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The Financial crisis impact on UAE economy and the state of action taken by the government to overcome the recession.
PhD Research Proposal
Introduction
Reflections on the UAE Market must be made within the context of the global financial crisis, reflecting a disorder throughout global business markets. A disordered functioning of the market volume reflects an inability to assign capital properly, a situation in which the financial system experiences drop-offs and liquidation of asset values among borrowers and mediators.[1] The severe consequences of such economic misbalance include the collapse of some financial institutions complemented by destruction in other market sectors such as banking, real estate, and retail. The damage produced by the local financial crisis on the domestic economy affects the global economy as well and vice versa. In the context of the contemporary globalization process impacting all spheres of human life and the financial world in particular, one must investigate and analyze the decrease of a country’s domestic economy through the lens of its position in the international market.
The UAE, an active and powerful player in the international arena, as one of the leading suppliers of petroleum products, possesses a significant market share. Thus, the misbalance of the financial system that in 2007 shook the entire world, and led to the bankruptcy of some global companies and corporations, attacked the domestic economy of the UAE as well. The present paper is dedicated to identifying and determining impacts produced by the global financial crisis on the UAE’s local economy; its operational effectiveness; and individual spending behaviors in retail and investment markets. The precise case study will allow determination of the role the UAE government played in overcoming the financial crises; identifying the effectiveness of those actions; and proposing an enhanced action plan.
Research objectives
- To identify the financial crisis’ impact on the local market.
- To identify the relationship in the case study of local economy descent and globalization.
- To observe the financial crisis’ impact on organizational structures.
- To determine the actions taken by the Dubai Government to overcome the crisis, and the means of implementing such actions in the event of future collapse.
To comprehensively explore the impacts of the 2007-2008 global financial crisis, the researcher will provide a brief overview of the phenomenon and its implications in the context of the banking industry. Further, the researcher will determine the impact the global financial crisis produced on local markets and economies to demonstrate the relationship existent between the local economy’s decline and globalization.
In addition, the paper will precisely observe how a financial crisis affects organizational structure. Moreover, the researcher will determine the plan of action for overcoming the crisis developed by the Dubai Government. Studying the effectiveness of the executed government intervention will allow design of a framework to be implemented in the event of a similar future collapse. Finally, the author shall draw conclusions concerning the relationship between the leaders and business aspects.
Research Questions
In order to achieve the stated study objective, the researcher has formulated the following research questions:
- In investigating the UAE government’s role in overcoming the crisis, how did the government implement actions addressing all industries?
- How did individual spending behavior impact the financial crisis?
- How did the crisis affect banking’s lending restrictions?
- How did the financial crisis affect organizational structure from an organizational behavior perspective?
Justification and limitation of the study
The scope of this study will be covering particular associated ranges to the financial crisis and its impact to the UAE economy, some limitation will take a place in this study, such as the action taken by the governments of Dubai, Fujairah and Abu dhabi to over the come the financial crisis. The majority of the sample which will be conducting the interviews and the questionnaire with the decision makers and governments, which might put the data in a limit, range in some areas of the study. To over come such limitation, the researcher will spend more time to expand valid sources of data.
Literature Review
The Global Crisis and Its Impact on Macro Economy and Local Markets
Basic factors identified which create adverse and hazardous situations in a country’s financial markets or economy leading towards financial crisis include: a rise in interest rates; decline in the stock markets; increasing uncertainty and emerging bank panics, all of which together provoke an unanticipated decline within the aggregate price level.[2] The global financial crisis of 2007-2008 showed a decline in the growth rate, increased uncertainty among customers, and lowered investor confidence. The global financial crisis erupting in September 2008 attacked the domestic economies of almost all countries due to the high-degree of integration within the global economy of discrete national financial systems, provoking a rapid spread of the crisis and leading to the 2008 collapse and subsequent disappearance of investment banks; triggering a synchronized world-wide recession in 2009.[3]
Key crisis facilitators included financial deregulation and the advancement of information technology and the Internet accompanied by the reduction of interest rates by the Federal Reserve. The complexities of the resultant sophisticated financial products prevented the financial system from fulfilling one of its main functions: measuring risks. Tied systemically to the advanced countries, emerging nations’ economies likewise became drawn into the crisis through common trade and financial channels.[4] Though major economies could avoid contraction (+0.1%), weaker economies experienced the opposite accompanied by a sharp increase in unemployment. holds the opinion that the global financial crisis originated in the UAE and then spread across the world. Following the UAE, stock exchanges in Europe, Asia and America crashed collectively. Due to the extreme integration of all world markets , the global financial crisis affected both capitalist and socialist economies.[5] In response to banks and companies either claiming bankruptcy or asking for bailout packages to sustain their economic position, governments world-wide launched economic stimulus programs involving increases in public spending, frequently financed with debt, to replace with public investment the reduction in private investment.
