern Economy and Emerging Economies’ Impact on Globalization (Part I)

2.1. Why the Knowledge Based Economy2 is the Modern Economy

It can indeed be argued that there is no substitute for education – particularly in view of its contribution to economic development in a world where global leaders’ economies currently thrive on information, technology, innovation, through the media of the internet for information exchange – a phenomenon that has generated huge competitive advantages for these economies.
“Knowledge is now recognized as the driver of productivity and economic growth3, leading to a new focus on the role of information, technology and learning in economic performance.” (OECD, 1996 page 3)
In certain economies such as those in South East Asia, based on reports, “in most of the region, shortages of qualified skilled workers threaten to impede transitions through middle income – with the Philippines, constituting an exceptional case where growth in the supply of skills has long exceeded expansion of domestic demand.” The report also highlights the importance of governments investing in education way ahead before demand exceeds supply.4

2.2. Knowledge Base and Knowledge Resources

Knowledge sharing, knowledge transfer – as well as channels, and continuous updating and acquisition of knowledge constitute vital sources of knowledge bases. The human capital as vital resource through which information technological channels can help facilitate the transfer and acquisition of new, relevant and crucial information – eliminating or updating applicable data sources, constitutes fundamental rationale for training programs, investment in technology and innovation – all of which are considered vital towards economic growth and development.

2.3. Transferable and Non Transferable Skills

Whilst some skills can be learned, unlearned or updated, some skills are not as transferable. This provides even greater justification for the retention of specialized5 skills and non transferable skills. Such skills being considered absolutely essential to the growth of an economy – such that other jurisdictions experiencing shortages in those skills are willing to expend more costs than may be necessary in acquiring such non transferable (or non easily transferable) skills.
Various sectors such as the medical sectors, IT sectors thrive on skills and expertise derived from practical training – skills which can only be acquired through consistency and practice – and particularly real life scenarios and not just text book acquisition. Of even greater significance are increasingly sophisticated machinery and technological equipment required to operate and effectively execute such skills. In other words, human capital resource is not the only knowledge base required – but also technological know-how – even as technological advancements necessitate updating of previously acquired skills. Knowledge spill-overs are not only important from this perspective – but also from the perspective of the retention of such skills since economies of scale imply that significant costs will be incurred where priceless skills and technical expertise derived from numerous years of training and investment in an employee, need to be re-learned and acquired by a new employee.

2.4. Aims and Objectives of this Section

- To identify as well as investigate the foundational economics of higher education with respect to both the demand and supply sides of higher education as well as the internal organization and ownership structures of higher education and the incentives those institutions create.
- To investigate the rationales (if any) for using competition, including competition between different forms of organization as a device for reducing cost and increasing the quality and relevance of higher education in the modern era.
- To investigate and ascertain how far students are willing to compromise value (and even guaranteed completion of studies) in situations where scholarships provide the only alternatives for acquiring a higher education qualification.

2.5. The Educational Sector

Having considered the benefits of transmission channels, as vital components of knowledge transfer and acquisition, the ultimate sources and pinnacles through which such learning processes are nurtured, sustained – as well as provided formidable sources of foundation should not – and cannot be ignored. Success and investment in higher education – as well as a determination of grants or funds allocation, should not only be judged according to present results, capabilities and potential of applicants, but should also take into consideration, past education – foundational education resources, as well as key and vital personal attributes which cannot be easily acquired at latter stages of the educational process.
For such reasons, it needs to be added that whilst those invaluable sources and channels of knowledge, namely teachers, should be provided with more incentives and rewarded accordingly for their efforts, investment in education at earlier stages of the educational process should also be accorded due priority. Early discovery of talents, non transferable skills provide greater opportunities for development, consolidation of acquired and complementary transferable skills which shape the landscape and direction in terms of the knowledge acquisition process. In several countries, it is commonly the case that special schools for gifted or talented pupils are established as a means of cost effective targeting processes whereby investment in such students – through government assisted grants, ensures that such resources are managed, retained and directed in the most efficient and effective manner. Whilst arguments also persist in relation to the “isolation” of such talents, scholarships and awards also continually serve to ensure that resources are allocated in an efficient manner where effective screening processes have been undertaken to identify sources of knowledge and resource generating potentials for the economy.
In light of the above, it can generally be concluded that some skills in certain sectors6 are substitutable whilst others “objectively” have no substitutes. And whilst certain sectors may appear to be of less significance than others, human attributes, personal and professional skills are also unique to an individual – in other words, such attributes cannot be learned of transferred in a manner of form to replicate the attributes of another valued employee. Personal – as well as professional skills, all complemented through essential training programs, serve to ensure that the values attributed to knowledge base also take into consideration the nature of products or services being provided.
Location – particularly in respect of neighboring countries, is also considered to impact the pace at which technological skills can develop – as well as the growth of different sectors.7

2.6. Main Issues: Federal Financial Aids: Has this Really Exacerbated the Problem of “Spiraling Costs and Declining Value” in Higher Education?

There is currently not enough collaboration between government and potential employers (via university career centres to guarantee that the best students – with financial aids are able to secure well paying jobs to pay off their loans – following graduation). Guarantees should be signed (preferably prior to completion of studies) – such that students are not only encouraged to apply for certain levels of funding, but also given incentives to perform well in their exams. Not enough incentives at present for many to go into higher education today – particularly those who are well aware that they can secure good paying managerial positions – even with just A levels. Why waste time in further education – only to graduate with high debt levels? More students – and potentially those brilliant but not privileged enough to afford their funding, would be more encouraged if some assurance or guarantee were provided that they would secure jobs which would enable them to pay off their tuition fees.
Quality and value for money. How far are students willing to compromise value (and even guaranteed completion of studies) in situations where scholarships provide the only alternatives? Widely and frequently the case that those with adequate sources of income – guaranteed income to ensure that they do not only address any unexpected level of expenditure, but are able to do undertake further education comfortably – without recourse to “over time” or extra hours from unrelated paid income, are not impacted by time-pressures or “distractions” which may ultimately jeopardize the entire program.
With undergraduate studies, it is also frequently the case that a “year out” is taken (which delays the program by a further period) as a means of working to pay back student loans or overdrafts during that period. Where employment is found within such time period, and the student is still focused enough and has the desire to complete the studies, then investment in education is not wasted after all. However there are also many cases where students simply apply for grants, scholarships or funding – as alternatives or temporary employment (till something better turns up) or worse still, where a student takes a year out initially for the purpose of funding student loans, and then is distracted by the income received, doesn’t want to lose the job – particularly if the employer has provided no guarantee that it will be waiting after graduation, and therefore decides to abandon the entire program altogether.
In the above cases, students are usually screened before being granted funding or scholarships. Provisions for more stringent and binding agreements between funding authorities and those in receipt of grants should be in place to ensure that the terms of the agreement – as well as expected outputs and expectations, are delivered (on time) – otherwise it would be a wasteful exercise for both parties.

3. Background and Literature Review on the Modern Economy and Emerging Economies’ Impact on Globalization (Part II)

3.1. Diamonds and “the Golden Flute”8: From the Golden Age of Prodigies and Geniuses to the Knowledge Based Digital Economy

Information sharing, as a means of resource generating capabilities – as well as mitigating information gaps which present challenges to the development of innovative techniques, has also been facilitated through information technology, the rise of the digital economy and resources which avail from the rapidly advancing era of information technology.
To what extent are our creative abilities still motivated and stimulated? Can an unhealthy balance and level of competition serve as a deterrent to constructive innovation? This paper attempts to investigate – as well as appreciate the role of information technology in generating economic stimulus and development – particularly in a world where budding entrepreneurs and innovation constitute key elements in addressing poverty alleviating concerns and initiatives. It also aims to highlight why, whilst certain geniuses may still exist, it is certainly evident that the current environment does not really stimulate or generate the same enthusiasm or kind of magical revolution that took place during the Golden Age.
Since the trend of creative uniqueness and the ingenuity and magic of music and art, the past decades and centuries have been characterized by increased and shared innovativeness through knowledge and information sharing platforms which have been facilitated by partnerships, collaborations, which in a sense, cannot be criticized where objectives and aims all focus on the common goal and initiative of eliminating information gaps as a means of generating ground breaking ideas and solutions.
Information sharing, as a means of resource generating capabilities – as well as mitigating information gaps which present challenges to the development of innovative techniques, has also been facilitated through information technology, the rise of the digital economy and resources which avail from the rapidly advancing era of information technology.
Diamonds and prodigies are not only gifts which are distinguishable on the basis of the depth of knowledge and efforts required to reveal the true potential of such phenomena, they are also evidential of the changing nature of purposes for which endowed knowledge, resources and transferable/non transferable skills are implemented.
Indeed a diamond could remain the raw product of carbon till essential scientific and technological know-how is incorporated to extract, refine and manufacture the finished product. In other words, it could lie dormant, undiscovered for years or even, eternity. Prodigies however, cannot evade discovery because they live and breathe the essence of their being. Even with scientific geniuses, certain years may evolve before ground breaking discoveries are made – if ever the necessary scientific knowledge, technological facilities, or even the inspiration, exist to facilitate such discoveries.
According to the OECD,
- “New growth theory” reflects the attempt to understand the role of knowledge and technology in driving productivity and economic growth. In this view, investments in research and development, education and training and new managerial work structures are key (1996:7).
Further, it is added that “in addition to knowledge investments, knowledge distribution through formal and informal networks is essential to economic performance - knowledge increasingly being codified and transmitted through computer and communications networks in the emerging “information society” - with tacit knowledge (including the skills to use and adapt codified knowledge, which underlines the importance of continuous learning by individuals and firms) also constituting a vital and essential requirement.

