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on International Finance |
| By: | Thorvardur Tjörvi Ólafsson; Thórarinn G. Pétursson |
| Abstract: | The recent global financial tsunami has had economic consequences that have not been witnessed since the Great Depression. But while some countries suffered a particularly large contraction in economic activity on top of a system-wide banking and currency collapse, others came off relatively lightly. In this paper, we attempt to explain this cross-country variation in post-crisis experience, using a wide variety of pre-crisis explanatory variables in a sample of 46 medium-to-high income countries. We find that domestic macroeconomic imbalances and vulnerabilities were crucial for determining the incidence and severity of the crisis. In particular, we find that the pre-crisis rate of inflation captures factors which are important in explaining the post-crisis experience. Our results also suggest an important role for financial factors. In particular, we find that large banking systems tended to be associated with a deeper and more protracted consumption contraction and a higher risk of a systemic banking or currency crisis. Our results suggest that greater exchange rate flexibility coincided with a smaller and shorter contraction, but at the same time increased the risk of a banking and currency crisis. Countries with exchange rate pegs outside EMU were hit particularly hard, while inflation targeting seemed to mitigate the crisis. Finally, we find some evidence suggesting a role for international real linkages and institutional factors. Our key results are robust to various alterations in the empirical setup and we are able to explain a significant share of the cross-country variation in the depth and duration of the crisis and provide quite sharp predictions of the incidence of banking and currency crises. This suggests that country-specific initial conditions played an important role in determining the economic impact of the crisis and, in particular, that countries with sound fundamentals and flexible economic frameworks were better able to weather the financial storm. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp51&r=ifn |
| By: | Frot, Emmanuel (Stockholm Institute of Transition Economics); Santiso, Javier (ESADE Business School) |
| Abstract: | This paper studies the effect of elections and democracy on bond and equity flows to emerging countries. Our results indicate that elections affect portfolio flows: the period following an election is generally characterised by a fall in equity flows, and this occurs only where the incumbent is not re-elected. We interpret this result as evidence that political uncertainty about future policies plays a key role in explaining the effect of elections. Bond flows decrease after an election that brings a change of ideology in government, with some evidence that this effect is stronger if such change is from right- to leftwing. This set of results suggests that investors value continuity and stability in the political environment, and dislike changes. Finally, democracy, in itself, is not found to significantly influence portfolio equity and bond flows, such that there is no democratic premium. On the other hand, a decrease in the democracy score implies lower equity flows. Investors value continuity (stable democracy level, even if low) rather than improvements (democratic transitions) but are responsive to a deterioration in the democratic environment that is often accompanied by less transparency, and therefore greater uncertainty. |
| Keywords: | Portfolio decisions; Elections |
| JEL: | F59 G11 G15 |
| Date: | 2010–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hasite:0009&r=ifn |
| By: | Resiandini, Pramesti |
| Abstract: | This paper examines the relationship between financial development and trade based on panel data of bilateral trade between the world's three largest economies (United States, Japan, and Germany) and 47 partner countries over the period 2003 to 2007. Access to loans for businesses has a strong positive relationship with bilateral trade. Access to the local equity market raises trade with less developed countries, but lowers trade with developed countries. The study also finds that international financial indicators are significant determinants of trade. |
| Keywords: | Financial development; International trade flows; Gravity model |
| JEL: | F15 G1 F14 |
| Date: | 2010–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:25631&r=ifn |
| By: | Chris Papageorgiou; Catherine A. Pattillo; Nicola Spatafora; Andrew Berg |
| Abstract: | This paper investigates the medium- and long-term growth effects of the global financial crises on Low-Income Countries (LICs). Using several methodological approaches, including impulse response function analysis, growth spells techniques and panel regressions, we show that external demand (ED) shocks are not historically associated with sharp declines in output growth. Given existing evidence that LICs were primarily impacted by such a shock in the global financial crisis, our analysis provides some optimism on the chances that LICs will avoid a protracted period of slow growth. However, we also show that there seem to be persistent output losses associated with ED shocks in the medium-run. In terms of policy implications, our analysis provides evidence that countries with lower deficits, lower debt, more flexible exchange rate regimes, and a higher stock of international reserves are more likely to dampen the effects of an ED shock on growth. |
| Keywords: | Demand , Economic growth , External shocks , Financial crisis , Global Financial Crisis 2008-2009 , Low-income developing countries , |
| Date: | 2010–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/205&r=ifn |
| By: | Wajih Khallouli (Ecole Supérieure des Sciences Economiques et Commerciales de Tunis - Université de Tunis); René Sandretto (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phases of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market. |
| Keywords: | subprime crisis; Contagion; MENA stock markets; Markov switching EGARCH model |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00522683_v1&r=ifn |
| By: | Biswa N Bhattacharyay |
| Abstract: | Asia faces very large infrastructure funding demands, estimated at around US$750 billion per year for energy, transport, telecommunications, water, and sanitation during 2010–2020 (ADB/ADBI 2009). Asia has large savings, significant international reserves, and rapid accumulations of funds that could be utilized for meeting these infrastructure investment needs, but Asian markets have failed to use available resources to channel funding into highly needed infrastructure projects. This paper explores issues and challenges in financing infrastructure for seamless Asian infrastructure connectivity and for other high priority development financing needs, and seeks methods and instruments to help direct Asian and international resources to cost-effectively and efficiently support infrastructure and other development needs. [ADBI Working Paper 229] |