UAE in the Global Financial Crisis
Put in a global context, macroeconomic volatility, whose main determinants are an increase in the interest rate and fluctuations in the trade and exchange rate, causes vulnerability within the local financial system. An interest rate increase results in an increased demand for loans combined with a contraction of the money supply which provokes adverse selection whereby investors with good projects are unlikely to take loans while those with riskier projects, if and when successful in securing financing, pay high interest rates. Simultaneously, deterioration of trade volume reduces the debtor’s ability to pay.[6] Those countries with low export diversification more likely experience a banking crisis. Moreover, a sharp rise in exchange rate may affect the banking system in two ways: banks may acquire foreign debt in foreign currency, but pay out in domestic currency (currency mismatch); and banks may take short-term foreign currency debt foreign, while lending inside the country’s long-term (maturity mismatch). The result, in either case: a reduction in the ability to pay debts.
Prior to global crisis, the UAE experienced a continuously rising fiscal deficit as an external gap. While no direct crisis causes existed, the interest rate increased from 2005 to 2007 even as financial innovations appeared to manage risks and maintain subprime loans beneficially. The reduction in housing prices from the third quarter of 2006 marked the beginning of defaults by subprime borrowers. Furthermore, financial institutions operated with high leverage levels, making themselves vulnerable to small shocks in income, asset quality, or liquidity and thereby generating difficulties related to illiquidity and insolvency. That increased uncertainty about their ability to fulfill short-term commitments, making them susceptible to loss of confidence. A rise in the leveraging of the household and corporate sectors of the country bore drastic consequences impacting the UAE’s entire financial system. Later studies indicated a large number of risks were underestimated, particularly in the corporate sector. In addition, investors experiencing a reduction in dividend incomes cut dividend payouts. The policy became common among 800 companies operating in the 2009 economy.[7]
Relationship between the Global Crisis and an Organizational Structure
In addition to the effect of the global financial crisis on the domestic economy, the overall organizational structure suffered as well. In consequence, investors possessed doubt in their SPEs, foreseeing decline in coming years.[8] The country’s financial and stock markets influence organizational performance through increasing financial pressures. In the context of the UAE, some firms faced a liquidity crisis while others went bankrupt or reduced the amount of dividends paid. Thus, macroeconomic conditions made managers redesign policies (i.e. investment and dividend policies) to enhance performance and overcome the crisis. Further, a relationship exists between dividends payout policy and organizational profitability during the domestic financial crisis. Studies revealed that an organization going through financial constraint likely faces dividend changes as a result of the decline in profitability.[9] Furthermore, changes taking place in listed companies’ earnings led to alterations within the organization’s dividend policy. Therefore, accurate analysis of various studies dedicated to studying the impact of the global financial crisis leads to the observation of a negative association between the financial crisis and firms’ dividend policies relative to the UAE’s economy.
Methodology
- Research Philosophy
Research philosophy fundamentally impacts scholarly study, defining the ways knowledge is obtained. The philosophy of positivism will guide this study’s assessment of the observable social reality, resulting in law-like generalizations similar to those produced via physical and natural research.[10] Positivist researchers use highly structured methodologies to enable their study’s replication, and posit based on quantifiable observations subject to statistical analysis. Therefore, the present study’s philosophical basis is positivism, as it relies on survey data related to objective economic impacts of the global financial crises on various aspects of the UAE’s economic functionality.
- Research Design
Research study design depends on purpose; hence, since this study aims to describe and explain the relationship between the global financial crises and various aspects of the UAE’s economic functions such as banking, individual spending behaviors, organizational structure, and industries, the planned study will be both descriptive and explanatory. As Saunders et al. claimed, a descriptive study serves to create a clear and detailed image of persons, events, or situations. Moreover, descriptive research usually functions as part of an explanatory study, which aims to establish causal relationships. The present study aims to identify and describe relationships between the global financial crises and different segments of the UAE economy, making it therefore both descriptive and explanatory.
- Research Strategy and Approach
The research will employ survey strategy from different sectors of UAE industries such as banking/financial institutions/management, leading business units, the Dubai government, and large properties. As clarified by Saunders et al., the survey strategy approach is well-suited to business and management research as it enables collection of large amounts of data from a large target population sample, yielding standardized and easily analyzed data sets. The survey research findings will be substantiated with preliminary literature research in published academic journals and professional business publications.
In correspondence with the selected research strategy, the chosen research approach is likewise deductive, the form of reasoning commonly associated with surveys. Moreover, deductive reasoning associates strongly with positivism in research, and results in development of an empirically-testable theory. Using the deductive approach, a hypothesis is first formulated, and variables to test the hypothesis operationalized. Then, upon testing of the hypothesis, specific outcomes are assessed to determine whether the theory withstood testing and proved valid. In the present study, the researcher assumes the global financial crises had a specific direct impact on the UAE economy, individual spending behaviors, banking, and organizational structure. Hence, that impact will be studied deductively by applying the survey research strategy
Data Access, Participants, and Sample
The present survey research intends to draw upon a large sample of respondents representing different areas of industries, such as banking/financial institutions’ leaders/managers; leading businessmen; members of the Dubai government; and owners of large business properties with the specific focus of data collection the Dubai and Abu Dhabi governments; additional sources on governmental actions combating the adverse impact of the global financial crises on the UAE economy will be culled from the Fujairah Government which has initially granted the researcher interview access to the Fujairah’s Ruler ShaikhHamad Bin Mohamed Al Sharqi. Negotiations between the researcher and the Dubai statistics center now underway aim to provide access to a randomly selected sample of UAE businessmen to be contacted with a request to complete the survey. Should such access be granted, the random participant sample will likely include approximately 200 businessmen from across the UAE.