3.2. Prodigies, Inventions and Discoveries

Whilst these are also distinguishable in the sense that ground breaking discoveries and inventions, synonymous with scientific breakthroughs have required investments of time, knowledge and innovation, innovation (as well as creativity), is more synonymous with modern technology and information resources which have served to bolster more modern technological breakthroughs and advancements.
How much already inherent knowledge or “transferable skills” a prodigy or genius requires in other to demonstrate such infinite measure of unparalleled resources can be best illustrated through the works of musical geniuses such as Mozart – who from the age of three, not only performed and composed for single, but multiple instruments.
Indeed with prodigies, their natural endowed potential, inherent exceptional capabilities and “gifts”, to a larger extent, are principally and primarily often non transferable.
Whilst prodigies still exist in the modern world – notably in sports like tennis and golf, there is also a growing trend and realization that inventions and discoveries through which many “non geniuses” made record Nobel winning breakthroughs, are also being matched by technological advancements which are not targeted at preventing an epidemic, but rather at securing national defenses.
With many innovative, technological advancements – also coupled with increased generation of wealth through such informational resources, it would be expected that many of the world’s problems – synonymous with poverty and lack of education – as well as ‘so called problems” of more ancient times, namely lack of technological and medical facilities, would gradually be resolved. Whilst progress has been made in several respects and areas, one of which includes Corporate Social Responsibility, it appears that further initiatives, focus and driving forces behind certain technological advancements have more competitive based goals and agenda.
Which is why modern inventions and discoveries still targeting poverty eradication – as well as peace promoting initiatives, continue to serve as the most valuable sources of innovation in a current global climate which is most in need of such resources.
Technological advancements are indeed worthy of praise for having made the lives of many, much more comfortable. However, some would also argue that such comfort has given rise to a level of unconscious complacency and a lax attitude in facilitating and stimulating certain areas which would otherwise have been compelled to reason and undertake certain tasks on their own.

4. Future Recommendations

4.1. Engaging Non Governmental Organizations and Actors in Sustainable Development (I)

Amongst several initiatives aimed at contributing to current and present literature on the topic of sustainable development, this section of the Special Issue aims to highlight why anticipated and expected success was not generated as expected in previous protocols, conferences and climate conventions such as the Kyoto Protocol. Major and fundamental challenges to environmental sustainability – expanding beyond the scope of traditional concerns which are affiliated to free trade.
Further, it aims to illustrate how the concepts and definitions attributed to the term “ sustainable development” has expanded over the years to embrace more concepts and actors which were not catered for in original concepts and definitions – as well as their relevance to the evolving need to embrace non governmental actors and organizations in achieving sustainable development.
According to a report by the Economist (2006:53), the practice of offsetting carbon emissions is not only increasing, but also becoming popular amongst various groups which include charities, non governmental organizations, firms, community groups, and international agencies such as the World Bank. It defines offsets as a process which occurs where “one individual or organization pays another to reduce the emission of green house gases (methane and carbon dioxide accounting for the greater degree of the entire composition) on their behalf.” However, the practice of offsets are also opposed – particularly in relation to their levels of effectiveness. In particular, forestry offsets – considered to be highly controversial, have been subjected to independent standards which have been developed by NGOs, to determine whether they really reduce carbon emissions (2006:54).
As already highlighted under the introduction to this section of the Special Issue, the section aims to address such issues as
- Why anticipated and expected success was not generated as expected in previous protocols, conferences and climate conventions such as the Kyoto Protocol;
- Major and fundamental challenges to environmental sustainability – expanding beyond the scope of traditional concerns which are affiliated to free trade.
- How the concepts and definitions attributed to the term “sustainable development” has expanded over the years to embrace more concepts and actors which were not catered for in original concepts and definitions – as well as their relevance to the evolving need to embrace non governmental actors and organizations in achieving sustainable development.
This section (parts 1 and 2) aims to contribute to the literature on the preservation of the environment – as well as sustainable development. It will do so by:
- Highlighting why the engagement of non governmental organizations and actors is essential and necessary in efforts aimed at facilitating sustainable development.
- Recommending other means, in addition to those indicated (for example, offsetting of greenhouse gases), whereby sustainable development can be facilitated by non governmental organizations and actors, namely entrepreneurship programs.
- More specifically, it aims to propose more effective measures whereby non governmental actors and organization can be efficiently engaged in reducing carbon emissions, as well as
- To accentuate the relationships between environmental agreements – as fora/platforms for facilitating goals of sustainable development – as well as trade relations, and finally,
- Propose regulations and standards whereby sustainability can be initiated and achieved.
In consolidating on previous literature on the topic and with particular reference to these chapters which can be found in the above mentioned volume (Lafferty, W.M. (2006). Governance for Sustainable Development: The Challenge of Adapting Form to Function. Edward Elgar Cheltenham UK, Edward Elgar Publishing Inc, USA):
i) Management by objectives and results: comparison of Dutch, Swedish and EU strategies for realizing sustainable development L. J., Lundqvist,
ii) From Environmental Protection to Sustainable Development: The Challenge of Decoupling through Sectoral Integration, W.M. Lafferty.
This section of the Special Issue aims to address such issues as
- Why anticipated and expected success was not generated as expected in previous protocols, conferences and climate conventions such as the Kyoto Protocol;
- Major and fundamental challenges to environmental sustainability – expanding beyond the scope of traditional concerns which are affiliated to free trade.
- How the concepts and definitions attributed to the term “sustainable development” has expanded over the years to embrace more concepts and actors which were not catered for in original concepts and definitions – as well as their relevance to the evolving need to embrace non governmental actors and organisations in achieving sustainable development.
Through a consideration of issues related to accountability and gaps in literature related to free trade arguments and environmental issues. It will also consider “inconsistencies and inadequacies of policy prescriptions” – as highlighted by Lele, S. (1991). “Sustainable Development: A Critical Review” World Development, Vol 19 No 6 pp 607-621.
Baeckstrand adds (2008:486-487):
- With respect to accountability and stakeholder dialogues, the multilateral process lacks representative and electoral mechanisms of internal accountability.
Further, she adds that if this were even not the case, that the numerous varieties of groups with different internal structures – as well as lines of communication and operating cultures, would make formal and consistent mechanisms of internal accountability difficult to establish – as well as to enforce. In this respect, she thereby advocates external accountability mechanisms as being more suitable, in many ways, to the process of UN sustainability governance and that in view of increased demands by non state actors for external accountability of governments and intergovernmental organizations in this age of globalization – with internal accountability of various stakeholder groups (which claim to represent public interest), the critical question “to whom are these different stakeholder spoke persons responsible?”, needs to be addressed.
Lele (1991) highlights the following as reasons attributed to such inconsistencies: adding why “the SD debate and policy prescriptions regarding international trade continue to be fundamentally flawed”, and he lists the following (1991:616, 617):
- The need to ensure a truly equitable basis for exchange by restructuring the international monetary system is completely ignored
- That there seems to be a wide consensus across all political and intellectual boundaries that free trade is crucial to promoting SD – to which he adds that the WCED report cites protectionism as a major impediment to sustainable development (WCED, 1987:83).
- With reference being made to McRobert (1983) and the Free Trade Agreement between the United and Canada, it is also added that, “economics research on trade policy has studiously ignored the massive hidden environmental externalities (in the form of pollution and climate change of) transportation” inherent in international trade.
Hence he advocates the need for greater emphasis and focus on sustainable agriculture and tropical forests (addressing tropical deforestation).
However, the second part to this article will highlight and illustrate why the engagement of entrepreneurship start ups are not only considered a more effective means of engaging non actors in the sustainable development process but also its relevance in contributing to a broader scope of the meaning to be attributed to the concept of sustainable development. Such a concept being frequently regarded as embodying, primarily, measures aimed at addressing deforestation and environmental pollution.
Main Issues and Focus of Study
The following areas were identified as areas constituting new issues and elements – as well as contrasted to agriculture being an area which had previously generated issues (see Kleen: 2008 page 10) in trading and negotiating rounds.
Challenges to progress in negotiating rounds, hence, also arise from the inability for negotiations to be facilitated at a greater pace at a level involving significantly higher degree of multilateral involvements – hence the need for more effective negotiating partners and actors. Bilateral and regional alliances appear to have greater effectiveness in achieving their targets, goals and objectives in terms of generating less communication and expectation gaps.
According to Kleen (2008:19):
- Since the start of the WTO in 1995, an increasing number of member countries, often as a result of a lack of resources, have turned to specialized NGOs for assistance in undertaking research and preparing negotiating positions on specific issues - one example from the Doha Round illustrating this being cited as the situation in 2003 when four LDC countries demanded the elimination of cotton subsidies.
- That based on a then recently issued World Trade Report 2007 from WTO, the original hesitation and suspicion among most members with respect to the role of NGOs has been replaced by a more constructive relationship and that through closer bilateral cooperation with delegations, the NGOs have succeeded in influencing the Doha agenda more effectively than would have been possible through established institutional channels like the WTO Secretariat.
- That two areas where input from the NGOs has been crucial are the negotiations on fisheries subsidies and the environment chapter.