| Keywords: | Asia, infrastructure,energy, transport, telecommunications, water |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2976&r=ifn |
| By: | Gasmi, Farid (Toulouse School of Economics (ARQADE & IDEI)); Lika, Ba (Ecole des Hautes Etudes en Sciences Sociales, Paris); Noumba Um, Paul (The World Bank,Washington DC) |
| Abstract: | TThis paper seeks to assess the extent to which a country’s overall level of development and that of its financial sector, in particular, are factors that attract private capital into infrastructure projects. The authors investigate these effects in a 1990–2007 dataset on the power sector in 37 developing countries. The results suggest that economic growth is a key determinant of private investors’ investment in infrastructure projects, and that investors tend to take countries’ governance quality into account in their decisions to invest. The empirical results highlight that the development of the financial sector also plays a significant role in private investors’ decisions to enter infrastructure sectors. In particular, the degree of country risk and exchange rate volatility is found to be negatively This paper—a product of the Sustainable Development Department, Middle East and North Africa Region—is part of a larger effort in the department to promote infrastructure development in client countries through applied research targeting cutting-edge policy, regulatory and infrastructure finance issues. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at pnoumbaum@worldbank.org. related to the volume of private sector investment in power projects. Furthermore, when the banking sector and the capital market are separately treated in the analysis, the existence of a well functioning capital market is the main attracting factor. In addition, the existence of an independent energy regulatory authority significantly improves the level of private investors’ implication in energy projects. When accounting for the interactions between the overall economic development and the financial sector development variables, the effects of these variables are still significant and the results also confirm the importance of an independent energy sector regulator. |
| Keywords: | Infrastructure sectors, Public-private partnership, Power sector, Financial development, Economic growth |
| JEL: | L33 L38 L94 L97 C23 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:23324&r=ifn |
| By: | Fernanda Nechio |
| Abstract: | The household finance literature documents a large fraction of the population not participating in stock markets. It is also puzzling that a much greater share of households do not participate in foreign stock markets. Recent empirical evidence points towards the role of information in determining agents' portfolio choices. I test these results into a model that incorporates information on agents' portfolio allocation decision. In the model, consumers can invest in both domestic and foreign stocks and to update their information set, agents have to pay a cost implying that consumers update their portfolio only infrequently. In addition, to account for the initial costs of acquiring information about stock investments, a version of the model also features an entry-cost to be paid at the first period by agents that decide to enter stock market. Agents that invest in foreign stocks are more attentive, updating their portfolio more frequently. After calibrating the model to match returns and volatility for the U.S. economy and di¤erent foreign stock investments, I obtain that the minimum entry cost necessary to drive households completely out of stock markets is large (and in line with the equity premium puzzle literature). However, once agents already invest in domestic stock markets, the minimum cost that would drive investors out of foreign stocks market is much smaller. The size of the latter minimum entry cost depends on model parameters assumptions, and small variations on risk aversion and uncertaintly about foreign asset returns can bring this entry cost down enough to justify the substancial non-participation in foreign stock markets. |
| Keywords: | Stockholders ; Stock market |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2010-26&r=ifn |
| By: | Karreman, B.; Knaap, G.A. van der |
| Abstract: | This study examines the changing competitiveness of financial centres in mainland China and Hong Kong based on the geography of equity listing of mainland Chinese firms. Pre-listing firm characteristics are used to explore firms’ motives for listing on a particular exchange and whether these motives have changed over time. The results show that Hong Kong’s prominence as an international financial centre is attracting the largest and, recently, also the best performing mainland Chinese state-owned enterprises to go public. Less differentiation exists between the competitiveness of Shanghai and Shenzhen, although the renewed strategy of the Shenzhen stock exchange to attract smaller firms appears to be successful. |
| Keywords: | financial centre competition;stock listing;Hong Kong;China |
| Date: | 2010–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765020447&r=ifn |
| By: | René BELDERBOS; FUKAO Kyoji; ITO Keiko; Wilko LETTERIE |
| Abstract: | This paper develops and tests a simple model of the simultaneous determination of gross fixed capital formation by multinational Japanese firms in home and host countries. We treat multinational firms as multi-product firms, choosing optimal investment locations and production scale for each product. We test the predictions of the model on a unique dataset covering 1707 fixed capital investment decisions by (affiliates of) Japanese multinational firms in the manufacturing sector based on research conducted in 1996 and 1997. We find that the rate of investment is not only determined by factors affecting the return on investment levels in a country (e.g. effective demand and wages), but also by wage levels in other countries in which the firm operates manufacturing affiliates. Firms facing global liquidity constraints show systematically lower investment ratios, suggesting that financing constraints are another source of interaction between investments. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:10044&r=ifn |