The Structural Foundations of International Finance

The Structural Foundations of International Finance

Problems of Growth and Stability

New Horizons in International Business series

Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd

The Structural Foundations of International Finance examines the ways in which national economies, especially those of industrialized countries, are affected by the operations of international financial markets. Although these markets provide productive funding, there is also much speculative trading in stocks and currencies which can cause booms, slumps and hinder recovery. The authors advocate entrepreneurial coordination by productive enterprises for balanced and stable growth, with reduced risks of financial crises and recessions.

Chapter 11: International structural cooperation and financial architecture

Gavin Boyd

Subjects: business and management, international business, economics and finance, financial economics and regulation, international economics


Gavin Boyd The international financial system is evolving with virtually priority funding for more competitive manufacturing and non-financial service firms demonstrating high short-term returns; their strong drawing effects enable them to assume greater prominence in concentration trends, and they are increasingly significant challenges for less advantaged enterprises. With the concentration of trends, large-scale structural change is under way, and the USA is at the centre of this process, attracting investment from Europe and other areas experiencing slower growth. Efficiencies are evident in the financing of the more competitive firms and in the direction of capital flows from less developed areas, but there is a perverse destabilizing dynamic: very active large-scale speculation by financial enterprises in the USA tends to bid up the stocks of the more successful manufacturing and non-financial service firms to unsustainable levels, at which losses of investor confidence cause recession that destroys much growth. This has to be regarded as a problem of market failure, and associated with it is a type of market failure that results from diversions of investment into the speculative operations, that is, away from productive use. These diversions occur because of opportunities for high profits, with reduced tax exposure. The funding of growth in real economies tends to be below potential, imbalanced and unstable; managements of productive enterprises, moreover, can be attracted by the potentially high rewards of speculative expansion that can involve risky mergers and acquisitions. The deficiencies in financial markets have effects in a larger context in which potentials for...

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