Beruflich Dokumente
Kultur Dokumente
Bhavya Srivastava
Bhavya95@gmail.com
Nidhi Mardi
Nidhimardi099@yahoo.co.in
Lady Shri Ram College for Women, New Delhi
Delhi University
Abstract
This paper seeks to analyze whether or not economic colonization impacted the vulnerability of a
given country to financial crises. It uses multi-variable regression analysis in order to empirically
substantiate and analyze the impact of multi-corp cultural colonialism. Section 1 of the paper
highlights the various pre-existing theories in the given field of research. Section 2 of the paper
then uses an OLS regression model to prove the link that exists between the degree of
vulnerability of a financial crisis and the degree of economic colonization. The paper then
concludes by suggesting that there is a correlation between the variables stated above, thereby
empirically proving the pre-existing theories.
1. Introduction
The paper aims to analyze the correlation that exists between economic colonization and the
vulnerability to a financial crisis due to colonialism defining the growth trajectory of a nation
through trade increasing the inter-dependence between various nations. The research is specific
to East-Asian economies as these economies followed similar growth paths but differed in the
degrees of economic colonization.
There exists myriad literature and theories to prove that colonization and financial crises are
correlated, however there is a dearth of empirical evidence to prove the same. In the paper titled
The Long-term Impact of Colonial Rule: Evidence from India, Iyer (2004) tries to empirically
analyze the impact of colonized areas on public goods using a British annexation policy called
Doctrine of Lapse, which referred to British annexation of areas where the native ruler died
without a natural heir. By running a regression to study the outcome variable of a district through
a dummy for colonization (which is computed through regressing a dummy of lapse and other
factors) of the area and an explanatory variable of other factors which are mainly geographic in
nature, the OLS model indicates that colonized areas had lower infrastructure or public goods.
Though the study tries to highlight the detrimental effects of colonization on public goods, it is
subject to various limitations since it fails to account for a change in the infrastructure facilities
post colonization (the districts could have had poor infrastructure pre-colonization). Even though
the paper does target the impact of colonization, it fails to account for variables that describe
how the impact was brought about (for example, the author could include a variable that
accounts for destruction of public goods or a fall in the quality of the same).
However, very few other papers deal with the empirical analysis of colonization. One of the
main political theories which implicitly defines the correlation between colonization and
financial crises, is the dependency theory. The dependency theory is a Marxist theory which uses
the core-periphery approach to highlight the disparity between developing and developed
nations. The core countries are the developed nations and they exploit the resources of the
periphery, which encompasses the developing nations. Thus in turn these periphery nations
become the raw material bases for the core nations.
The authors of this paper are seeking to assess the impact of economic colonization or neo-
colonialism and not of colonialism per say. Neo-colonialism is nothing but economic
colonization. It is the last phase of imperialism. Neocolonialism perpetrates increased openness
of the periphery economies defined by the Dependency theory. On these lines the Heckscher-
Ohlin theory of comparative costs of production stressed upon the fact that countries should
focus on production of commodities in which they have a comparative advantage. This gave the
core economies the clean chit to focus on industrial production whereas the periphery economies
were to produce primary commodities.
This entire process is traced in Girish Mishras essay titled Some More Aspects of Monopoly
Capitalism-Neocolonialism and Multinational Corporations. Mishra defines neocolonialism as
the process of political freedom with existence of old economic relations post the imperialist era.
He argues that the two world wars weakened the colony-holding big imperialist powers and as
a replacement gave rise to neocolonialism in the form of Transnational and Multinational
corporations. He emphasizes how decline of the old type of colonialism and its replacement by
neo-colonialism transferred political dominance from the authoritarian government to
Transnational and Multinational Corporations, in whose interests governments determine their
relationships with their former colonies and with all other developing countries (Hart, 1973).
