1,721,093 research outputs found
Financial Integration within EU Countries: The Role of Institutions, Confidence and Trust
Get PDFWe investigate the degree of financial integration within and between European countries. We construct two measures of de-facto integration across European regions to capture "diversification" and "development" finance in the language of Obstfeld and Taylor (2004). We find evidence that capital market integration within the EU is less than what is implied by theoretical benchmarks and also less than what is found for U.S. states. We ask - why is this the case? Using country-level data for economic institutions, we find that these are not able to explain differences between countries. Using regional data from the World Values Surveys, we investigate the effect of "social capital" on financial integration among European regions. We find regions, where the level of confidence and trust is high, are more financially integrated with each other.
Global banks and crisis transmission
No full textWe study the effect of financial integration (through banks) on the transmission of international business cycles. In a sample of 18/20 developed countries between 1978 and 2009 we find that, in periods without financial crises, increases in bilateral banking linkages are associated with more divergent output cycles. This relation is significantly weaker during financial turmoil periods, suggesting that financial crises induce
co-movement among more financially integrated countries. We also show that countries with stronger, direct and indirect, financial ties to the U.S. experienced more synchronized cycles with the U.S. during the recent 2007–2009 crisis. We then interpret these findings using a simple general equilibrium model of international business cycles with banks and shocks to banking activity. The model suggests that the relation between integration and synchronization depends on the type of shocks hitting the world economy, and that shocks to global banks played an important role in triggering and spreading the 2007–2009 crisis
Domestic Institutions and the Bypass Effect of Financial Globalization
Get PDFThis paper proposes a simple model to study the relationship between domestic institutions - financial system, corporate governance, and property rights protection - and patterns of international capital flows. It studies conditions under which financial globalization can be a substitute for reforms of domestic financial system. Inefficient financial system and poor corporate governance in a country may be completely bypassed by two-way capital flows in which domestic savings leave the country in the form of financial capital outflows but domestic investment takes place via inward foreign direct investment. While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector/poor corporate governance. However, the net effect for a developing country is more likely to be positive, the stronger its property rights protection. This is consistent with the observation that developed countries are often more enthusiastic about capital account liberalization around the world than many developing countries. A noteworthy feature of this theory is that financial and property rights institutions can have different effects on capital flows.
Does foreign direct investment affect wage inequality? An empirical investigation
Get PDFWe use a panel of more than 100 countries for the period 1980 to 2002 to analyse the relationship between inward foreign direct investment (FDI) and wage inequality. We particularly check whether this relationship is non-linear, in line with a theoretical discussion. We find that the effect of FDI differs according to the level of development: we depict two different patterns, one for OECD (developed) and one for non-OECD (developing) countries. Results suggest the presence of a non linear effect in developing countries; wage inequality increases with FDI inward stock but this effect diminishes with further increases in FDI. For developed countries, wage inequality decreases with FDI inward stock and there is no robust evidence to show that this effect is non-linear.Foreign Direct Investment, Wage Inequality, Multinational Firms
Capital Account Liberalization, Institutional Quality and Economic Growth: Theory and Evidence
Get PDFThis paper shows that the effect of capital account liberalization on growth depends upon the environment in which that policy occurs. A theoretical model demonstrates the possibility of an inverted-U shaped relationship between the responsiveness of growth to capital account liberalization and institutional quality. Three empirical specifications based on the model are estimated using a panel of 71 countries. Estimates of all three specifications support the hypothesis of a non-monotonic interaction between the responsiveness of growth to capital account liberalization and institutional quality, with about one-quarter of the countries, those with better (but not the best) institutions exhibiting a statistically significant and economically meaningful effect of capital account openness on economic growth.
International Spillovers and Local Credit Cycles
No full textReplication package for "International Spillovers and Local Credit Cycles," by Julian di Giovanni, Sebnem Kalemli-Ozcan, Mehmet Fatih Ulu, and Soner Yusuf Baskaya. Forthcoming, Review of Economic Studies.
Replication files, in Stata, for all main text and appendix tables and figures, along with table and figure output
The Impact of Foreign Direct Investment on New Firm Survival in the UK: Evidence for Static v. Dynamic Industries
Get PDFThe paper examines the impact of Foreign Direct Investment (FDI) on the survival
of business start-ups. FDI has potential for both negative displacement/
competition effects as well as positive knowledge spillover and linkage effects
on new ventures. We find a net positive effect for the whole dataset. However, a
major contribution of the paper is to outline and test an argument that this
effect is likely to be comprised of a net negative effect in dynamic industries
(high churn: firm entry plus exit relative to the stock of firms) alongside a
net positive effect in static (low churn) industries. We find evidence to
support this view. The results identify new effects of globalisation on
enterprise development with associated challenges for industrial policy
The Role of Foreign Direct Investment on Press Freedom
Get PDFIn our paper we establish foreign direct investment (FDI) as a major determinant of media freedom. Global integration can strengthen the media sector financially, make it technologically enhanced and can also improve the economic environment as a whole. This, in turn, would work towards the enhancement of media freedom. The sample includes high, middle and low income economies. Using a panel of 115 countries over a period of 20 years, our results reveal that FDI is an absolute necessity for a free and efficient media. The results are robust to various alternate specifications and inclusion of additional control variables.Foreign Direct Investment; Press Freedom; Institutions
Acceleration, Stagnation and Crisis: the Role of Policies and Institutions
Get PDFIn this paper we study long run economic growth as a sequence of accelerations, slowdowns and crises, and estimate the role of institutions and macroeconomic policies in determining this sequence. We analyze the joint effect of policies and institutions on the frequency of the four growth regimes: stable growth, stagnation, crisis and miracle-like fast growth. The results confirm the importance of institutions for growth but also show that macro-policies; inflation, trade openness, size of government and real exchange rate overvaluation matter for the growth process, even after controlling for institutional quality. Importantly, some policies affect regimes differentially; for example, trade makes episodes of fast growth more likely but also increases the frequency of crises. Finally, the effects of policies are nonlinear and dependent on the quality of institutions. For example, government spending reduces growth in countries with good institutions but can increase it when institutions are weak.economic growth, growth accelerations, macroeconomic policies, institutions
Does Regulatory Harmonization Increase Bilateral Asset Holdings?
Get PDFBy combining new data on bilateral asset holdings with data on securities regulation in an empirical gravity model, it is found that bilateral differences in securities regulation lead to decreased portfolio holdings. Hence, regulatory harmonization can foster financial integration. The results are especially strong for equity holdings. It is verified that the results do not just reflect general economic, institutional, and cultural differences. Additional analysis of causality shows the exogenous component of asset holdings to be associated with larger differences in securities regulation. This might suggest that regulatory differences are used to protect domestic capital markets from outside competition.Cross-Border Portfolio Investments; Gravity Model; Harmonization; Home Bias; Integration; Securities Regulation
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