Lessons from the Great Recession: At the Crossroads of Sustainability and Recovery: Volume 18

At the onset of the Global Financial Crisis in 2007–2008, majority of the analysts and policymakers have anticipated contagion from the markets volatility in the advanced economies (AEs) to the emerging markets (EMs). This chapter examines the volatility spillovers from the AEs’ equity markets (Japan, the United States and Europe) to the four key EMs, the BRIC (Brazil, Russia, India and China).

The period under study, from 2000 through mid-2014, reflects a time of varying regimes in markets volatility, including the periods of dot.com bubble, the Global Financial Crisis and the European Sovereign Debt Crisis, the Great Recession and the start of the Russian-Ukrainian geopolitical crisis. To estimate volatility cross-linkages between the AEs and BRIC markets, we use multivariate GARCH-BEKK model across a number of specifications.

We find that, the developed economies weighted return volatility did have a significant impact on volatility across all four of the BRIC economies returns. However, contrary to the consensus view, there was no evidence of volatility spillover from the individual AEs onto BRIC economies with the exception of a spillover from Europe to Brazil. The implied forward-looking expectations for markets volatility had a strong and significant spillover effect onto Brazil, Russia and China, and a weaker effect on India.

The evidence on volatility spillovers from the AEs markets to EMs puts into question the traditional view of financial and economic systems sustainability in the presence of higher orders of integration of the global monetary and financial systems. Overall, data suggest that we are witnessing less than perfect integration between BRIC economies and AEs markets to-date can offer some volatility hedging opportunities for investors.

Our chapter contributes to the growing literature on volatility spillovers from the AEs to the EMs in a number of ways. Firstly, we provide a formal analysis of the spillovers to the BRIC economies over the periods of recent crises. Secondly, we make new conclusions concerning longer-term spillovers as opposed to higher frequency volatility contagion covered by the previous literature. Thirdly, we consider a new channel for volatility contagion – the trade-weighted AEs volatility measure.

This chapter examines the roles and challenges for the Irish economy in the aftermath of the collapse of the Celtic Tiger and the onset of the 2008 economic crisis. Specifically, it does review the role that Government, the Central Bank of Ireland, and the Financial Regulator had before, during and after the collapse of both the Irish banking system and property market. This chapter explains the drivers behind the growth of the Celtic Tiger and the sources of leverage that amplified the severity of the subsequent collapse. Specifically, this chapter focuses on the changes that have since been made and provides a review of the lessons that can be obtained from the collapse.

The results presented in this chapter are based on analysis of secondary sources and a literature review to determine conceptual and theoretical frameworks for identifying the specific issues that the Irish economy endured since the 2008 economic crisis and the red flags and signals that were either missed or ignored.

Combined with the subprime collapse of 2007 and the international sovereign debt crisis evident since 2008, Ireland and the actions of its regulators and policy makers undoubtedly generated not only a catalyst to financial ruin, but also an incubator to aid its severity. The precise drivers that created the Celtic Tiger remained unchanged and played a significant role in the subsequent collapse. Banks were leveraged towards the Irish property market and the role of leverage in financial markets created mispricing, to which the basic principles of the efficient market hypothesis (EMH) failed. This miscalculation of risk was severe and destructive for the real economy. The reward for this error was a place in history as an ‘I’ in the derogatory term ‘PIIGS’.

This chapter could be used as teaching material for undergraduate and masters programmes in economics and finance. It provides a response to further understand the behaviour of the Irish economy during the development of the Celtic Tiger and the subsequent financial collapse that enveloped the Irish state.

This chapter discusses the role of leverage throughout a financial system and the necessity for financial monitors to promote an environment of sustainability and financial endurance; that which can survive an international financial crisis event.

In much of the literature written in Sustainability and Environmental Justice, the focus is on the effects of government mismanagement or corporate social irresponsibility, or CSR ignored for the goal of greater profits. Certainly we have seen natural resources ripped from communities and nations for the benefit of corporate profits (Sarkar, 2013). The idea that a participatory government will lead to greater efforts for sustainability must be viewed in the light of its times and economy (Gonzalez-Perez, 2013). What happens when the man-made disaster precedes or clashes with natural disaster? The Great Recession of 2008 was stunning in the rapidity with which it spread around the globe. The recession illustrated a global acceptance of financial wisdom that had been presented as fact and yet could easily be undermined by people who understood the barriers, boundaries, and restrictions in place as well as where the financial assumptions could be deceived by introduction of new terms and definitions as in the case of credit default swaps.