Chase-Dunn (1975), on similar lines, emphasized that international economic dependence leads
to a power-dependence mechanism where the periphery becomes dependent on the core. This
direct economic penetration is in the form of private investment by transnational corporations
through ownership and control of production process and indirect economic dependence results
from foreign aid programmes and credit agencies. In his essay titled The Crisis of Growth of
The Colonial And Semi-Colonial Countries (1960-61) A.R Desai emphasizes colonial ties to
colonial revolution has influenced the capitalist economic system as a whole and has made world
markets more integrated.He states that the aid of imperialism is the equivalent of only a small
part of the surplus-value that it is itself extracting from the backward countries.
Beckford (1971) in his paper concluded that even though intervention of transnational
corporations in plantation economies result in a short-term rise in national income, the long-term
impact is of a distorted structural and institutional growth of the periphery. This distortion of
resources creates a state of dynamic underdevelopment due to the peripherys economic structure
being hampered. This distorted structural growth due to increased foreign capital inflow is
however neither inclusive, nor sustainable.
Mishra (1991) substantiates this line of thought further by arguing that neocolonialism opened
the newly liberated countries for investment, and the West chose to invest its surplus capital in
these developing economies, which led to these changes in economic structures of the liberated
economies. The formation of the United Nations, World Bank and International Monetary Fund
further propagated the ideologies and economic policies of the United States, Japan and the
European powers. The US government started advancing loans and aid to the liberated
economies and US military bases were set up to stimulate demand for US goods and services in
return for raw materials of these developing economies. The expansion of multinational banks
facilitated the MNCs in penetrating the developing markets.
These neo-colonies proved to be profitable markets due to availability of cheap labour and lack
of trade unions and protective factory laws. This led to the emergence of the concept of
labouraristocracy which Lenin had coined to shed light on the practices of MNCs which allowed
them to exploit cheap labour in developing economies so that workers back in the home country
could be paid higher wages. This led to unequal growth both within the developing country as
well as between developing and developed economies.
Economic dependence was also a result of the developing economies becoming exporters in
order to experience a period of rapid growth. In his book Fault Lines, Dr.Raghuram Rajan
elucidates the concerns of export-led growth. Post the World War II the developing economies
needed to export in order to prevent falling into the poverty trap. However, this rapid growth
through government intervention, to create competitive exporters, was at the cost of the
household consumption of their domestic economy. Hence, the developing economies relied
heavily on the demand in the industrial or developed economies. However, even these industrial
economies are subject to debt-fueled constraints as it causes concerns regarding inflation,
implying that whenever their demand falls or is at a standstill the developing economies face a
production surplus and the lack of demand drives them into a crisis.
In this context, Rajan describes the dependence on the foreign consumer as the source of a fault
line. An internally generated growth could help reduce the dependence though since institutional
changes accompany the process of growth, the answer lies in managed capitalism. Managed
capitalism helps to make the domestic industries compete with MNCs through the developing
country government assisting them in their initial stages so that the domestic production and
exports add to the domestic countrys coffers and make the export-led growth sustainable rather
than a sign a looming danger.
More recently, Dr.Slavoj Zizekcoined the term multicorpcultural colonialism which evolved
from the previously used early nineteenth-century term multinationalisation that emphasized the
dependency of developing economies on US multinational monopolies. In his paper titled,
Multiculturalism, Or, the Cultural Logic of Multinational Capitalism, Zizek (1997) emphasizes
there is a we have evolved from a capitalism circumscribed by the national confines of the
country to the final act of this process i.e paradox of colonialism, where the real colonies no
longer exist- the power of colonizing is no longer in the hands of national states, but directly in
the hands of the global businesses. He emphasizes, the relationship between traditional
imperialist colonialism and capitalist global auto-colonialism is the same as the relationship
between Western Cultural imperialism and multiculturalism:and just as global capitalism
includes the paradox of colonization without the colonized countries, so multiculturalism offers a
protection of Euro-centric distance and/or the respect for local cultures without having any roots
in its own particular culture.