4.2. Engaging Non Governmental Organizations and Actors in Sustainable Development (II)

Knowledge transfers and spillovers contribute incredible sources of human capital which add value to global value chains. This paper will also hence, seek to explore how emerging economies such as India, are developing such knowledge and value chains in enhancing local communities – as well as what more could be done to improve such transfer of knowledge resources. Entrepreneurship programs constituting value means whereby knowledge transfers can be facilitated. Hence this research will also highlight how vital information relating to environmental accounting practices can be quantified, disclosed and reported – as a means of facilitating better accountability mechanisms and contributing to the local and broader economy as a whole.
Sustainable development is becoming popular in different countries of the world, including India, realizing the importance of ecological requirements for economic development. Accounting is no longer confined to description of financial performances but considered as one of the most important services of society. The ecological role of corporate sectors responsible for their business activities on the environment is becoming particularly explicit. Along with the finance and production results of business activities, their environmental and social effects are also important. As environmental or natural resources are invaluable there is an immediate need to maintain accounts of such resources, and as a result, Environmental Accounting” has emerged.
Information technology has been a rapidly expanding phenomenon which has radically transformed the global landscape – particularly from the perspective of emerging economies such as India and China. In combination with the internet revolution, this have paved way for opportunities which have not only rapidly contributed to the pace of growth in emerging economies, but also impact advanced economies – both from the perspectives of prices – as well as labor markets.
- Emerging economies, as a group, have been growing faster than developed economies for several decades. China, which joined the WTO in 2001, is having a bigger global impact than other emerging economies, not only because of its vast size, but also its unusual openness to trade and investment with the rest of the world.
- The internet has made it possible radically to reorganize production across borders – such that once non tradable services, such as accounting, can now be provided from afar – thus exposing more sectors in the developed world to competition from India and elsewhere (The Economist, 2006).
Knowledge transfers and spillovers contribute incredible sources of human capital which add value to global value chains. This paper will also hence, seek to explore how emerging economies such as India, are developing such knowledge and value chains in enhancing local communities – as well as what more could be done to improve such transfer of knowledge resources. Entrepreneurship programs constituting value means whereby knowledge transfers can be facilitated. Hence this research will also highlight how vital information relating to environmental accounting practices can be quantified, disclosed and reported – as a means of facilitating better accountability mechanisms and contributing to the local and broader economy as a whole.

4.3. Aims and Objectives of this Section

The primary objective of this section is to evaluate the corporate practices relating to measurement, recognition and disclosure of environmental costs and benefits. This primary objective is supported by following sub objectives:
a) To review accounting regulations and government rules relating to Environmental Accounting.
b) To analyze the corporate strategies towards environmental safety and protection.
c) To evaluate corporate practices relating to the quantification of environmental costs and benefits.
d) To analyze the recognition procedure – i.e., recognition of environmental costs and benefits in the books of account – either in the financial statements and/or in the annual reports.
e) To do an evaluation of environmental accounting practices, including disclosure practices, of selected Indian companies
f) To offer suggestions for the improvement.

4.4. Contribution to the Literature

The period 1971-1980 marked the beginning of environmental accounting in the form of ‘social responsibility accounting’. Social responsibility accounting aims to establish the degree of responsibility that companies should have towards stakeholders other than the firm’s shareholders. Part of this responsibility is concerned with the interaction of firm and ecological environment.
During the period 1981-1990 focus of accounting literature shifted from ‘social responsible accounting’ to ‘environmental accounting’ reflecting interest in the society. Research became more analytical in approach and the philosophical debate began to focus more on what kind of environmental information it was appropriate for companies to disclose. From 1990 to date the emphasis continues unabated and engages the interest of both academic and practicing accountants. The latter have found their interest stimulated by government legislation.
Rob Gray, Jan Babington (2010) provide a reflection of the current state of art in environmental accounting research through this lens and then goes on to present the essence of the problem through the reporting of a new analysis of data from an international study of accounting, sustainability and transnational corporations.
As well as exploring the concepts of environmental accounting and chances of broadening the applicability of environmental reporting concept to be utilized by governments to make businesses more responsible for their externalities, Heba Y.M. Abdel-Rahim and Yousef M. Abdel-Rahim in their paper entitled, “Green Accounting – A Proposition for EA/ER Conceptual Implementation Methodology” discussed the understanding of environmental accounting education. Further contribution is offered by De Villiers and Van Staden (2006) by utilizing annual report content analysis to investigate the environmental disclosure practice of companies operating in South Africa. A further contribution by Bhate (2002) investigated the extent to which consumers of India are aware of environmental issues.
However, in India, very few corporations provide information regarding environmental issues. As per requirement of applicable law, companies have to prepare and submit information relevant to environment they have to make necessary preparation. The Environment Ministry has issued instructions in this regard for preparation of environmental statement. It can be observed through their accounts that mainly the following type of information is given:
a. Type of devices installed for controlling pollution
b. Steps taken for energy conservation.
c. Steps taken for conservation raw material
d. Step taken for waste water and production process waste
e. Step taken for improvement of quality of product and services, process of production, etc
It was also observed that most of the companies reveal the environment information in descriptive manner rather than financial type i.e., no accounting is done for the degradation of natural capital when calculating corporate profits. Like this, various studies have been undertaken and completed in the past by the researchers. However, this initial survey of available literature revealed that no work focused on the evaluation of Environmental Accounting Practices followed by Indian Companies.
According to Moid (2016b):
- Environmental aspects of sustainable development add another dimension as to how to share the benefits and costs between current generation and future generation. This makes more sense to identify and measure environmental costs. Accounting information system is an important component of management information systems. It plays an important role in protecting the environment by making polluting production companies to take responsibility for the environmental protection - how the companies reflect in their accounts or how they might expose issues, etc. However, necessary rules and regulations are necessary to protect the environment. Further, well established accounting guidelines are required.
The following observations are also highlighted (Moid, 2016b:9):
• Environmental accountings have no economic value.
• The method of estimating the social value of environmental goods and services is often misleading and construers.
• Estimated values for environmental goods quantified or qualified in terms which have no fixed conversion into money.
• Because of unrecorded environmental costs and difficulty in extracting and separating environmental cost the industry data is virally unreliable.
• Social value placed on environmental goods and services are changing so fast that the estimates are likely to be obsolete before they are available for use.
• Lack of accounting standards for environmental accounting
• Assumptions which are not applicable.
• Comparison between two firms or countries is not possible if method of accounting is different which is quite obvious.
• Input for EA is not easily available because costs and benefits relevant to the environment are not easily measurable.
• EA cannot work independently and should be integrated with the financial accounting, which is not easy.
• EA must be analyzed along with other aspects of accounting. Because costs and benefits related to environment itself depends upon the results of the financial accounting, management accounting, cost accounting, tax accounting, national accounting, etc.

4.5. Issues to be Addressed

There is no standard accounting method to be followed universally by al the firms. Comparison between different firms or countries is not possible if different method of accounting is applied. Input for Environmental Accounting is not properly available because costs and benefits relevant to the environment are not easily measurable. Many businesses and government organizations including large and well managed ones don’t adequately track the use of energy and material or the cost of inefficient materials use, waste management and related issue. It mainly considers the cost internal to the company and excludes cost to society. Environmental Accounting cannot work independently and should be integrated with the financial accounting, which is not easy. Users of information contained in the EA require adequate knowledge of the process of EA as well as rules and regulations prevailing in that country either directly or indirectly related to environmental aspects.

4.6. Suggestions and Further Research Recommendations

A successful environmental management system should have a method for accounting for full environmental costs and should integrate private environmental costs into capital budgeting, cost allocation, process/product design and other forward- looking decisions. Companies can make progress in environmental accounting incrementally, beginning with limited scale, scope, and applications.
Efforts to integrate societal costs into business decisions should continue to expand. Most corporate information and decision systems do not currently support such proactive and prospective decision making. Capital markets do not yet have adequate ways to evaluate the financial performance of progressive companies who do so.

5. Addressing Regulatory and Monetary Policy Issues

5.1. Unregulated Financial Markets and the Shadow Banking Narrative: China, India and the United States9

As well as highlighting recent initiatives being undertaken by government regulators such as the CFTC and SEC, to regulate virtual currencies such as the crypto currency markets, this section highlights why the need to address unregulated financial markets – with particular focus on shadow banking activities, presents ever growing concerns – not just for investors and regulators, but also in respect of their interconnectedness with other financial sectors.
The island of Caofeidian is located 200 kms from Beijing and is a land reclaimed from the sea and converted into an economic development zone in Tangshan district, China. The port of Caofeidian was elevated to the status of the world’s first fully realized eco-city in 2003. Today, unfortunately, it has joined the growing list of ghost cities in China highlighted by vast stretches of deserted industrial townships, empty residential, half constructed tourist resorts, incomplete and abandoned infrastructure projects and a very small number of residential inhabitants who moved to the city.
Ironically amongst this gloomy picture of poor economic performance, the only organization which seems to be portraying healthy financial numbers is “Bank of Tangshan”. This bank has its asset portfolio heavily concentrated in the sick port town of Caofeidian. The quality of its asset book is heavily influenced by shadow banking products (which are mostly off the balance sheet), thus making it difficult to judge the true quality of its loan book.