Data Collection and Procedures
The selected sample of governmentals and businessmen will be physically contacted and requested to complete the survey containing questions about the global financial crisis and its impact on UAE economies. Also, the respondents will be asked to voice personal opinions about actions required to overcome the UAE financial crisis. Survey data obtained using STATA statistics will be analyzed quantitatively. Employing a range of statistical analytical techniques, data will be analysed and results used to identify relationships between concepts of interest.
Ethical Considerations and Limitations
A significant limitation of this study is data access; since this research aims to identify the relationship between the global financial crisis and the UAE economy, objective financial data from a variety of financial institutions in the country must be the basis. However, generally restricted access to such information requires the researcher to make contact with people within the UAE financial sector to gather their opinions of action taken and necessary to be taken to secure the UAE economy. A second study limitation is the sample size: with a population much larger than the contacted sample of 200 respondents, randomizing the sample and selecting people from different financial spheres with different backgrounds is vital to ensure a representative sample.
An essential ethical study consideration involves participant bias: the data assessed by the study’s researcher derived from the personal opinions of people working in finance may differ from the objective reality of the causal relationship between the UAE economy and the global financial crises. Moreover, confidentiality also stands as an ethical consideration, since the researcher must ensure respondents’ privacy and the confidentiality of contact and personal information. To ensure the study’s ethics, only the researcher will access surveys, questionnaires, and interview files to be stored in a secure folder on the researcher’s personal computer. Further, all respondents’ contact and personal details shall be erased from the records, and not presented in the research report.
- Timeline of Activities
| 2015 | September | October | November | December | January | February | March | April | May | June | July | August | September | October |
| Proposal submission | ||||||||||||||
| Writing introduction and literature review | ||||||||||||||
| Data collection | ||||||||||||||
| Writing the methodology section | ||||||||||||||
| Analyzing data | ||||||||||||||
| Completing the draft of research | ||||||||||||||
| Submitting the final paper for review |
Al-Tamimi, Hussein A. Hassan. “The effects of corporate governance on performance and financial distress: The experience of UAE national banks.” Journal of Financial Regulation and Compliance 20, no. 2 (2012): 169-181.
Altman, Edward I. and Saunders, Anthony. “Credit risk management: Developments over the last 20 years.” Journal of Banking & Finance 21 (1998): 1721-1742.
El-Bannany, Magdi. “Global financial crisis and the intellectual capital performance of UAE bank.” Journal of Human Resource Costing & Accounting16, no. 1 (2012): 20-36
Jabeen, Fauzia and Katsioloudes, Marios I. “Post Financial Crisis State in the Emirate of Abu Dhabi, United Arab Emirates: Current Economic Developments and Future Prospects.” Economics, Management, and Financial Markets 6, no. 1 (2011): 57-72.
Saunders, Mark N. K., Philip Lewis, and Adrian Thornhill, Research Methods for Business Students, 6th ed. Essex, UK: Perason, 2012.
Zaki, Ehab, Bah, Rahim, and Rao, Ananth. “Assessing probabilities of financial distress of banks in UAE.” International Journal of Managerial Finance 7, no. 3 (2011): 304-320.
[1]Edward I. Altman and Anthony Saunders, “Credit risk management: Developments over the last 20 years,” Journal of Banking & Finance 21 (1998): 1721-1742.
[2]MagdiEl-Bannany, “Global financial crisis and the intellectual capital performance of UAE bank,”Journal of Human Resource Costing & Accounting16, no. 1 (2012): 20-36.
[3]FauziaJabeen and Marios I. Katsioloudes, “Post Financial Crisis State in the Emirate of Abu Dhabi, United Arab Emirates: Current Economic Developments and Future Prospects,” Economics, Management, and Financial Markets6, no. 1 (2011): 57-72.
[4]EhabZaki, Rahim Bah, and AnanthRao, “Assessing probabilities of financial distress of banks in UAE,” International Journal of Managerial Finance 7, no. 3 (2011): 304-320.
[5]MagdiEl-Bannany, “Global financial crisis and the intellectual capital performance of UAE banks.”
[6]Hussein A. Hassan Al-Tamimi, “The effects of corporate governance on performance and financial distress: The experience of UAE national banks,”Journal of Financial Regulation and Compliance 20, no. 2 (2012): 169-181.
[7]EhabZaki, Rahim Bah, and AnanthRao, “Assessing probabilities of financial distress of banks in UAE.”
[8]EhabZaki, Rahim Bah, and AnanthRao, “Assessing probabilities of financial distress of banks in UAE.”
[9]MagdiEl-Bannany, “Global financial crisis and the intellectual capital performance of UAE banks.”
[10]Mark N. K. Saunders, Philip Lewis, and Adrian Thornhill, Research Methods for Business Students, 6thed (Essex, UK: Perason, 2012), 134.
