The Causes and Effects of Financial Crises from Macro and Micro Perspectives: An Empirical Investigation from Top Ten Emerging Countries

This thesis provides a detailed investigation into the causes, dynamics, and consequences of financial crises in emerging economies, spanning the period 1990–2023 and focusing on ten representative countries: Mexico, India, Thailand, Indonesia, Malaysia, South Africa, Russia, Brazil, China, and Turkey. The study adopts a multidimensional approach, integrating macroeconomic, institutional, and microeconomic perspectives to examine both the determinants of crises and their socioeconomic and firm-level impacts.The introductory and literature review chapters set the theoretical foundation, contrasting orthodox and heterodox approaches. While orthodox models emphasize market efficiency and rational expectations, they often fail to explain speculative bubbles and systemic fragility. Conversely, heterodox theories such as Minsky’s Financial Instability Hypothesis highlight the cyclical nature of crises but do not sufficiently account for political volatility and institutional weaknesses in emerging economies. To bridge these gaps, this study synthesises insights from heterodox approaches and Krugman’s currency crisis model to formulate hypotheses addressing both internal vulnerabilities (debt accumulation, speculative behaviour) and external shocks (exchange rate pressures, balance of payments crises).The stylized facts presented in chapter three, provided historical and empirical evidence of recurrent crisis episodes, demonstrating how emerging markets remain highly vulnerable due to dependence on external capital and exposure to global shocks. Case studies of countries such as Brazil, Turkey, Mexico, and Russia illustrate how crises often manifest as twin or triple crises, exacerbated by contagion effects and commodity price volatility.The methodology (chapter four) detailed the quantitative research design, data sources, variable construction, and econometric strategies. Logistic regression, System Generalised Method Moment (GMM), and panel fixed-effects models were employed to address the core research questions, supported by rigorous diagnostic testing to ensure robustness.Empirical analysis of crisis determinants, presented in chapter five confirmed that low GDP growth, weak regulatory quality, high income inequality, large international debt, currency depreciation, and balance of payments imbalances significantly heighten the likelihood of crisis. Political stability emerged as an important mitigating factor when controlling for country-specific heterogeneity.The socioeconomic consequences (Chapter 6) revealed that financial crises increase poverty levels and, through rising unemployment, deepen economic hardship for vulnerable populations. Although income inequality was less directly affected, poverty persistence underscores the need for targeted social protection. Education expenditure unexpectedly showed a short-term positive link with poverty and inequality, raising concerns about allocation efficiency.At the microeconomic level, the analysis of firm productivity (Chapter 7) found evidence of a ‘cleansing effect’, whereby crises force restructuring and efficiency gains among surviving firms. However, larger firms, constrained by structural rigidities, experienced more pronounced productivity declines. High-tech and low-tech firms exhibited distinct responses, highlighting the importance of technological orientation in shaping resilience.Finally, in the concluding chapter (Chapter 8), we provide some policy recommendations by stressing the importance of strengthening governance and institutions, developing proactive social safety nets, improving labour market resilience, ensuring equitable and efficient education investment, and tailoring firm support measures to enhance productivity and adaptability. These findings offer actionable guidance for policymakers in designing effective early warning systems and resilience-building strategies.Overall, this thesis highlights that financial crises in emerging economies are multidimensional phenomena, rooted in structural vulnerabilities and carrying significant social and economic costs. By linking macroeconomic determinants, institutional quality, and firm-level performance, the study provides an integrated perspective that advances both academic understanding and policy relevance.