5.2. Background to the Literature

WHAT IS SHADOW BANKING?
The Financial Stability Board (FSB) in its 2013 annual report on Shadow Banking titled, ”Strengthening Oversight and Regulation of Shadow Banking”, defined shadow banking as “credit intermediation involving entities and activities (fully or partially) outside the regular banking system” or “non-bank credit intermediation in short”.
Shadow banking implies banking equivalent activities conducted by firms, who are not banks as defined by the banking act of the respective sovereign; nor do they fall within the regulatory jurisprudence of its respective central bank or regulatory authority by whatever name called. These firms are characterized by the absence or lesser level of “regulatory oversight” and “safety net” like government funded deposit guarantee and lender of last resort facilities. However, the risks faced by these shadow banks are similar to banks, namely, counterparty default risk, maturity mismatch and liquidity freeze.
In China, shadow banking products which are commonly used are loans and leases by trust companies, entrusted loans, loans from micro finance companies, trust beneficiary rights, wealth and asset management products, special purpose finance companies associated with e-commerce, inter-bank market (even corporations participate in this market), pawn shops, guarantees, unofficial lenders, financial leasing to name a few.
Shadow banking size comparison between China and other economies (Reproduced from the paper, “Shadow Banking in China: A primer” by Douglas Elliott, Arthur Kroeber, Yu Qiao, March, 2015)
AN OVERVIEW OF THE CHINESE FINANCIAL SYSTEM
The formal banking system completely dominated the Chinese financial system from 1978 onwards right until early 2000s. The year 1978 is considered a benchmark year as in December of that year, the policy “gaige kaifang” (meaning reform and opening up) was promulgated by the Communist Party of China led by Deng Xiaoping. The People’s Bank of China (PBoC) is the central bank of the People’s Republic of China with the mandate to conduct monetary policy and regulate financial institutions in Mainland China. The China Banking Regulatory Commission (CBRC) was established in April 2003 with the mandate to take over the regulatory function of the banking sector of the PBoC. CBRC oversees the regulation and supervision of banking institutions, asset management companies, trust and investment companies and other depository financial institutions.
The big four banks of China, i.e. Bank of China (BOC), China Construction Bank (CCB), commercial banks which are at the core of the Chinese financial system. Bank of Communications is the latest entrant in 1987 which now forms the “Big Five” of Chinese Banking. Alternative banking set up in China like Joint Stock Commercial Banks (12 nos.), City Commercial Banks (133 nos.), Policy Banks (3 nos.), Asset Management Companies (4 nos), have been set up over the last 3 decades to bring in an element of competition, diversification and reform in the banking system. Newly set up city commercial banks and joint stock commercial banks have been able to gradually increase its asset base. There are some 35,000 banking institutions in China, of which around 34000 are rural credit co-operatives and 1000 city credit cooperatives.
As at the end of 2015, the “big 5 commercial banks”, “joint stock commercial banks” and “city commercial banks” constituted around 40%, 20% and 12% respectively of total assets of the banking system [1]. Despite this diversification, state ownership and control of the banking system has not changed. Government directed lending by banks has been a significantly known feature of Chinese banking. Politically directed lending has led to “zombie like non viable enterprises” and “ghost cities real estate properties” to be funded by loans, thereby crowding out genuinely capital starved small and medium scale private businesses. This generated the funding gap whereby shadow banking stepped in to fill up the vacuum. The presence of shadow banking has economic benefits as it facilitates cheaper funds being made available to small, medium sized credit starved section of the Chinese economy and fueled economic growth.

5.3. What Contributed to the Rise of Shadow Banking in China?

The financial backdrop against which the phenomenal rise of shadow banking played out was that of a ceiling on deposit rates, low return on sovereign treasury bills and papers, lack of alternative savings and investment instruments for investors, need for a profitable avenue for banks to deploy, credit tightening towards risky sectors like real estate and post crisis stimulus. The stimulus package after the crisis of 2008 ($586 billion [2]) was funded 30% by the central government. The rest was mandated to be funded by local government borrowing. As local governments are restricted from taking on debt on its own books, local government financial vehicles (LGFV) [3] were deployed to borrow from banks and shadow banks to provide funds for the stimulus package [4]. This measure provided a significant impetus to the growth of shadow banking in China from 2008 onwards. Real estate developers and infrastructure construction companies borrowed majorly from shadow banks and invested in fixed assets which boosted GDP during this period.
In 2009, in order to boost lending volumes of banks after announcing the stimulus package, loan quotas were relaxed to generous levels. It will be apt to say that significant quantum of the shadow banking business in China is actually “bank loans in disguise” most of which may have been transacted during the post crisis stimulus period.
Depositors, particularly corporate depositors, prefer to route their funds in the interbank market or buy wealth management product of banks (where the returns are unconstrained by any deposit ceiling), rather than invest them in traditional deposits. Certain industries like local government finance vehicles, real estate property developers, ship builders and coal miners are a few sectors deemed risky or speculative in nature and authorities urge the banks to undertake limited lending to these sectors. If banks do lend to them significantly as it is also lucrative as high risk attracts high returns for the bank, it is compelled to take these loans off the balance sheet in order to appear to have adhered to the regulatory Diktat. These off balance sheet loans constitute shadow banking. The year 2011 and 2012 saw a significant drop in volume of loans to real estate in response to tightening the reins on this sector by the regulator. As the real estate industry desperately scouted for funding, which the formal sector failed to provide, shadow banking filled in this void and this (circumventing regulation) has been one of the most important driving forces for the growth in shadow banking from 2010 onwards.
As banking is highly regulated and ownership vests strongly with the government, it appears highly unlikely that authorities were unaware of the presence or practice of shadow banking activities by banks. It could be so that the Chinese leadership were supportive of shadow banking activities of banks so as to enable them to make a profit and also channel liquidity to where it was needed and fuel economic growth. It seemed to serve both the borrower and provider of funds. Shadow banking products provided a source of making a profit in an industry that lacked avenues for generating higher returns from its investments. It is ironical but a way of life for the big five Chinese banks that they are not allowed to lend to the private corporate sector and the SMEs. They primarily and solely fund the State Owned Enterprises (SOE).

5.4. Types of Shadow Banking Products and Its Source of Origination

Shadow credit in China originates from three sources:
1. Wealth and Asset management products. This includes Wealth Management Products (WMPs) and Asset Management Products (AMPs), worth $15 trillion. Funds raised by banks through these products are deployed in the interbank market, bond and stock market. When Chinese banks internally off-load assets / loans into off-balance sheet products, they are referred to as “Wealth Management Products”. These products are then sold to depositors or investors as savings product. Thus, banks can significantly escape quality assessments of the loan book that has been re-packaged and also deposit regulation. Banks are able to secure better volume of public savings as the wealthy investors, including salaried professionals are attracted by the return / rates offered by banks if they were to invest in its WMPs. This product has picked up particularly after 2011 in response to the stimulus measures initiated by the government in response to the financial crisis. As banks were flushed with funds, loan generation attained new scales, thus WMPs also took off simultaneously. WMPs are typically short tenured mostly mature in a quarter. It is interesting to note that at every quarter end CBRC calculates Loan to deposit ratio (LDR). When the maturity amount of WMPs is credited to the investors (usually depositors) account, the total deposit base goes up and subsequently the LDR comes down.
Usually Banks with high LDR with low deposit rates tend to have a higher volume of WMP generation. WMPs are investment products, returns on which are not guaranteed by the bank. However, customers investing in these products were apparently given the impression that the returns were guaranteed. Trust companies often create these WMP products and banks market it for them in exchange for a commission. Banks sell its loans to external non bank entities, who then package these loans into Asset Management Plans and the originating bank “invests” in these AMPs (i.e. These AMPs are resold to the originating bank). So what was initially a loan (in all probability a stressed loan) is now converted into an investment. This entire process of moving assets internally or externally is known as channel business in China. The purpose behind shifting loans from the balance sheet is to meet the basic banking requirement; i.e. Present a healthy balance sheet to stakeholders and regulators and significantly free up capital and escape additional scrutiny and charges for the poor quality of the loan book.
2. Non bank financial institutions like trusts, broker dealers and insurance companies. These entities can solicit funds from investors (individual and corporate savers) through banks who act as middlemen. Trusts are a significant player in the Chinese shadow banking system.
By 2012, Trusts had overtaken insurance companies to become the 2nd Biggest financial intermediary in China, worth approximately $3 trillion. Trust loans are mostly extended to riskier structure to route liquidity to beneficiaries which makes untangling the transactions extremely difficult and places it beyond the scope of regulators to investigate. Such complicated and opaque transactions are often used to sidestep lending restrictions on banks. What is rather worrisome is that banks are often a counterpart in these transactions which makes its exposure to the riskier portfolio go beyond the regulatory caps. Banks and trust companies are interconnected. Banks moved loans off its balance sheet and resold to retail customers after designing it as a trust product. This practice was curbed by the CBRC in 2010. However, the bonding between the two institutions continued and banks continued to sell products of trust companies for a commission. Entrusted loans are loans organized by an agent bank. The agent bank is called the trustee and the provider of funds is called the trustor. Entrusted loans are generally used by commercial enterprises which may have some idle funds to lend out and earn interest. They appoint an agent bank who gets a borrower for the funds. Banks, acting as agents or trustees do not disclose this credit risk and it is kept off the balance sheet.
3. Informal lenders (non banks) who extend loans to those who do not have access to the formal banking system like pawn shops and unofficial lenders. The design of the shadow banking product is very similar to Asset Backed Securities (ABS), Mortgage Backed Securities (MBS) and Collateralized Debt Obligation (CDOs) which were at the heart of the financial crisis of 2008.