In this chapter, we focus on the influence of the recession on one of the most powerful financial capitals of the world, New York City. We discuss the general effect of the recession on New York City as a whole and then take a narrower look at each of the five boroughs, Manhattan, Queens, Staten Island, Brooklyn, and the Bronx. We examine the disparate economic states of each borough and how the recession has impacted each of them. Furthermore, we discuss the implications of the general perception of Manhattan’s resilience to the recession and how is has impacted the other boroughs, such as the housing crisis in Staten Island and Queens following Hurricane Sandy, unemployment rates in the Bronx, and the rebuilding of a sustainable job market in Brooklyn.

We reviewed relevant literature, including academic research, reports issued by the State of New York, census data, articles printed in popular press outlets, and business resources to provide a thorough look at the influence of the Great Recession on New York City and each of its five boroughs. We found extensive support for the disparity amongst the five boroughs, despite the perception that New York City is thriving in the wake of the Great Recession and Hurricane Sandy. We detail the unique economic and environmental factors of each borough and explain how it influenced the impact of the Great Recession and subsequent natural disaster.

Manhattan was well insulated from the initial impact of the Great Recession, with tourism in the city remaining high through 2008 and financial firms on Wall Street experiencing record high profits well into 2009. Despite the downfall of Lehmann Brothers and Merrill Lynch, the financial bailouts and Federal Reserve credit available to Wall Street firms prevented Manhattan’s financial sector from experiencing the dramatic unemployment rates that the rest of New York and the United States were facing (DeFreitas, 2009).

The Great Recession hit disadvantaged areas, like the Bronx, harder than other areas of New York, while Hurricane Sandy halted the economic recovery in areas like Queens and Staten Island. While unemployment remains low in New York City as a whole, the recovery from the Great Recession has been uneven, further widening the gap between New York City’s boroughs, with the lower income areas at a greater disadvantage and the higher income areas souring. While Manhattan has recovered significantly, with Wall Street profits reaching record levels in 2009, other boroughs haven’t experienced the same economic upturn and are still facing significant challenges (Parrott, 2010). While the city has gained nearly 375,000 jobs, nearly twice the number of jobs that were lost during the Great Recession (Crain’s New York Business, 2013), the significant variance in wages and high costs of living has not greatly reduced the number of working poor across New York City and has not resulted in an evenly spread boost in wealth.

At the end of our chapter, we discuss “lessons learned” and, in particular, the importance of preparation for both fiscal and natural disasters. Local policy makers must ensure that the needs of its constituents are being met and will be met in the future if such hardship were to strike. Government leaders need to have a forward-looking plan, rather than simply handling immediate needs.

The originality of our content stems from a deeper look into the nuances of the economy of New York City. Statistics paint a picture of a thriving City, despite the Great Recession. However, understanding the distinct differences amongst the five boroughs illustrates that these citywide averages do not paint an accurate picture of life for New Yorkers off of Wall Street. The extent to which the high-income areas in Manhattan have recovered suggests that the economy of New York City as a whole is thriving, whereas the reality is that the middle-class has not recovered and the previously disadvantaged are now even more so. It is important to look at each of the five boroughs of New York City individually when creating policy to both recover from and prevent events such as the Great Recession and the destruction of Hurricane Sandy. Our chapter illustrates stark differences within New York City in the face of both financial and natural crises.

This chapter presents a South American perspective on the environmental and financial sustainability of energy integration incorporating recent financial lessons from the United States and Europe. An illustrative project called UNASUR-GRID is presented to highlight new thinking on funding ecologically sensitive development (post-carbon electricity generation) and regional energy sovereignty via a new regional development bank for the Union of South American Nations (UNASUR) called Bank of the South, Banco del Sur (BDS) ^1,2 . Sustainable BDS finance rules are presented that aim to break the link between development funding, environmental damage, and sovereign debt owed to banks outside the region, tapping into alternative finances to buffer the region against changes in global financial flows from core nations in the Great Recession.