Patnaik (2006) has also written extensively about how Lenins theory of imperialism plays in a
pivotal role by widening the praxiss scope to include the oppressed nations as well, and thereby
looked East by taking into account the events in India and China. The under-consumption theory
and under-investment theory both helped to stress that imperialism is inherent, or rather a
functional necessity, to monopoly capitalism. In fact, Patnaik emphasizes that imperialism
rescues capitalism from its inherent contradiction as (Lenins work proves that) the problem of
overproduction (that results from both the under-consumption theory and under-investment
theory) is solved by the expansion of economic territory. The consequence of this attempted
globalization is that the developing or Third World countries have poor standards of living, loss
in economic and political power, denationalization, attenuation of democracy and all of this
contributes to further conflicts which only makes the country more vulnerable to foreign
intervention.
Patnaik ends by coining and defining super-imperialism, a situation when the strength of one of
the imperialist powersexceeds that of its rivals by more than a critical margin, then this
difference would tend to persist and even increase. This state is quite stable, not in the sense of
being necessarily long-lived, but in the sense of having considerable capacity to manipulate its
contradictions (Patnaik, 2006). Unsurprisingly, the example of a super-imperialist that is quoted
by Patnaik is none other than the United States of America.
However, none of the above stated theories have been empirically proven as of now. Hence the
topic of our choice can significantly add to the existing literature on this particular hypothesis
and help to prove the political theories using robust empirical results.
2. The Empirical Model
The model tries to analyze the correlation between Vulnerability to Financial Crisis and the
degree of Export Dependence and Multi-Corp Culture in an economy. The paper has chosen four
East-Asian countries and thereby studies the impacts of colonization through the introduction of
a dummy in the model. East-Asian economies were chosen since they followed a similar growth
trajectory and are also similar when comparisons are made on the basis of macroeconomic
variables due to their similar geographic and cultural conditions.
2.1 Methodology
Three colonized countries and one semi-colonized1 country was chosen, which are as follows:
Panel data was collected incorporating the data of each of these four countries over a period of
15 years (from 1996-2010) since during this time period economies had been liberalized and
several financial crises had also impacted each of these economies, making it easier to study their
vulnerability to such financial crises.
A dummy for the colonial status, d_C, was introduced such that:
1 = Colonized economy
0 = Semi-colonized economy
This variable gauges the vulnerability to Financial Crisis. For this variable we have looked at the
Retrospective Economic Vulnerability Index (EVI), built by the United Nations with
contribution of the FERDI Foundation (Foundation Pour Lse Estudes Et Recherches). The data
set has been derived from retrospective figures computed by Joel Cariolle and Michael Goujon
covering the period 1980-2011 for 130 developing countries.
1
Semi-colonized countries are defined by sociologists as those countries which preserved their juridical
independence when they were subjected to imperial capital, trade and political influences.
Sub-components of the index:
Thus, the EVI is the arithmetic average of:
1) The exposure index, which is a weighted average of population size (50%), remoteness
from world markets (25%), exports concentration (12.5%), and the share of agriculture,
forestry and fishery in GDP (12.5%).
2) The size and likelihood of shocks, which is a weighted average of the annual mean
share of homeless due to natural disasters in the population (25%), the instability in the
agricultural production (25%), and the instability in exports of goods and services (50%).
The EVI is an index between 0 and 100, since its components are also measured on a 0 to 100
scale and since the cumulative sum of their weight equals 1. A high score corresponds to a high
level of vulnerability while a low score corresponds to a low level of vulnerability.
Figure 1:
45
40
35
30
25
20
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The graphs reflects how the vulnerability to crises has differed for the four East-Asian economies. It can
be seen that Indonesia and Thailand were the worst affected by the Asian financial crisis and thus their
graphs have risen in 1997. In the first decade of the twenty-first century the vulnerability remained more
or less the same, with the exception being Thailand. Thailand became more vulnerable in the early 2000s
since in the aftermath of the Asian financial crisis the IMF had imposed several structural changes which
proved ineffective and thereby worsened the state of the economy. A downward trend was seen from
2005 to 2006 as a consequence of better regulation by the Central Banks of these economies.
