The ‘Flying-Geese’ Theory of Tandem Growth and Regional Agglomeration
Chapter 8: Creating the World in America’s Own Image?
INTRODUCTION This chapter looks at the US as the first lead goose in global financial markets by focusing on the recent phenomenal growth of one particular American innovation, private equity. It involves both venture capital and buyout funds. Its stellar appearance has had an immediate impact on the rest of the world, especially in those fast-developing countries that have opened up their financial markets. Asian countries in particular had their first encounter with America’s buyout firms that sought fire-sale assets in the aftermath of the Asian financial crisis of 1997–8 (and they came to be despised as ‘vulture funds’). Elsewhere, they have been also given the opprobrious nicknames of ‘gluttons’, ‘barbarians at the gate’, and ‘locusts’, reflecting the controversial nature of their operations. What is private equity? Why has there been such a swift growth of private equity worldwide? What are the undesirable attributes of private equity? What is good about it? How can we make sense of this new financial development that first appeared in the US, and that has spread so quickly to other countries? What does this mean for the fast-growing Asian countries (especially China and India) whose financial markets are increasingly integrated into the global economy? The purpose of this chapter is three-fold: (i) to explore the rise of private equity (venture capital and buyout funds) as a financial innovation (a new business model) in the US and its spread to other countries, (ii) to introduce an analytical framework within which to understand the basic...
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