page 1
page 2
page 3
page 4
page 5
page 6
page 7
page 8
page 9
page 10
page 11
page 12
page 13
page 14
page 15
page 16
page 17
page 18
page 19
page 20
page 21
page 22
page 23
page 24
page 25
page 26
page 27
page 28
page 29
page 30
page 31
page 32
page 33
page 34
page 35
page 36
page 37
page 38
page 39
page 40
page 41
page 42
page 43
page 44
page 45
page 46
page 47
page 48
page 49
page 50
page 51
page 52
page 53
page 54
page 55
page 56
page 57
page 58
page 59
page 60
page 61
page 62
page 63
page 64
page 65
page 66
page 67
page 68
page 69
page 70
page 71
page 72
page 73
page 74
page 75
page 76
page 77
page 78
page 79
page 80
page 81
page 82
page 83
page 84
page 85
page 86
page 87
page 88
page 89
page 90
page 91
page 92
page 93
page 94
page 95
page 96
page 97
page 98
page 99
page 100
page 101
page 102
page 103
page 104
page 105
page 106
page 107
page 108
page 109
page 110
page 111
page 112
page 113
page 114
page 115
page 116
page 117
page 118
page 119
page 120
page 121
page 122
page 123
page 124
page 125
page 126
page 127
page 128
page 129
page 130
page 131
page 132
page 133
page 134
page 135
page 136
page 137
page 138
page 139
page 140

24The Bahamas InvestorWhy are some economies more successful in deliveringeconomic prosperity and why do others fail so badly? Themost recent success story of economic growth centres verymuch on the emerging markets, with China, India andBrazil as the most prominent examples. On the otherhand, there are countries which have clearly failed withregard to economic prosperity. Measured by the UnitedNations Human Development Index, a number ofAfrican countries were poor 30 years ago and haveremained so until today.Growth theories suggest that the developments indemographics and productivity, as well as possibleendowments in the form of natural resources, are themain drivers of prosperity. More recently, however, superpowers and rich nations have focused more on boostingproductivity. The dominance of higher productivity overmore endowments has brought the way societies areorganized to the centre of attention when it comes toeconomic success.Productivity drivers include: . Property rights . Functioning legal systems . Money as a counter-value for goods and services. Tradable ownership rights such as shares and thedevelopment of stock markets. Appropriate economic frameworks . Social security systemsStrong demographics,advances in finances,telecommunicationscritical to success ofemerging economiesBy Janwillem C AcketLINDA M HUBER/©DUPUCHINVESTINGGrowth models: A new order emerges

The Bahamas Investor25This short list is certainly notexhaustive. Furthermore, these aspectsare of prime interest when analyzingcurrent divergences in economic growthand wealth. The ability of a society to increaseproductivity relies on a number ofinterdependent factors. Among them isan efficient incentive structure by theestablishment of property rights, a fullyfunctioning credit channel includingappropriately regulated financial marketsand the availability of credit. Furthermore,research and development and, even moreimportantly, innovation play a central rolein achieving higher productivity.Property rights essentialProperty rights are an essential part oflending agreements. If a borrower isrequired to back a loan with his or herown property, a major incentive iscreated to use the borrowed capitalefficiently. As in the worst caseborrowers can lose everything, and theyare strongly encouraged to work moreor become more productive in order toavoid a default. Borrowing without theguarantee of private property, hencewithout any real incentive to serviceand/or repay debt, severely limits thepositive impact that the availability ofcredit can have on economic growth. The rise in public debt may also havean adverse impact on the incentivesgoverning the relationship betweenborrowers and lenders. This can beillustrated by the structural break in thepositive correlation between debt andwealth in the US.As public debt is generally notguaranteed by private property, theincentive structure is partly invalidated.The fact that in the US privatemortgages tend to be guaranteed onlyby the house itself additionally weakensthe incentive structure of credit. This isin contrast to the situation in othercountries, where private households canbe obliged to use all of their assets toguarantee a loan. In those emergingeconomies where property rights areinadequately protected by the legalsystem, or where property is at risk dueto political factors (corruption or otheroperational shortcomings), incentives tohonour credit obligations in full mayalso be lacking, although significantprogress has been made in this regardover the past decade.Economic policy can stimulate andcontrol debt-based growth not only byshaping incentive structures throughlegal frameworks, but also byappropriately regulating financialmarkets. However, the sheer complexityof contemporary financial markets doesnot make their regulation easy. Thesearch of financial institutions for newareas of revenue has pushed financialinnovations closer to the limits ofregulation and comprehension. In someexamples, economic policy makers wereunaware of the risks of certain financialproducts while embracing them ascatalysts for debt-based economic120% of GDPEvolution of government debt1101009080706050403019701975Advanced economiesSource: IMF, Julius BaerEmerging marketsWorld19801985199019952000200520102015The importance of credit to enhance growth is undisputed and the accessibility to capital markets is decisive in developing the capital base.INVESTING