How do people learn how to be bankers and supervisors? Meaningful participation in the local market by foreign financial institutions that already have these capabilities will affect technology and knowledge transfers so necessary to improve domestic institutions. The partnership between international institutions with technology and best practice and local institutions with local expertise and market sense ensures that domestic firms and the domestic economy reap the fruits of the New Economy.
More formal training mechanisms sponsored by development institutions can play a key role in bringing knowledge of the international private sector and official supervisory sector to the region’s members, but on the job experience is critical. Sometimes domestic reforms by themselves are insufficient to achieve a more effective financial environment. For example, domestic financial cartels can penetrate deep into the fabric of non-bank economic activities and consumer relationships and be very resistant to change. In order to boost the reform process, policymakers can turn to the technologies underpinning the New Economy for help.
For example, networked ICTs enables the delivery across the border of some financial services, for example, insurance and mutual fund investments, without requiring commercial presence. Allowing these transactions (even if they have not been specifically scheduled by GATS commitments) can assist policymakers in creating a deep financial sector when domestic reform alone does not go far enough to increase competition and improve performance of the financial sector.
Of course, this cross- border provision must adhere to prudential regulations and needs to be mindful of macroeconomic considerations, but the point is that trade and cross-border investment policies affect banking and financial market policies and can work in a complementary way to improve financial market and overall macroeconomic performance —once again emphasizing synergies among the four policy domains. Trade and cross-border investment policies: The benefits of openness to trade and to cross-border investment need no introduction. There is no question but that innovation is faster and firms stronger in a competitive business environment.
Research discussed in Section III suggests that the nature of cross-border competition is different from domestic competition, so that large domestic markets are not sufficient to hone the competitive edge. Therefore, international engagement is a key underpinning of productivity growth. In the New Economy environment, cross-border investment plays an enhanced role by facilitating technology transfer that improves access to key technologies which can allow “leap-frogging” of stages of industrial development. The New Economy paradigm puts greater emphasis on cross-border linkages.
The nature of the production process (comprising both manufacturing and services) is becoming increasingly fragmented and globalized. Multinational firms and strategic business alliances communicate, get price quotes, submit bids, transfer data, offer customer service, produce product designs, code software, and basically do business using networked ICTs in the international arena. Past policies that focused on gaining a foothold on the globa l production ladder (through export processing zones for example) will no longer suffice. 13 Economies 13 See evidence in Section III on the relationship between hi-tech exports and productivity growth on this point. - 18-