University of North Carolina at Chapel Hill Graduate School
Doi
Abstract
Globalization expands markets and improves efficiency by increasing competition, which in turn fosters economic growth and development, but it also increases the risk of economic volatility and crisis. In this dissertation, I use complex systems theory, network analysis, and recent development in post-Keynesian economics to devise a systemic theory of financial crisis that links the structure and pattern of financial and trade interdependencies to the prevalence and virulence of financial crises. In Chapter 1, I outline the core theory, and I test it using network statistics, including a new measure of network centralization I develop based on the Opsahl et al (2010) measure of centrality. I employ a new type of network model, called the Temporal Network Autoregressive Model, that allows me to model country level characteristics as a function of system structure and to properly account for system-level interdependencies. My empirical findings from this analysis are several. First, I show that the prevalence of financial crisis increases as globalization results in a higher degree of connectivity and a less centralized distribution of economic activity between countries; Highly centralized systems reduce the likelihood that a country experiences a financial crisis. The scale of contagion, however, has decreased due to a higher level of economic hegemony on the part of the US in the post-WWII period. Second, countries which are more integrated into trade and capital markets are more likely to experience a financial crisis. Third, contagion from a financial crisis increases if it originates in the most central country. Fourth, the more a country trades with the hegemon, the more likely they are to experience contagion from a crisis originating there. Fifth, contagion originating from outside the hegemon is less likely to spread to countries that trade more with the hegemon. Finally, contagion that results from a crisis that originated outside of the most central country is more severe in non-hegemonic systems. In Chapter 2, I elaborate and test an important implication of the theory I present in Chapter 1 using data from the 19th and early 20th centuries. In a globalized and hegemonically organized international economy, the economic fundamentals and policy choices of the hegemon often have spillover effects for peripheral economies. This is a well recognized dynamic of the contemporary political economy, but it was true during the first age of globalization as well. Motivated by literature examining the impact of the US macroeconomic conditions on other economies throughout the international system, applies the systemic theory of financial crisis from Chapter 1 to the long 19th century, when British hegemony reigned. I argue that a hierarchical distribution of economic activity in the international system during the 19th century meant that the financial cycle of Great Britain infuenced the financial conditions in peripheral countries, ultimately helping to cause financial crisis. Evidence from financial crises which occurred in the long 19th century supports this theory. In Chapter 3, I test the implication of my systemic theory of financial crisis during the contemporary period of globalization and American hegemony. Numerous scholars have studied the effects of the US macro-economy on the economies of peripheral countries. For example, they have examined the consequences of the US Federal Reserve discount rate changes for investment in developing countries. I argue the hierarchical distribution of economic activity in the contemporary international system also means that the financial cycle of the United States infuences the financial conditions in peripheral countries that lead to financial crisis. Cross-sectional time series evidence from 1970-2011 using both quarterly and annual data supports this theory.Doctor of Philosoph