5.5. Why Shadow Banking in China Needs to be Reined in

The system of shadow banking seemed to be working fine as banks, other financial intermediaries, borrowers and investors were all happy in the pleasant game of musical chair. Shadow banking activities had provided ample funding to real estate and infrastructure developers which boosted the GDP significantly after the stimulus package.
Real estate and infrastructure has been used as a catalyst by the government to stimulate economic growth or deflate an overheated economy, as the case may be. Easy access to shadow funds have triggered a short term spike in housing prices. The growth in Real (adjusted for inflation) and Nominal GDP between 2008 and 2010 is evident in the chart above. However, it appears the music in the game might have stopped as authorities have started issuing warning signals about the risks emanating from shadow banking activities. Regulators are worried about the massive linkage between the banking sector and its shadow counterparts. There has been an uncomfortable swift increase in internet lending platform that are raising huge sums from the Chinese common man against a promise of returns much higher than market rates with a low minimum contribution. There is no information available or disclosures made about how these funds so collected would be re-invested. The biggest worry is the massive debt pile up in the system (260% of GDP) and significant interlinkages and systemic risk that have got interwoven into the system. Higher leverage and complex, opaque, derivative structures add up to the risk element in case of liquidity freeze.
The authorities are also struggling to rein in the booming residential real estate prices. However, the regulator is caught in a trap as it can neither deflate the real estate balloon (as it can lead to a string of shocks or defaults) nor can it allow the prices to remain at sky rocket level (as it will wreck havoc with long term fundamentals of the economy). Either case public uproar is assured. Even local government finances are dependent on real estate values as they sell land parcels to generate revenue. Thus, short term gains and political incentives demand keeping a status quo on high real estate prices, albeit unsustainable in the long run. The authorities are attempting to rein in trust companies who undertake unregulated lending. As already described, opaque and complex, transactions are a kind of hallmark for trust loans. The regulators in Beijing are already conscious of this fact and CBRC is trying to regulate this segment through request for additional compliance, background checks, transparency and disclosures (eg. Of counterparties involved).
Certain product structures have been laid down by CBRC which trusts have been advised to not use. In 2014, trusts were advised to sell off holdings when faced with liquidity crunch and “cash pools” were banned which facilitated payout on existing funds by channeling revenue from new product sales. The asset management industry too has come under regulatory scrutiny and fresh set of regulations have been issued in November, 2017 to curb risks emanating from this segment. Asset management companies have been advised to offer yields based on the net asset value of the underlying in order to reflect risk and returns instead of a guaranteed return plan. FIs acting as asset managers will also be required to set aside 10% of management fees towards risk provisioning. Concerned institutions who do not comply with this norm will be punished with a levy of additional reserve requirement.

5.6. Us vs the Chinese Shadow Banking System

On the face of it, US and Chinese shadow banking appear to have similar framework. Shadow banking in both these economies is driven by interest rate regulation. Risky real estate developers (in China) and risky subprime borrowers (in the US) gain access to funding through the shadow banking channel.
In China, shadow banking is actually an offshoot of various credit intermediation functions performed by banks. Thus shadow banking in China is actually a “shadow” of its banks (bank centric). Whereas in the US, shadow banking is significantly a function of the capital markets, which have been an integral part of the US financial system right from the 1970s. Capital markets have provided a platform for financial innovation in the US and shadow banking has thrived on the same. Shadow banking entities in the US, like Money Market Mutual Funds are operating parallel to the banks and are directly competing with banks for depositor’s money. In the US, shadow banking entities have designed products for investors, which are deemed to be the result of financial engineering and innovations. They are deemed “safe” because of the complexity in the design. In contrast, Chinese shadow banking products are comparatively simpler in design and deemed safer as banks are being involved in structuring and distributing these products, particularly the WMPs. Even though banks are not responsible if the underlying borrowers default, it is expected that the banks (particularly the big 5 who are the major player in the shadow banking market) will invoke implicit government guarantees and not let the system collapse. In China, as it is said, money flows to problems and solves it, unlike in the West, where money flows away from problems.

5.7. Shadow Banking in the Indian Context

The three broad categories of NBFIs include: 1. All India Financial Institutions (AIFIs) 2. Primary Dealers (PDs) 3. Non banking finance companies (NBFCs).
AIFIs are apex public entities which mostly provide long term financing / re-financing to specific sectors. PDs are an important player in the primary and the secondary market, particularly in the context of government securities and help in “market making” activities. NBFCs are at the heart of what is understood as shadow banking in the Indian context. They have played a critical role in providing finance to the underserved and underbanked sections of society. NBFCs have emerged as an important source of fund provider to small and proprietary businesses, unorganized sector and rural businesses. These are the typical segments characterized by the absence of formal books of accounts and other financial statements, collaterals, etc which are a pre-requisite for securing bank funding.
NBFCs have a distinct advantage of the formal banking sector on account of factors like: 1. Strong distribution network in lower tier cities. 2. Better customer profiling 3. Better financial metrics reported by NBFCs compared to banks. 4. Efficient delivery mechanism (well established online and offline models) NBFCs contribution towards financial inclusion is commendable. They constitute almost 76% of the total balance sheet size of NBFIs [8].
Based on activity type, NBFCs may be classified as: 1. Asset Finance Company 2. Loan Company 3. Investment Company 4. Infrastructure Finance Company 5. Systemically Important Core Investment Company 6. Infrastructure Debt Fund 7. Micro Finance Institution 8. Factor 9. Non-Operative Financial Holding Company 10. Mortgage Guarantee Company 11. Account Aggregator 12. Peer to Peer Lending Platform.
REGULATION NBFCs are regulated by the Reserve Bank of India (RBI) since 1963 as they have the potential to inflict pain on its depositors. RBI identified this as a source of systemic risk and thereafter brought in prudential regulation to govern NBFCs, almost 5 decades before the rest of the world woke up to the risk of shadow banking. NBFCs with total assets of Rs.500 crores and above are deemed systemically important (SI). RBI’s effective monitoring of this segment has enabled it to flourish and genuine players have survived and are expanding its outreach across the length and breadth of the country. Tighter regulation has reduced the number of NBFCs from 51,929 in 1997 to 11,769 in September, 2015 [9]. The grant of Small Finance Bank (SFB) license by RBI is a vindication of the business model of NBFCs in India.

5.8. Issues and Problems to be Addressed

Chinese authorities cannot deny the significance or the omnipresence of shadow banking. Nor can it deny itself the risks associated with it. Shadow banking in China is obviously not as complicated as in the US. It was never viewed as much as a threat to the financial system. After the stimulus measures were implemented, the economy got heated up and regulators felt the need to cool down the same and hence regulatory guidances have started flowing in mainly to curb the easy flow of funds. Shadow banking is being used as a monitor to heat up or cool down the economy. Authorities now have to look at the deeper picture and start work towards reforming the financial system. Shadow banking, though wide spread, does not necessarily represent adequate financial deepening. Policy change is needed as government policy of directed lending has pushed private commercial enterprises towards shadow banks. Deregulation of interest rates and free flow of capital, credit risk assessment coupled with a satisfactory risk management regime is being called for. Finally, the authorities are not expected to put a brake on the shadows in one go. They are moving in slowly and with caution so as not to tilt the balance. Stability and reforms both have to move in tandem. Shadow banking is part of China’s dual track reform approach. This very approach has no doubt brought about the transformation from a poor nation to one of the leading economies of the world. Shadow banking should not be left by itself to operate as the market desires, rather it should operate to fulfil the socio economic objective of the government. Shadow banking should be regulated such as to compliment China’s growing economy’s funding needs.

5.9. Financial Performance of NBFCS’s

The year 2017 saw a deterioration in asset quality. This was quite inevitable in the aftermath of the impact of demonetization as the segment, which primarily deals in cash and which was impacted the most by the government move against undisclosed income, is also the prime customer base of NBFCs, particularly the micro finance companies. Capital levels can be considered healthy, as they are much above the prescribed level of 15%.

5.10. NBFC & Private Equity Funds

Private Equity (PE) funds, having judged the long term sustainability of the NBFC model has been pumping monies into India’s NBFCs. This is aimed primarily at capitalizing on the credit fueled consumer and credit boom which the NBFCs have been funding for years together now. Sound financial metrics by NBFCs and profitable exits by earlier investors [10] provide additional impetus.
Like China, Indian shadow banks too are gradually emerging as a source of funding to the ever sensitive real estate sector. NBFCs have continued to lend aggressively to real estate and currently contribute around 18% of the total funding requirement by this sector. They have upped their contribution to this sector when banks and PEs have taken a cautious foot backward. NBFCs have ventured into construction finance, special situation funds, structured and mezzanine debt, acquisition finance to buy land parcels and funding for commercial office projects.

5.11. Interconnectedness & Concerns

Shadow banking’s exposure to real estate is always fraught with systemic risk. NBFCs of today are of the scale which can be termed as SI. These SIs are a major player in the real estate market who undertake big ticket deals [11]. So is its exposure to sectors like agriculture and the “economically vulnerable” section of the Indian society who may be the profile of the ‘daily wage earner” and from whom the probability of default is the highest, in case of loss of employment. This sectoral concentration is a cause of risk and concern. Concerns also emanate from the strong linkage between the formal banks and shadow banks. The former is an important provider of funding to the latter (almost 21%). Banks with a not-so–significant-presence in rural areas have emerged as a strong source of funding to NBFCs that are in the line of activity to extend loans and asset financing. Mutual funds are a major subscriber to short term papers issued by NBFCs to raise funds.
Any stress to the NBFC due to issues of liquidity freeze and credit quality deterioration will reflect on banks, mutual funds and the financial system at large. The 2008 global crisis is the case in point. When global markets froze, NBFCs in India faced the stress. The interlink between NBFCs, mutual funds and commercial banks came to the fore. NBFCs found investor appetite significantly dipped for its debentures, which is its crucial source of funding.
The same concerns of liquidity freeze and maturity mismatch, which plagued the global markets during the Global Financial Crisis (GFC) came upon to play in the Indian NBFC sector too. Many NBFCs are selling papers issued by real estate firms to high net worth individuals (HNIs). HNIs in anticipation of high yield are lapping up these papers. However, the downfall would be severe should there be a kind of bursting of the real estate bubble. Some NBFCs are offering structured finance products like high yield papers, by leveraging its network with other NBFCs, Indian and foreign banks, domestic funds, hedge funds and real estate funds. The products are complex and it is hoped that the investor understands the risks involved and associated with such investments.

