Principal Component Analysis on Granularity and Instability of Economic Systems in Emerging Countries

This paper examines possible risks of systemic instability and the general soundness of social and socioeconomic structures in these emerging market economies in the 2010s. Due to the growing influence of these countries on the international economic order and their substantial network of relations with developed countries broadly, this assessment is relevant on both domestic and global scales. Through empirical observations of macroeconomic data from these economies and an analysis of local circumstances and prospects, we determine that positive trends in production growth are paralleled by negative trends in new wealth distribution and therefore increased inequalities. Moreover, we observe a preference in emerging countries for economic policies that support the sole objective of production growth. Considering the economy as a whole, this skewed approach leads to disequilibrium among all (other) macroeconomic variables. We begin with an investigation of the constitutive dynamics of these phenomena using the Pareto probability distribution of income diffusion. Applying rheological concepts, we then examine how new wealth flows are distributed over local populations and whether transactions between individuals result in spontaneous redistribution effects. These findings are combined using the Dynamic New Keynesian model to represent the system. Solutions are also considered, and we close with a proposal for system-wide monitoring and control procedures for intervening when trends toward critical levels of economic instability are observed.