The author attended presidential meetings of MERCOSUR and UNASUR supplementing this with presidential declarations comparing these with ongoing development planning from IIRSA, also interviewing a COSIPLAN representative. He also cooperated (as an independent researcher) with the Ecuadorian Central Bank research group called ‘New Architectures for Regional Finance’ (NAFR) and conducted technical interviews at South American energy institutes specialising in integration.

Development finance must reflect changes in both energy supply and demand while replacing fossil fuel inputs in electricity generation. Demand planning is necessary to attain sovereignty over a post-carbon electricity supply while maintaining dependability.

Successful energy cooperation is more than just energy infrastructure (UNASUR-GRID), cross-border confidence building is also required, reinforced by commercial treaties for energy exports and imports. Public and private national and regional energy companies need real incentives to trade internationally (improving competition) or renationalisation of supply and distribution may be necessary.

Highly original, this chapter incorporates government, UN and civil NGO inputs into primary research. BDS policy sources include government, ministerial and presidential speeches with interviews and participation in meetings with social movements. For indigenous ecological and social economic concepts such as Sumak Kawsay, the author has travelled extensively in South America and was an active participant at the first World People’s Conference on Climate Change and the 2010 Rights of Mother Earth (World Conference on Indigenous Peoples, 2014) in Cochabamba, Bolivia, along with ecologists and tribal representatives.

Development is a dynamic concept that pertains the evolution of human societies. Over the past few years policy makers, as well as academics, have incorporated a very important, yet sometimes neglected, component in the concept of development which is environmental costs and sustainability. One of the key aspects that affects sustainability is energetic consumption, therefore our aim is to determine if changes in oil, coal, and gas, prices during the period 2000–2010 influenced sustainable development.

We modified the Human Development Index (HDI) by adding energy consumption component, and propose what we call the Modified Human Sustainable Development Index (HSDI) which captures a broader definition of sustainable development. Then we employ econometric techniques to study the effects of changes in commodity prices on our index in the short run.

Our results show a nonlinear effect of commodity prices on our index, low and middle-income countries display a positive effect of prices on our HSDI, with smaller effects in the former ones, while high-income countries do not seem to exhibit a significant effect. While low and middle-income countries are typically commodity producers.

Middle-income countries are able to obtain larger benefits in terms of sustainable development due to a better institutional structure which constitutes an opportunity for them in the aftermath of the crisis.

Middle- and low-income countries should design policies that enable them to take advantage of the rises and protect their economies from the falls.

We address the problem of sustainable development and commodity prices in a post-crisi world, which was not reviewed in the literature. In addition we build a measurement of the Human Sustainable Development Index that considers energy consumption as one of its factors. Which is in line with previous results about energy consumption and the Human Development Index.

The purpose of this chapter is to call for a better cohesion between development cooperation, on the one hand, and inclusive business, on the other. This contributes to the existing post recessionary debate on development cooperation, in which, (i) traditional aid and partnership effectiveness are being revised and, (ii) the role of the private sector in development is being emphasized. It builds on recent discussions that call for a more strategic use of development cooperation to leverage other development-oriented flows, particularly those coming from the private sector.

The chapter corresponds to a conceptual chapter. Results were obtained through the study and comparison of secondary sources and a literature review. It first explores donor-private sector relations, paying particular attention to the OECD Development Assistance Committee (DAC), and then moves on to the study of inclusive business in relation to development aid.

The study first reflects upon shifts perceived in development cooperation since the Great Recession, and analyses how foreign donors have engaged more widely with businesses for addressing global development challenges. The concept of inclusive business is then introduced, describing how although the development community acknowledges the potential of the private sector as a driving force for development, inclusive business have hitherto been developing, to a great extent, aside of broader development efforts. The final section presents a typology that proposes various ways in which donor agencies may integrate inclusive business support into their private sector programs.

The chapter is of use for both academics and practitioners with an interest in development cooperation and/or inclusive business.