5.12. Further Recommendations and Future Areas for Research

The extent of the regulator’s awareness or monitoring of this area is still unclear and could constitute another subject for future research.
Further, unregulated sectors such as virtual currencies (crypto currency markets) and the approach of different jurisdictions to the regulation of these markets constitute fertile grounds for future research.
As highlighted by KPMG in its February 2018 Report “Regulating Virtual Currencies”, in which several key points were highlighted,
- Recent price swings in digital currencies, as well as expanding numbers of initial coin offerings (ICOs) have attracted both increased investor interest and heightened concerns from regulators.
Further concerns regarding market and trade abuse, fraud and consumer/investor protection – as well as the use of virtual currency in money laundering, have been highlighted.10
As part of ongoing initiatives, in the United States, the CFTC has “extended supervisory authority over the trading of digital currency derivatives and has supported self-certification of new digital currency derivatives contracts “through the following means:11
- Defined virtual currencies as “commodities”: In 2015, the CFTC issued an Order that found "virtual currencies" to be commodities under the Commodity Exchange Act (CEA), which subjects the trading of related derivatives to CFTC jurisdiction and requires a trading platform to register as a Swap Execution Facility or Designated Contract Market.
- Defined "actual delivery" for virtual currency: The CFTC found in 2016 that a virtual currency transaction did not qualify for the CFTC's 28-day "actual delivery" exception, thereby subjecting the transaction to the agency's direct oversight authority over "retail commodity transactions" as if it were a commodity future.
- Permitted self-certification of new contracts.
The SEC has also:12
- Taken fraud enforcement actions: In 2013, the SEC charged a company with defrauding investors in a Ponzi scheme involving virtual currencies. The agency also issued an investor alert in July 2013 on Ponzi schemes Using virtual Currencies. In 2015, the SEC charged two Bitcoin mining companies with conducting a Ponzi scheme to defraud investors.
- Found ICOs to be securities: On July 25, 2017, the SEC issued a report on ICOs and "token sales" used to raise capital for investments in projects and stated the conditions for when tokens offered in these ICOs were securities and therefore subject to the federal securities laws.
- Initiated enforcement actions involving ICOs.
- Limited exchange-traded funds.

6. Conclusions

Conclusion
1. Interests attributable to the jobs at stake in Northern Ireland, the resolve to intervene in the ongoing dispute and allegations of price dumping and government subsidies, without doubt, contributed to the UK’s Prime Minister’s visit to Ottawa on the 18th September 2017. Also of importance and significance is the coming into force of the EU-Canada CETA deal on the 21st September 2017 – a huge trade agreement which took eight years to conclude.
In respect of the EU-Canada CETA trade agreement, this is not only of vital importance to the United Kingdom and Canada – with the UK being Canada’s largest trading partner within the EU block and because the UK stands to benefit immensely from the new EU-Canada CETA deal when it comes into force – as the agreement is widely anticipated to boost the UK’s exports, but because co incidentally, Theresa May also had a hugely anticipated Brexit speech, “The Florence Speech”, to make in Italy on the 22nd September 2017. Brexit, in effect, meant that benefits to be gained from the EU-Canada CETA deal had to be preserved with possible re negotiations with Canada.
Hence the UK-Canada trade relationship is not only significant from the perspective of ongoing Boeing-Bombardier dispute, which is underlined by the Northern Ireland DUP relationship – a consequence of the UK 2017 snap elections, but also in respect of ongoing Brexit negotiations – with the UK already having triggered Article 50.
The US Department of Commerce’s ruling at the end September 2017 and its effects on trade relationships will no doubt constitute a topic of huge interest. Of vital importance and interest is the extent of such effects on ongoing renegotiation of regional agreements such as NAFTA, as well as other already concluded trade agreements such as the EU-Canada CETA trade agreements. Such regional and trans atlantic agreements, initially appearing to have less bearing in relation to decisions which result from more direct trade relationships.
The EU-Canada CETA agreement underlies and accentuates the importance of regional agreements – not only by highlighting the economic ramifications of a Brexit decision, but also the importance of trade deals with other major EU partners such as the United States, China and Japan. Of further crucial consideration is the timing of decisions – particularly where important trade deals have just been concluded or have recently come into force - even where a country may not be directly involved. This necessitates (and many would argue, justify) cautious reactions from even indirect parties whose interests may ultimately be affected – particularly where a huge trading bloc such as the EU is involved.
The importance of effective multi lateral trade platforms at a time where geo political tensions are rife at a global level and in respect of potentially sensitive issues, cannot be over emphasized. Further, the repercussions of Brexit – as well as possible outcomes of current negotiations with the EU is proving to have greater impacts than initially anticipated. It is only becoming more evident and a reality that the UK will leave the EU in March 2019 - and perhaps of greater consequential impact, the reality that many future possible trade re negotiations hinge on the outcome of current Brexit negotiations.
On the 29th September, the preliminary U.S ruling drew anticipations and the likelihood that Boeing would have to prove the extent of damage and costs incurred through allegations of “price dumping” – which was considered an arduous task given the circumstances that it had not even put in a bid.
Further repercussions of this preliminary ruling anticipated tripling of costs for planes (for Bombardier) in the United States.
However, in a dramatic response on the 17th October 2017 – just some weeks later, it was not only announced that Bombardier would be selling a 50.01% stake of its C series planes to Airbus, but that some of Bombardier’s planes were to be assembled in the U.S – through the arrangement with Airbus.
Such a sale of its majority stake to Airbus and the presence of Airbus in the United States (Airbus having a presence in Alabama), would enable it to assemble some of its C series planes in the United States – thus facilitating a process whereby the 300% import tariffs imposed through the preliminary ruling, could be avoided. Even though a ruling is still anticipated in February of the coming year, it is highly likely that some of the repercussions and fall outs of the preliminary ruling would have been mitigated and addressed before the next ruling.
2. As well as accentuating the need for government policies to place more emphasis on:
- upgrading human capital through promoting access to a range of skills,
- especially the capacity to learn;
- enhancing the knowledge distribution power of the economy through collaborative networks and the diffusion of technology;
- and providing the enabling conditions for organizational change at the firm level to maximize the benefits of technology for productivity,
The OECD (1996b) also highlights the importance in knowledge based economies, of greater roles for government policies which embrace areas of science, technology, industry and education.
Benefits of Higher Education: Do they far outweigh the rewards or costs?
The response to this to an extent, may be jurisdictional and cultural oriented. For jurisdictions accustomed to investing huge amounts in education, then a culture of expectancy in increased returns will not be unusual. However, where the culture is such that it is customary to earn a comfortable income without much expenditure on further education, there may even be perceptions of diminished returns in the sense that many high ranked management or managers do not want threats of having junior employees with better qualifications taking over their positions. It is also frequently the case that may job applicants are turned down because they are considered “over-qualified”.
3. Is the modern environment to blame for encouraging certain social attitudes? In certain highly advanced economies, and information knowledge based economies for that matter, many talents (musical, sport-oriented and technological wise) are still, to a very large extent, being supported, encouraged and stimulated. Further, information technology is also being harnessed as a tool to sustain the development of potential and hidden talents. However, can the current environment and culture adequately control our reliance on certain accustomed and more comfortable habits? In some years to come, we may not even have to drive our own cars…… And as long as cars are certified as safe enough to drive themselves, no one is complaining about the potential comfort and convenience this may generate.
To what extent are our creative abilities still motivated? Whilst musical geniuses may still exist, it certainly evident that the current environment does not really stimulate or generate the same enthusiasm or kind of magical revolution that took place during the Golden Age. And it is highly unlikely that such geniuses may ever be replicated.
4. It is important to address challenges presented through unequal distribution of gains derived from globalization – such that globalization – particularly in respect of information, innovation, labor markets, and information technology, does not generate protectionist attitudes – as well as reduced incentives to engage in multilateral cooperative agreements.
The relevance of non governmental measures and programs aimed at facilitating entrepreneurship startups constitute vital means which foster not just accountability in the process, but also contribute immense to economic development – and that also being from a perspective which addresses trade relations and concerns in respect of wages, job losses and potential losses of vital transferable skills.
Why should greater focus be accorded to measures aimed at addressing environmental challenges and geared towards measures such as the facilitation of entrepreneurship start-ups which contribute immensely towards economic development – because free trade arguments within the context of sustainable development appear cannot be restricted solely to arguments relating to environmental issues.
The second part to this topic will hence focus on addressing challenges presented to the goals and objectives of preserving the environment – as well as fostering greater measures of sustainable development.
It is clear that companies are completely aware that environmental issues will affect their businesses and industries in the near future. They are fully convinced of the need for environmental information. Yet the absence of external environmental accounting persists. Companies here do not have a proper environmental accounting system for determining environment related costs, benefits, assets and liabilities. Indian companies fail to provide adequate disclosure on the environment.
The conventional accounting system which is mainly the source of information regarding the organization’s operations must be adjusted for environment cost assessment inclusion. Incorporating environmental accounting into managerial system could be a better step in this regard. If the environmental liabilities are to be considered, they are characterized by uncertainties – hence immense challenges are presented to the organizations in dealing with such critical issues.
5. In the matured financial markets in advanced economies, shadow banking plays the role of maturity transformation and risk management. In emerging economies, it is tied to the broader objective of financial inclusion. “Over exuberance” and “excesses” in any system is non desirable be it an advanced economy of US and UK or emerging economies like India and China. India’s financial regulator has moved ahead of its times and has placed prudential regulations on its shadow banks. The concern for the Indian regulator of NBFCs is not how to bring them under the scanner. They all were already under the scanner. There are prudential norms in place for each type of NBFC. The issue is how much to regulate and to what extent so as not to over burden or impose terminative punitive measures on the organization - by reason of non-compliance. The Saradha group financial scandal [5] was a huge blip in the NBFC story and this Ponzi scheme was a kind of an eye opener for regulators and investigators across the financial system in India. Differentiated banking license is a step in the right direction initiated by the RBI and will enable specialized banks with unique skill sets to set up operations across the length and breadth of the country. So, why do shadow banks of the kind exist in India? Financial repression, lack of financial outreach by the existing banking system (State Bank of India is an exception), preference for investments in favor of physical assets compared to financial assets, low post tax returns on bank deposits, low real interest rates, savers seeking more profitable form of investments and most importantly illiteracy and lack of financial education among the masses are few macro and socio economic perils as to why NBFCs have been able to thrive. These perils will be wiped out gradually as the economy progresses. We then hope to see a transition in both India and China from physical savings to dealing with genuine and regulated shadow banks (by whatever name called in the respective countries) and from shadow banks to the formal banking system.
It will also be interesting to see how initiatives being undertaken in the United States to address virtual currencies – as well as those being implemented in other jurisdictions, develop.

