Event ReportsPublished on Oct 05, 2019
Understanding risk in a connected global economy
“Risk is never eliminated, only transformed,” said Dr Sandra Seno-Alday, while highlighting the nature of risk in a connected global economy. She was delivering a lecture organised by ORF in collaboration with the University of Sydney in Mumbai on 30 September 2019. Dr Sandra’s lecture critically examined how certain decisions of economic integration on the global level shape the nature and extent of risk in the economy. The talk was followed by an insightful in-conversation session with senior journalist and entrepreneur Mr R.N Bhaskar. Hailing from a social science background, Dr Sandra emphasised her focus on the relationships between various nation states at the international level. Beginning with the assessment of the world economy post the two World Wars, Dr Sandra positioned the desire for economic integration and risk aversion as a likely consequence of the trauma and chaos experienced by nation states due to the protracted wars. Integration and economic cooperation was thus seen as a risk reduction strategy. Subsequently, Dr Sandra used the cases of the ASEAN and European Union to demonstrate the different ways in which integration could be facilitated. The cases of the ASEAN and EU also showed how the kind of economic integration strategies employed could contribute to the level of risk in the global marketplace. Economic integration could be achieved in a couple different ways, she explained. The lecture specifically pointed out the importance of a Free Trade Area (FTA), Customs Union, a common market and an economic union as being enablers of integration. With respect to the EU, integration was achieved through the establishment of a customs union and a common market instead of establishing an FTA. Conversely, ASEAN’s integration model sought an FTA in 1992 and predominantly followed non-interventionist policies with the members. By providing a brief overview on the differing models of integration employed by both ASEAN and EU, Dr Sandra pointed out that a key divergence between both associations is that the EU is more interconnected and mutually affected by each other’s trade practices vis-a-vis members of the ASEAN. Moreover, in comparison to the ASEAN, the EU had larger economies that had to accommodate an increased amount of intervention through the various institutions in place to foster integration. Subsequently, the talk looked to examine how the approach towards economic integration employed by both ASEAN and the EU shaped relationships between member states. Moreover, understanding how these relationships affect the level of risk experienced at the international level on issues of trade was also examined. A longitudinal analysis of the trade deals made between members of both the ASEAN and the EU yielded interesting findings. With respect to the ASEAN, Dr Sandra’ research showed that the relationships between members strengthened over the years. This pattern was attributed to the free trade area set up in the ASEAN region in the year 2000. In the case of the EU, the networks formed were greatly connected to the point that in the year 2000, the EU had achieved a “perfect network”. A perfect network, Dr Sandra said, is one wherein every member state is connected and economically engaged with one another. The EU’s ability to set up a “perfect network” was attributed to the introduction of the Euro which helped build this level of interconnectedness. This asymmetry in extent of connectedness within the ASEAN and the EU was represented graphically for the ease of understanding. The final aspect of Dr Sandra’s talk sought to understand which model of economic integration as practiced by the ASEAN vis-a-vis EU is riskier and whether the practices of such organisations has led to a global economy that is more risk averse than the post war era. A longitudinal analysis ning from 1990 to 2012 was conducted to examine how the propensity towards risk aversion from both the ASEAN and the EU has changed over time. Dr Sandra’s research showed that ASEAN’s vulnerability to risk was higher in 1990 due to an excessive dependence on Singapore, the most connected country within the ASEAN network. Thus, the risk pattern in the ASEAN case was concentrated and hinged on the fortunes of the most connected country. Conversely, the case of the EU did not see the same level of dependence on any one country. The EU did not have any particular country that held excessive power in shaping the fate of the union. Thus, the EU presented a case of random risk which was characterised by lesser asymmetries in extent of connectedness between member states. Dr Sandra used the aforementioned findings to support the argument for why Brexit may not greatly affect the economic fortunes of the rest of the European Union member states. A few key takeaways from the talk that was reinforced towards the end of the lecture pertained to the nature of risk in a global economy. A key takeaway was that human beings and nation states connect in order to reduce risk. Moreover, risk exposure is shaped by how we choose to forge relationships. Risk in an increasingly multipolar world is never eliminated, instead, it is merely transformed by the nature of associations formed. The case of the ASEAN and EU is illustrative of the aforementioned point. The lecture was followed by an insightful Q and A moderated by Mr R N Bhaskar. Some of the issues touched upon in the Q and A session pertained to the importance of cultural affiliation in shaping trade relations and the spillover effect of protectionist agendas of nation states in relationship formation on the trade front.
This event report has been compiled by Prithvi Iyer, a research intern at ORF Mumbai.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.