Government Effectiveness
1.5
0.5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-0.5
-1
The above graph shows trends reflecting effectiveness of government administration. A dip in
government effectiveness is witnessed in all four economies in the 1996-98 period linked to the
Asian Financial Crisis. The four economies witness a reasonable dip in government effectiveness
in 2008-10 period, indicative of the link to the sub-prime crisis. The graph shows a surge post
2001, indicative of effective governance. This period also witnessed a surge in investor
confidence and business freedom ending with the dot-com bubble. All in all the graph shows
reasonable levels of correlation between effective governance and fluctuations in vulnerability to
financial crises in these nations.
FDI in Financial Sector has been taken from the balance of payments as the sum of equity
capital, reinvestment of earning, other long term capital and other short term capital.
Figure 3:
Multi-Corp Culture in Financial Sector
12
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-2
The trends are clearly in coherence with the global scenario. Post 1998, FDI in all four
economies fell as an outcome of the Asian financial crisis, which led to a fall in investor
confidence for all these economics. However, the situation reversed post 2001 as all countries
experienced an increase in the MCC variable. This reflects the increased investment in
developing economies after the crash of the dot-com bubble. It can be seen that the FDI reached
its peak in 2005 as at this point in time the easy money available in the US economy made it
possible for the citizens of the developed economies to invest in the emerging markets. However,
after the Great Recession of 2008, a lot of the investors of the developed countries lost a lot of
their money and were declared bankrupt and this thereby led to a retraction of investment in the
developing countries.
Dependency theory perpetrates an export led growth in neo-colonized economies that are
thriving on foreign capital financing their manufacturing sector. Theory suggests that increased
integration of global markets via trade channels has led to increased vulnerability of neo-colonies
to financial crises. This is also substantiated by Lenins theory of Imperialism where economic
colonization and globalization of finance with capital transcending national boundaries has led to
integration of formal financial markets, leading to greater dependence on imperialist economies,
augmenting vulnerability to crises.
This variable aims to gauge the exports to developed countries, i.e. Japan, United States of
American and the European Union countries. Imports have not been taken into consideration,
since imports can be manipulated on the basis of the economys state, however exports are
exclusively dependent upon the country to which the goods and services are being exported.
Figure 4:
Our model also indicates that vulnerability to crisis on an average decreases by 1% as the
Effectiveness of Governance Index increases by 0.105375. Hence the model is indicative of a
significant relationship between the two variables. However we take log of the variable for
effectiveness of governance because while institutional quality is a factor in determining
vulnerability, its variability does not have a significant bearing on fluctuation of vulnerability to
financial crisis. This is also indicative that as quality if institutions improves more and more, it
has a lesser and lesser impact on reducing vulnerability to financial crisis. This statistic is
significant at 1% level of significance. The dummy coefficient included to gauge the impact of
colonization is also significant at 1% level of significance.
Our R2 as well as adjusted R2 values are reasonably high. If we use hypothesis testing to gauge
the joint explanatory power of the variables, then we get F-statistic value of 27.14431 which is
significant 0.1% level of significance. The Durbin Watson statistic is less than 1 which may be
indicative of serial positive autocorrelation.
Hence, collectively all three explanatory variables and the colonial status dummy variables affect
the dependent variable and are collectively significant.
4. Conclusion
Thus, from the regression model one can reasonably conclude that economically colonized
nations are less resilient to financial crises. A primary reason for this is neocolonialism and
increased export dependence. The model also indicates that economies with ineffective political
institutions are more vulnerable to financial crises. Susceptibility to financial crises can be traced
to differences in the structural growth of these economies due increased integration of their
financial markets with the global markets, thereby making them more susceptible to financial
shocks. Thus increased export dependence on the core developed economies as per Dependency
Theory, indeed tends to make developing economies more prone to the effects of global financial
market fluctuations.
5. Reference List
Patnaik, P. (2006). Lenin's Theory of Imperialism Today. In K. Jomo, The Long Twentieth
Century: The Great Divergence: Hegemony, Uneven Development and Global Inequality.
Oxford University Press.
6. Appendix