7. Further Comments

Faced with many challenges in 2017, the UK Government appears to be edging towards the verge of concluding possible trade negotiations with the European Union – particularly in respect of post Brexit trade negotiations.
The importance of negotiating maximum access to the single market, the customs union, the determination of EU citizens’ rights, and the UK Irish border constituted some crucial points of Brexit negotiations. Further the divorce settlement bill had also presented many challenges and had threatened to hinder progress towards reaching the trade negotiation stage.
With the ongoing round of negotiations, holding a possible further referendum had also been considered not to be in Labor (the opposition party)’s best interests and its was suggested that a further referendum could be placed on the table if the UK failed to secure a Brexit deal which provided the UK some access to the single market – however there were also suggestions and options of the route to the single market under World Trade Organization (WTO) rules.
The impact of not having access to the single market on future trade deals and platforms was considered not to have been anticipated by the UK public during the referendum of the 23rd June 2016. Neither was also the consideration that the country would be voting to leave the single market – instead of the public intention and voting considerations aimed primarily at leaving the EU.
Further issues which the public had not been educated or well informed about were brought to light during latter rounds of Brexit negotiations – which primarily involved the divorce settlement and bill for leaving the EU.
It had been well publicized prior to the 2016 Referendum that savings of about £350 million weekly would be made – a much needed contribution towards the National Health Service (NHS) – however, as the deadline for conclusion of certain negotiations loomed, and ultimatums were given – and particularly in respect of the 4th December 2017 ultimatum, the UK Government was able to reach a comprise with cabinet members in respect of considerably increasing the divorce settlement from the initially intended amount of around £20 billion to about £50 billion – even though exact estimates are still unknown. It is currently estimated that around $725 billion worth of trade between the EU and the UK. $281 billion in terms of long term commitments are also owed by the UK to the EU. The UK had intended to pay $25.5 billion to settle currently, its divorce bill. However the EU wanted $70 billion to be paid for the exit bill.
The main obstacles and challenges presented towards securing a trade agreement with the EU, around the first week of December 2017, then appeared not to be of a monetary nature, but rather from a more unexpected source – namely, matters relating to the UK-Irish border. In a twist of events, it was also highlighted by EU officials that the key towards avoiding a “hard exit” approach was in the hands of the Government in Dublin. The importance of reaching an agreement in respect of the UK Irish border being considered crucial since, in the words of a prominent EU official, failure to reach an agreement with Ireland – being a EU member state, also implied that the EU could not progress trade negotiations. Even though WTO routes and options still exist, it is clear that the EU – and the UK as well would both lose out – with the UK being considered to faced more economic losses in respect of jobs.
Further signs of what the public may not have realized during the 23rd June 2016 appeared to be manifesting when in November 2017, it was announced that some key EU centers such as the European Banking Authority and the Medical Authority would move their headquarters from London to Paris and Amsterdam (respectively). However this appeared to be palatable for many commentators – until the announcements of a possible divorce settlement bill of £50 billion – rather than the anticipated weekly savings of £350,000 million.
In a similar vein, the United States government and newly elected administration had also experienced immense challenges during to the 2017. Contrasted to the UK where snap elections took place – with the result of a minority government – as well as Brexit challenges, amidst investigations of foreign involvement in the 2016 US President elections, the Trump administration was presented with a festive Christmas “gift” of the approval of the much contested Tax Reconciliation Act. It also appears very likely that post Brexit trade negotiations will be given a boost following approval of the divorce settlement during the December 2017 round of negotiations.
In respect of NAFTA re negotiations, the third round of trade talks to renegotiate the NAFTA Agreement took place in Canada on the 25th September 2017. Highlights of the round including a focus on the spirit and language of the trade deal. It was also highlighted that “trade agreement should save or operate to the advantage of those within the agreement.” Four more rounds of trade were anticipated and it is expected that these will be concluded by the end of 2017 – even though this currently, appears highly unlikely – given disagreements which are largely attributed to the non bilateral nature of the Agreement.
Meanwhile there have been trade disputes relating to the Boeing Bombardier case which involved the imposition of US import tariffs in respect of unfair subsidies.
Following a successful two week tour of Asia in November 2017, during which President Trump visited Japan, China, South Korea, Vietnam and the Philippines – as well as attended the APEC Summit, the extent and depth of trading relationships between these countries were evidenced by the deals struck – even if numerous cases involved Memorandums of Understandings (agreements of business deals to come). The total value of deals struck between the United and the five countries visited during President Trump’s visits amounted to $300 billion – with the deal between the US and China accounting for $250 billion (Japan $1.6 billion, South Korea 17 billion, Vietnam 12 billion and the Philippines/to be confirmed).
However trade disputes continue to persist – even between the closest allies, as evidenced by illegal subsidies in respect of aluminum foil – currently the case between the United States and China. Whilst trade disputes are certainly unavoidable, it appears that certain allies, notably the United States and China, have managed to reciprocate warm courtesies – through state visits during the course of 2017. One of the notable and key features of President Trump’s visit to Asia being the generous and lavish reception extended during the state visit to China.
Two days following his return from the tour of Asia, and on the 16th November, the House of Representatives passed a $1.4 trillion tax overhaul bill to reduce corporation tax rates. The reform plan encountered strong opposition from the Democrats but following a compromise, was eventually approved on the 2nd December 2017. Even though the Tax cuts bill, it is alleged, will add $1.4 trillion over the next ten years to national debt, it is also added that significant benefits derived by corporations benefiting from corporation tax reductions, should outweigh the costs of implementation of the Plan. The Tax Reconciliation Act not only constitutes the first major legislative success under the Trump administration but also appears to be a befitting way to end a year during which stock markets have also registered record highs.
And whilst uncertainties may revolve around many other trade relationships, there is yet hope in that anticipated political risks have not materialized as predicted and rather it appears that certain strategic alliances – even OPEC, may work to the United States’ favor.
Following a deal reached between OPEC and other parties to cut back on oil production around end of November 2016, the deal was extended during a meeting at the OPEC headquarters in Vienna a year later. The initial deal to cut back on oil supplies had been due to expire end of March 2018, but by virtue of the extension, this meant that the cut in oil supplies would be extended till the end of December 2018.
This would effectively not make it possible for the United States to benefit from the current higher prices of oil, through marketing and production of shale oil, but also leaves uncertainty surrounding how long countries which argued for an extension (owing to the need to reduce their current account deficit) would wish to keep supplies at a lower level. Of notable interest and key observation points for 2018 will be IMF economic indicators and predictions for China – particularly also in respect of OPEC and the currently agreed level of oil production.
Information technology has been a rapidly expanding phenomenon which has radically transformed the global landscape – particularly from the perspective of emerging economies such as India and China. In combination with the internet revolution, this have paved way for opportunities which have not only rapidly contributed to the pace of growth in emerging economies, but also impact advanced economies – both from the perspectives of prices – as well as labor markets.
- Emerging economies, as a group, have been growing faster than developed economies for several decades. China, which joined the WTO in 2001, is having a bigger global impact than other emerging economies, not only because of its vast size, but also its unusual openness to trade and investment with the rest of the world.
- The internet has made it possible radically to reorganize production across borders – such that once non tradable services, such as accounting, can now be provided from afar – thus exposing more sectors in the developed world to competition from India and elsewhere.
Knowledge transfers and spillovers contribute incredible sources of human capital which add value to global value chains.
Entrepreneurship programs constitute value means whereby knowledge transfers can be facilitated. Entrepreneurship programs constitute value means whereby knowledge transfers can be facilitated. Hence future research targeting this area should also highlight how such programs can be encouraged, facilitated, and improved – as a means of enhancing job creation possibilities and contributing to the local and broader economy as a whole.
It is important to address challenges presented through unequal distribution of gains derived from globalization – such that globalization – particularly in respect of information, innovation, labor markets, and information technology, does not generate protectionist attitudes – as well as reduced incentives to engage in multilateral cooperative agreements.
The knowledge based economy, as well as the digital economy, is the modern economy. The digital economy also functions as a vital bridge between the past and the preservation of the future. This is accentuated though its role as a digital medium in preserving vital archives and records whose functions are economically – as well as socially and in many other respects, important for the preservation and enhancement of future initiatives.
Hence, while the dissemination and sharing of information resources constitutes and assumes a vital role in facilitating more equitable distribution of the benefits of globalization, it is also important to emphasize the symbiotic functions which are necessary in preserving and enhancing the role of the digital economy – as a means of bridging the gaps and deficiencies between the present, past and the future.
Sections Two, which deals with the Background and Literature Review On the Modern Economy and Emerging Economies’ Impact on Globalization (Part I) – as well as section Three, Background and Literature Review On the Modern Economy and Emerging Economies’ Impact on Globalization (Part II).
Have demonstrated the importance of the knowledge based economy – as well as the importance and roles of transferable and non transferable skills. Moreover, the importance of education and the need to preserve this vital function – as a means of preserving and updating newly acquired skills and information, cannot be over emphasized.

