Analysis of Euro Zone Crisis on BRIC Nations through Index Approach

All financial crises share certain features, but each expresses its own exclusive story and has its own distinctive teachings for the coming future. The paper aims to measure the impact of Euro zone crisis on each of the 4 BRIC (Brazil, Russia India and China) nations during 2008-2009, through composite indices approach. The paper divides the regressand into two different parts. In the first part, the impact in terms of Macro and Banking Index and in second part, the impact in terms of Financial and Forex Index was analysed. The results of PCSE and FGLS models indicate that financial factors, fiscal forex, productivity and social indicators are responsible for the euro zone crises. This indicates that economies of these nations should work on strengthening of economic fundamentals.

Keywords

Eurozone crisis; Causality test; Principal component analysis; BRIC

Adascalitei, D., & Morano, C. P. (2015). Labour market reforms since the crisis : Drivers and consequences (Research Department Working Paper No. 5). Retrieved from https://www.ilo.org/wcmsp5/groups/public/---dgreports/---inst/documents/publication/wcms_414588.pdf
Ahearne, A., Schmitz, B., & Hagen, J. V. (2009). Current account imbalances and financial integration in the Euro area (CEPR Discussion Papers No. 7262). Retrieved from https://www.researchgate.net/publication/228222382_Current_Account_Imbalances_and_Financial_Integration_in_the_Euro_Area
Alessandrini, P., Fratianni, M., Hallett, A. H., & Presbitero, A. F. (2012). External imbalances and fiscal fragility in the euro area (Mo. Fi. R. Working Papers No. 66). Retrieved from http://www.siecon.org/online/wp-content/uploads/2012/08/Alessandrini-Fratianni-Hallet-Presbitero.pdf.
Arghyrou, M. G., & Kontonikas, A. (2011). The EMU sovereign-debt crisis: Fundamentals, expectations and contagion (Economic Papers No. 436). Brussels. Retrieved from https://doi.org/10.2765/47739.
Baccaro, L., & Tober, T. (2017). The role of cost and price competitiveness in the Eurozone. Retrieved from https://doi.org/10.13140/RG.2.2.32617.39528.
Barrios, S., Iversen, P., Lewandowska, M., & Setze, R. (2009). Determinants of intra-euro area government bond spreads during the financial crisis (Economic Papers No. 388). Brussels. Retrieved from https://doi.org/10.2765/29413.
Beck, J. N. & Katz, N. (1995). What to do (and not to do) with time-series cross-section data. American Political Science Review, 89(3), 634–647. Retrieved from https://pdfs.semanticscholar.org/b436/c65528aa5f216fd9e9d103b30886345a789c.pdf.
Bhanumurthy, K. V., & Kalsie, A. (2013). Measurement of international currency crises: A panel data approach using composite indices. Vikalpa: The Journal for Decision Makers, 38(4), 13-36.
Bosch, J., & Ottens, M. (2012). The European union and the BRIC countries. Eurostat European Commission. Retrieved from https://ec.europa.eu/eurostat/web/products-pocketbooks/-/KS-31-11-414.
Bratis, T., Laopodis, N. T., & Kouretas, G. P. (November 2015). Creditor moral hazard during the EMU debt crisis. Journal of International Financial Markets, Institutions and Money, 39(C), 122–135.
Brutti, F., & Sauré, P. (2014). Repatriation of debt in the Euro crisis : Evidence for the secondary market theory (No. 3/2014). Retrieved from https://www.snb.ch/n/mmr/
reference/working_paper_2014_03/source/working_paper_2014_03.n.pdf.
Dhanasekaran, P. & Sumathy, M. (2018). Economic performance of BRICS economies: An analysis of pre and post BRICS era. FOCUS: Journal of International Business, 5(2), 68-78.
Eichhorst, W., Escudero, V., Marx, P., & Tobin, S. (2010). The impact of the crisis on employment and the role of labour market institutions (IZA Discussion Paper Series No. 5320). Bonn. Retrieved from http://ftp.iza.org/dp5320.pdf.
