Book Review: The Crisis of Secularism in India

A review of The Crisis of Secularism in India edited by Anuradha Dingwaney Needham and Rajeswari Sunder Rajan

Finance and risk: does finance create risk?

Rajan has earned a well-deserved reputation for having been one of the few to have hypothesized in a famous paper presented at the 2005 Jackson Hole conference that a disastrous financial crisis could have occurred. The key thesis put forward by Rajan was that the radical changes that had taken place over the previous decades rendered the economic system more fragile in that they induced the financial system to create a high amount of risk. The aim of this paper is to show: i) that Rajan’s thesis is not coherent with the mainstream theory according to which finance does not create risk; ii) that a meaningful theory capable of explaining the meaning of the elements used by Rajan to assert that finance creates risk can be elaborated on the basis of the lesson of Keynes and Schumpeter

Capital structure and its determinants in the United Kingdom – a decompositional analysis

Prior research on capital structure by Rajan and Zingales (1995) suggests that the level of gearing in UK companies is positively related to size and tangibility, and negatively correlated with profitability and the level of growth opportunities. However, as argued by Harris and Raviv (1991), 'The interpretation of results must be tempered by an awareness of the difficulties involved in measuring both leverage and the explanatory variables of interest'. In this study the focus is on the difficulties of measuring gearing, and the sensitivity of Rajan and Zingales' results to variations in gearing measures are tested. Based on an analysis of the capital structure of 822 UK companies, Rajan and Zingales' results are found to be highly definitional-dependent. The determinants of gearing appear to vary significantly, depending upon which component of debt is being analysed. In particular, significant differences are found in the determinants of long- and short-term forms of debt. Given that trade credit and equivalent, on average, accounts for more than 62% of total debt, the results are particularly sensitive to whether such debt is included in the gearing measure. It is argued, therefore, that analysis of capital structure is incomplete without a detailed examination of all forms of corporate debt

Multi-Dimensional Rajan Transform

In this paper, we describe the formulation of a novel transform called Multi-Dimensional Rajan Transform, which is an extension of Rajan Transform. Basically, Rajan Transform operates on a number sequence, whose length is a power of two. It transforms any sequence of arbitrary numbers into a sequence of interrelated numbers. As regards 2D Rajan Transform, there are two methods to implement it: (i) Row- Column method and (ii) Column-Row method. The 2D Rajan Transform obtained using the first method need not be the same as that obtained using second method. Similarly, one can implement 3-D Rajan Transform using the following approaches: (i) Row-Column-Depth approach, (ii) Row-Depth- Column approach, (iii) Column-Row-Depth approach, (iv) Column-Depth-Row approach, (v) Depth-Row-Column approach and (vi) Depth- Column-Row approach. This paper explains these approaches to implement two and three dimensional Rajan Transforms

Lessons Learned: Raghuram Rajan

Raghuram Rajan, a University of Chicago professor of economics and finance, served as director of research at the International Monetary Fund (IMF) from 2003 to 2006. In 2005, Rajan warned very publicly of the risks of a financial crisis. Following his tenure at the IMF, Rajan served as chief economic adviser to India’s Finance Ministry and governor of the Reserve Bank of India. An expert on financial institutions and their effects on economic growth and development across countries, Rajan was recognized as a fellow of the American Academy of Arts and Sciences in 2009. He is co-author of Saving Capitalism from the Capitalists (2003) and author of The Third Pillar (2019), about community organization. This Lessons Learned is based on an interview with Rajan conducted on December 16, 2020

Finance and Development: is Schumpeter’s Analysis still relevant?

In recent years numerous studies have been published highlighting the role of financial structures in the development process of contemporary economies.1 These works represent a break with a widely-held theoretical view holding that income, wealth and economic growth are independent of the monetary and financial variables, and which thus considers money and the financial structure as neutral variables.2 In these recent studies there is always a reference to the pioneering work of Schumpeter; in many cases it is just a superficial mention, in other ones and in particular in the writings of Rajan and Zingales (2003a, 2003b, 2003c), important elements of Schumpeter’s theoretical framework are used. Hence, these works afford us an interesting opportunity to re-evaluate the importance of Schumpeter’s contribution.3 The thesis put forward in this paper is that while they do indeed highlight important elements of Schumpeter’s theory, Rajan and Zingales do not take the implications thereof into account and, furthermore, they neglect certain fundamental aspects of the Schumpeterian analysis that are closely connected with the parts that they consider. This renders their work incomplete, and prevents their analysis from achieving the coherence of Schumpeter’s theory. This paper is divided into two parts. In the first part, the most important points of the analysis of Rajan and Zingales are described; in the second part, the elements of Schumpeter’s theory that they overlook are pointed out, and it is shown that by using the Schumpeterian theoretical framework it is possible to analyse the relation between financial structure and economic system growth in a more coherent and in-depth way than the one used by Rajan and Zingales.