ACKNOWLEDGEMENTS

The Special Issue guest editors wish to thank the contributing authors for the sections which embody this very important topic of preserving the future of global trade relations. In particular, Prof James DiGabriele for the section, Engaging Non Governmental Organizations and Actors in Sustainable Development (I), Dr Sana Moid for her contribution to the section Engaging Non Governmental Organizations and Actors in Sustainable Development (II), and Meeta Ganguly MBA for the section, Unregulated Financial Markets and the Shadow Banking Narrative: China, India and the United States.

About the Contributors

Marianne Ojo, PhD, has published a total of more than 80 internationally peer-reviewed books, ISI accredited journal articles, book chapters and conference proceedings papers. She currently works as Visiting Professor, post-doctoral researcher as well as university lecturer and Visiting Scholar and is currently also engaged in several projects at affiliated universities in the United States (George Mason University) as well as supervision of graduate and non-graduate students. Furthermore, she serves as a reviewer for various scientific and academic journals which have been accredited with highest credentials at international level. Her previous academic commitments include Insolvency and Research work at LTB, Frankfurt, Research Fellow at the Center for European Law, University of Bremen (2007 – 2010), Teaching Associate and Graduate Teaching Assistant at Oxford Brookes University (2004 – 2007). She has also collaborated with several other authors as well as contributed in several consultation and academic exercises with the Bank for International Settlements.
James DiGabriele is an accomplished academic with well-established and reputable academic and practitioner records in the fields of accounting (forensic accounting), taxation, law and excellent expertise as an expert witness in legal related cases. Having established robust and solid backgrounds in these fields - as well as economic related disciplines, he is also currently involved in extensive journal related publications - recently having co established and incorporated the International Journal of Interdisciplinary Forensic Accounting Research.
Sana Moid has a doctorate in Management. She has authored over 15 research papers. Sana’s research interests include Service Quality in Tourism Industry, Forensic Accounting, Microfinance, and Women Entrepreneurship. She has authored over 8 research papers published in reputed peer reviewed indexed journals and is an active member of Indian Accounting Association and Indian Commerce Association. She has actively participated in FDPs and National and International Seminars. Her total teaching experience is 6 years in addition to 3 years research experience as a research scholar. She has qualified NET in management.
Meeta Ganguly is a postgraduate (MBA) in Banking from Welingkar Institute of Management Studies, Mumbai. Meeta Ganguly currently works as a Research Associate at MarketExpress Consulting & Research Vertical.

Notes

1. It is added that “the merit of regional agreements depends on whether they create trade or divert it – even though, it is also contended that their broader effects may be damaging.” Further, it is added, “bilateral deals are not only complex and tend to be bad for poor countries (that whilst with multi lateral deals, poor countries can piggyback on powerful countries’ negotiating clout, in the case of bilateral deals, they are on their own), but also, the more bilateral deals are in place, the harder it will be to pull off a multilateral one.” See The Economist 2006b.
2. “The term “knowledge-based economy” results from a fuller recognition of the role of knowledge and technology in economic growth. Knowledge, as embodied in human beings (as “human capital”) and in technology, has always been central to economic development.” See OECD, (1996). “The Knowledge Based Economy” Paris at page 9.
3. See D. M, Neamtu (2014) “The 6th International Conference Edu World 2014 “Education Facing Contemporary World Issues”, 7th - 9th November 2014 Education, the economic development pillar” page 416. Research of Richard H.M. cited [Richard H.M. (2006), “Can higher education foster economic growth?”, Chicago Fed Letter, No 229] “which shows that there is a more pronounced economic growth in countries where the higher education system is more developed. Some economists analyzed the existing link between different fields of study that higher education provides and economic growth. Their results put technical studies and their positive effects on economic growth first.”
4. See Phan, D. and Coxhead, I. “Education in Southeast Asia: Investments, Achievements, and Returns”.
5. “- Adam Smith referred to new layers of specialists who are men of speculation and who make important contributions to the production of economically useful knowledge. Friedrich List emphasized the infrastructure and institutions which contribute to the development of productive forces through the creation and distribution of knowledge. The Schumpeterian idea of innovation as a major force of economic dynamics has been followed up by modern Schumpeterian scholars such as Galbraith, Goodwin and Hirschman. And economists such as Romer and Grossman are now developing new growth theories to explain the forces which drive long-term economic growth.” See OECD, (1996). “The Knowledge Based Economy” Paris page 11.
6. Based on results from study, funded by the South African Department of Higher Education and Training, the following were concluded:
- The widely adopted human capital view that higher education increases skill and knowledge and results in higher income - however the researchers behind the new study also highlighted that many more factors had to be taken into consideration: geography, sectors, available skills and education systems and networks of companies all being important factors.
“The case study also involved sectors in South Africa on three levels – primary (sugarcane farming), secondary (automotive) and tertiary (astronomy) – to see what factors account for the effect education has on the economy in each case. They conducted background research on aspects like the value chains, employment patterns and policy frameworks associated with each sector. They then mapped out all the actors involved and interviewed them to find out more about the skills and strategies needed in each sector. They also interviewed all universities in the region.” See G. Kruss, S. McGrath, I. Petersen, M. Gastrow, “Higher Education and Economic Development: The Importance of Building Technological Capabilities International Journal of Educational Development, Volume 43, July 2015, Pages 22-31.
7. “The case studies also highlighted the importance of geography: In respect of the automotive industry, South Africa’s location was considered not conducive to rapid growth, since surrounding countries are not well equipped for the market - however, in respect of astronomy, the country’s success in winning a large international research project was attributable to the clear sky in rural areas that are within close proximity to Cape Town, a world city.” See ibid
8. Termed coined by author to accentuate the era of Mozart’s golden age – as well as innovative resources which music and art continue to generate and to inspire – even centuries after their creation. Innovative and inspirational resources from music and art not only evidenced by their ever priceless and timeless relevance across the ages, but also inherent in their generative capabilities to create even more ground breaking inventions – notably within the sciences, and whose contributory values to scientists who have made their marks, will never and probably cannot be measured monetarily. Also see reference section which highlights W.A Mozart’s masterpieces – including “the Magic Flute”.
The Magic Flute is not only presented to Tamino who is declared to have been sent by Pamina’s mother to rescue Pamina, but also considered to possess the ability to “change sorrow into joy”. It also offers protection to Pamina and Tamino, the two lovers and protagonists in the opera, through their trials - whereby Pamina, not only declares her intention to undergo the remaining trials with Tamino, but also hands him the magic flute to help them through the trials. See https://en.wikipedia.org/wiki/The_Magic_Flute.
“Protected by the music of the magic flute, they pass unscathed through chambers of fire and water. Three child-spirits lead Tamino to Sarastro's temple, promising that if he remains patient, wise and steadfast, he will succeed in rescuing Pamina. As well as other settings, the background to the opera also includes the temples of Wisdom, Reason, and Nature.”
9. Published in Market Express February 5 2018
http://www.marketexpress.in/2018/02/the-shadow-banking-narrative-china-india.html and forthcoming in the American Journal of Economics
10. See KPMG, Regulatory Alert: “Regulating Virtual Currencies” February 2018
11. ibid
12. ibid

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[65]  Douglas Elliott, Arthur Kroeber, Yu Qiao, paper titled “Shadow Banking in China: A primer”, published by “Economic Studies.
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[68]  Whilst the local government’s continued to invest in mega infrastructure projects as part of Central Government’s policy direction, this funding was raised by LGFVs which were owned by the local governments but had access to traditional banking (loans, bonds etc.) as well as shadow banking (mainly trust loans) as source of funds.
[69]  There was moral hazard implicit in this mechanism. Local government finance vehicles took loans based on its own credit worthiness rather than that of the local government who were the ultimate user of the fund. These funds were used to construct “ghost cities”. Thus funds were locked in unused physical assets. This kind of wasteful expenditure which improved GDP numbers attracted international media attention and criticism. Example, a replica of Manhattan was built in the Conch Bay district of Tianjin.
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[72]  Report on “Trends & Progress of Banking in India”, 2016-17. Refer Chapter VII of the report on page no.137 for description of each type of NBFC https://www.rbi.org.in/scripts/PublicationsView.aspx?id=18063.
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[74]  May, 2015 – TPG Capital sold 20.37% stake in Shriram City Union Finance for $387 million. September, 2015 – Apax Partners LLP sold its stake in Cholamandalam Investment & Finance Co. at a reported IRR of 50% 2009 – Chrys Capital made a successful exit on its investment in Shriram Transport Finance Co. Ltd. (Entry and exit value reported were Rs.120 crore and Rs.1,400 crore respectively).
[75]  Article in Livemint,” PE funds face tough challenge from NBFCs in realty sector”, dated March 31, 2017. https://0x9.me/i8lJR.
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