Fernández, A. S. M., García, A. B., Vilabella, B. L., & Espasandín, M. E. (2014). Risk premium in the Eurozone. Recent evolution and determining factors using panel data. XVII Applied Economics Meeting. Gran Canaria. Retrieved from http://archivo.alde.es/encuentros.alde.es/anteriores/xviieea/programa.pdf
Furceri, D., & Zdzienicka, A. (2013). The Euro area crisis : Need for a supranational fiscal risk sharing mechanism? (IMF Working Paper No. WP/13/198). Retrieved from https://www.imf.org/external/pubs/ft/wp/2013/wp13198.pdf.
Garg, S. (2016). A comparative analysis of BRICS economies with special reference to institutional environment. FOCUS: Journal of International Business, 3(2), 116.
Giordano, R., Pericoli, M., & Tommasino, P. (2013). Pure or wake-up-call contagion? Another look at the EMU sovereign debt crisis (Bank of Italy Working Papers No. 904). Rome. Retrieved from https://www.bancaditalia.it/pubblicazioni/temi-discussione/2013/2013-0904/en_tema_904.pdf.
Grauwe, P. D., & Ji, Y. (2013). Self-fulfilling crises in the Eurozone : An empirical test. Journal of International Money and Finance, 34, 15-36. Retrieved from https://doi.org/10.1016/j.jimonfin.2012.11.003.
Hasaj, B. (2012). Government debt crisis in eurozone case studies : Greece and Italy what can Kosovo learn from the Eurozone crisis ? American University in Kosovo. Retrieved from https://scholarworks.rit.edu/cgi/viewcontent.cgi?referer=https://www.
google.co.in/&httpsredir=1&article=9074&context=theses.
Hausman, J. A. (1978). Specifications tests in econometrics. Econometrica, 46(6), 1251–1271. Retrieved from https://www.jstor.org/stable/1913827?seq=1#page_scan_tab_
contents.
Havlik, P., Stöllinger, R., Pindyuk, O., Hunya, G., Dachs, B., Lennon, C., & Christie, E. (2009). EU and BRICs : Challenges and opportunities for European competitiveness and cooperation (Industrial Policy and Economic Reform Papers No. 13). Brussels: European Commission. Retrieved from https://doi.org/10.2769/36796.
Hobolt, S. B., & Leblond, P. (2014). Economic insecurity and public support for the Euro before and during the financial crisis. In N. Bermeo & L. M. Bartels (Eds.), Mass Politics in Tough Times: Opinions, Votes and Protest in the Great Recession (pp. 128-147). New York: Oxford University Press. Retrieved from https://www.researchgate.net/publication/289246959_Economic_Insecurity_and_Public_Support_for_the_Euro.
Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. The State Journal, 7(3), 281–312. Retrieved from https://www.stata-journal.com/sjpdf.html?articlenum=st0128.
Istomina, A. (2015). Impact of the global financial crisis on the BRIC economies. Masaryk University, Brno. Retrieved from https://is.muni.cz/th/calbp/Anna_Istomina
_Financial_crisis_in_BRICs.pdf.
Kaiser, H. F. (1960). The application of electronic computers to factor analysis. Educational and Psychological Measurement, 20(1), 141–151. Retrieved from http://dx.doi.org/10.1177/001316446002000116%0A%0A.
Kalsie, A. & Arora, A. (2015). Analysis of the impact of US financial crisis on BRICS economies using ANOVA. FOCUS: Journal of International Business, 2(2), 34-52.
Kregel, J. (2009). The global crisis and the implications for developing countries and the BRICs: Is the B really justified? (Public Policy Brief No. 102). (W. R. Towle, Ed.). New York. Retrieved from http://www.levyinstitute.org/publications/the-global-crisis-and-implications-for-developing-countries-and-the-brics.
Nieminen, M. (August 2015). Trade imbalances within the euro area and with respect to the rest of the world. Economic Modelling, 48(C), 306–314.
Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels (Discussion Paper Series No. IZA DP No. 1240) (Vol. 3). Bonn. Retrieved from http://ftp.iza.org/dp1240.pdf.
Reed, W. R. & Ye, H. (2011). Which panel data estimator should I use? Applied Economics, 43(8), 985-1000. Retrieved from https://doi.org/10.1080/0003684080260008
Yadav, S. K. (2018). A comparative study of tax structures of BRICS countries. VISION: Journal of Indian Taxation, 5(1), 1-17.