Proposing a conceptual study that tends toward a greater cohesion between inclusive business and development cooperation is a contribution to the literature that has emerged on Base of the Pyramid markets since early 2000s. It is argued that such cohesion may prove valuable for the betterment of public-private relations, turning them more responsive to the challenges of sustainable development in the post-2015 world.

The purpose of this chapter is to examine how multinational firms have an added incentive to promote corporate social responsibility (CSR) in order to maximize profitability and adapt to the changing normative climate in a post Great Recession economy.

This chapter builds on institutional theory using contextual evidence from Mexican firms to provide insight into the varying pressures facing local and multinational enterprises in emerging markets.

This chapter highlights different sets of pressures faced by emerging market firms, both domestic and multinational. This chapter contends that emerging market multinational enterprises (EMNEs) are incentivized to uphold CSR practices to a greater degree than domestic firms from emerging markets.

Contextual evidence for this chapter was confined to Mexican firms, which provides an opportunity for future research to be carried out from alternative emerging markets.

From a social standpoint, this chapter sheds light on the challenges of globalization and the current rift between national level policies, coinciding behavior, and global expectations. From a practical standpoint, this chapter could inform and alert CEOs and practitioners to the nuances of CSR expectations, contingent upon the sphere in which they choose to operate in.

This chapter contributes to the growing dialogue on EMNEs while highlighting the schism between national and global expectations for CSR. Further, this chapter adds to the literature on institutional theory by connecting it to the in-group and out-group literature from sociology.

The purpose of this study is to show how socially responsible investment (SRI) could represent a powerful tool (trust recovering in political and economic institutions) in the case of failure or stagnation of economic and financial growth. The purpose of this chapter is to evaluate the current status of SRI in the context of the recent financial and economic crises. The main objective of this analysis is to consider the different benefits and challenges that this type of investment transactions bring into the international economy, and how SRI entrance could represent a major benefit not only for investors a different approach to corporate sustainability but as an important possibility in times of global economic and political crisis.

By analysing the literature about SRI, it has been developed a discussion regarding its benefits and obstacles in today’s financial scenario. By evaluating the performance of SRI in the context of the global financial crisis and the important opportunities regarding development, we would like to present the SRI as an important tool in today’s Post 2015 development agenda.

After revising the existent literature, it has been found that there are two important discussions in the field of SRI. The first one is related with the financial performance of SRI in contrast with the conventional investment funds while the second one is related with important considerations about the SRI in the context of the global financial crisis. After considering the arguments from the different authors, we address some conclusions regarding the importance of SRI in nowadays sustainable development discussion.

Due to failure in the traditional modus operandi of financial institutions and the recent global crises, investors, corporate executives and governments are increasingly paying more attention on the social, environmental and ethical behaviour of individual managers, shareholders and institutional investors. Therefore, it is being observed a shift and maturing process in SRI from an exclusive practice of few and specialised niche investment funds with minor financial implications and limited economic importance, to mainstream adopted by a growing number of institutional investors at the international level. This shift may influence companies and managers to adopt universal values and to assume a committed and strategic CSR agenda to respond to markets and societal expectations, in order to have guilt-free and sustainable investment and sustainable financial markets.

Within the context of the Post 2015 development agenda, the role of business and the private sector has become crucial for funding the new sustainable development goals (SDGs). This chapter not only discussed the relationship between SRI as an alternative to overcome financial crises and lack of sustainability in investment, but it does also conceptually demonstrates the potential of SRI to achieve the funding of the SDGs.

This chapter presents the results of the comprehensive literature survey and supportive empirical assessment of the potential impacts of the Financial Transactions Tax (FTT) recently adopted by the European Commission in response to the significant financial sector misallocations arising from the Global Financial Crisis.

A survey of 50 academic articles relating to both Financial Transaction Taxes and Tobin Taxes shows that although a reduction in liquidity can be expected from such taxes, the impacts this will have on volatility and efficiency in a market are less obvious. A regression model quantifying what the possible effect of an introduction of a 0.1% tax on financial transactions would be on trading volumes and levels of volatility in the European equity market confirms the survey results in broader terms.

The results suggest that, in the current economic climate, such a tax would likely increase volatility levels but may not have much effect on trading volumes.

As a result the proposed tax can be viewed as an exercise in revenue generation but not as a macro-prudential tool for addressing potential future shocks and imbalances within the European financial system. In other words, contrary to political and media statements, the FTT does not appear to be an effective tool for addressing past, present and future risks associated with systemic malfunctioning in the banking and financial systems.

The study presents an extensive and systematic survey of academic literature on FTT and links this survey to empirical model estimation. This twin approach to the analysis is novel to the academic and policy literature on Financial Transactions Tax. Whilst popular belief is that introduction of FTT will aid the objective of achieving greater financial and economic sustainability across the European financial systems, evidence presented in this chapter suggests that such a conclusion is at the very best naive.

In the aftermath of the Great Recession, over 500,000 families have been evicted from their homes since Spain’s property market crashed in 2008. The response of Spanish local communities has been the emergence of a networked social movement, Plataforma de Afectados por la Hipoteca (PAH), endeavouring to build a more sustainable future through upholding the right to housing. This chapter examines the ability of the PAH social movement to uphold the right to housing and prompt social and institutional change in Spain.

This is a single-case study of the PAH social movement in Spain. The data are of three types: texts, photos, and films disseminated via the mass media, social networks, and PAH websites; informal conversations with PAH participants from Barcelona and Madrid; and observations and personal interviews held in two local PAH groups, that is, Móstoles and Elche.

In this chapter, first we explore the birth of PAH and its later spread from Barcelona to hundreds of cities in Spain and beyond, as a social reaction to the economic recession and decisions made by political, administrative, and financial institutions in response to the economic crisis. Then, by analysing the internal dynamics of two PAH groups, we discuss how networked social movements such as PAH can create spaces of citizenship that challenge taken-for-granted principles of capitalism, prompting social change. Finally, we uncover how, due to PAH’s advocacy work addressing a structural lack of emergency and social housing, the Spanish public administration is developing new roles and allocating new resources to guarantee the right to housing, a social policy area historically neglected in Spain.

New social housing offices are being established in municipalities in Spain as a result of PAH’s advocacy work.

The strengthening of social capital and movements in the aftermath of the economic crisis has the ability to prompt investment in social areas such as housing.

This chapter seeks to explain the effects of actions in investment treaty tribunals against states in the European Periphery. The chapter examines the case of Spain and the multiple actions brought against it due to changes in support structures for the production of solar electricity. The aim of this analysis is to test whether investor-state dispute settlement (ISDS) can further the cause of environmental sustainability.

In its opening part the chapter employs a ‘socio-legal’ methodology, showing the links between legal frameworks and the evolution of social and political norms. The chapter then adopts a ‘law and economics’ approach in presenting recent developments seeking to tease out the dynamic between legal changes, economic effects, policy reactions and dispute resolution.

While there is significant uncertainty over the strength of the legal arguments of claimants, it seems possible that they will be successful in claiming compensation from the Spanish government. Nonetheless, a win for the investors is unlikely to reverse the Spanish policy of ending support for renewables due to fiscal constraints. The conclusion is that such actions have a negative impact in terms of promoting the spread of renewables and they inhibit recovery in crisis hit nations.

The chapter offers context on the use of ISDS against the background of the European crisis. This analysis has wider connotations for policy design as it feeds directly into concerns about multilateral agreements under negotiation, such as TTIP.

This is the first comprehensive academic study of the changes in Spanish regulatory frameworks regarding clean energy incentives. It is also the first comprehensive presentation of the actions brought against Spain as a result of these changes.

We construct an embankment on a historical flow. The intention is to design a durable structure for any country seeking to pull itself out of the current recession.

Thomas Piketty’s classic is subjected to a close and novel scrutiny. The history is downplayed and the nascent macroeconomics fleshed out and extended.

A distinction must be made between rentier and productive interests and credit directed to the latter. Both private and public investments are essential. Socially designed projects must be originated and supported through State Development Banks.

Individual components have long been in existence. Green technology, social funding and the like are increasing in importance. However, they have not been embraced in a simple overarching model.

We offer a rationale for the government bond. Finance is introduced rigorously into the macroeconomic framework. The basis, though, is employment.