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on Financial Development and Growth |
| By: | Gaygysyz Ashyrov; Nicolas Gavoille; Kjetil Haukås; Rasmus Bøgh Holmen; Jaan Masso |
| Abstract: | While attracting foreign direct investment (FDI) has been at the core of the economic policy of many countries since the 1980s, existing evidence of a causal foreign ownership effect on firm-level productivity is mixed. This paper revisits the productivity effect of foreign takeovers on domestic firms. Leveraging administrative firm-level data from Estonia, Latvia and Norway, we shed light on the following key questions: 1) Does the magnitude of the effect of foreign ownership depend on the host country's level of development?; 2) Does spatial, cultural, and economic proximity between the sending and receiving countries play a role in the foreign ownership effect?; and 3) To what extent are these effects heterogeneous across industries? By implementing a propensity score matching procedure, combined with a difference-in-differences approach, our results indicate that the productivity effect of foreign ownership greatly varies across host countries, sectors and the region of origin for the FDI. We document an overall positive but heterogeneous effect of foreign acquisitions on domestic firms, with a stronger productivity boost in Estonia and Latvia than in Norway. The effects in each country are concentrated on FDI from particular regions and specific economic sectors. These results suggest that the positive effect of FDI on receiving companies is conditional on both the characteristics of the investor and the acquisition target. |
| Keywords: | Productivity, foreign direct investment, foreign ownership, Northern Europe |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:mtk:febawb:148 |
| By: | Oualid MECHTI (UM5 - Université Mohammed V de Rabat [Agdal]); Khadija EL ISSAOUI (UM5 - Université Mohammed V de Rabat [Agdal]) |
| Abstract: | This paper analyses the short-and long-term impact of institutional quality on FDI inflows in 31 African middle-income countries over the period 2002-2022 using the ARDL method with PMG. We constructed a synthetic index of institutional quality using the principal component analysis method in order to best reproduce the variance of the six kaufman-kray governance indicators. The results show that, in the short term, institutional quality has no effect on FDI inflows, unlike the economic environment, which has an effect in both the short and long term. On the other hand, institutional quality plays a key role in attracting foreign capital in the long term, more so than the economic environment. In fact, a one-percentage point increase in 'institutional quality' generates a 1, 068% increase in 'FDI flows'. However, the results of the individual effect of the six governance indicators reveal the importance of these indicators, with a significant and positive coefficient, except for the 'capacity to make demands and express oneself' indicator, which has a negative effect. |
| Abstract: | Cet article analyse l'impact à court et à long terme de la qualité institutionnelle sur les flux entrants des IDE dans 31 pays africains à revenu intermédiaire au cours de la période 2002-2022 en utilisant la méthode ARDL avec PMG. Nous avons construit un indice synthétique de la qualité institutionnelle à l'aide de la méthode analyse en composante principale afin de reproduire au mieux la variance des six indicateurs de la gouvernance de kaufman-kray. Les résultats révèlent qu'à court terme, la qualité institutionnelle n'exerce aucun effet sur les entrées d'IDE, contrairement à l'environnement économique qui agit à la fois à court et long terme. En revanche, la qualité institutionnelle joue un rôle primordial dans l'attractivité des capitaux étrangers à long terme, plus que l'environnement économique. En effet, une augmentation d'un point de pourcentage de «la qualité institutionnelle» engendre une hausse de 1.068% des «flux d'IDE». Cependant, les résultats de l'effet individuel des six indicateurs de la gouvernance, il se révèle l'importance de ces indicateurs, avec un coefficient significatif et positif, sauf pour l'indicateur «capacité revendicative et d'expression», qui a un effet négatif. |
| Keywords: | African middle-income countries FDI flows institutional quality ARDL Pays africains à revenu intermédiaire flux d'IDE qualité institutionnelle ARDL, African middle-income countries, FDI flows, institutional quality, ARDL Pays africains à revenu intermédiaire, flux d'IDE, qualité institutionnelle, ARDL |
| Date: | 2024–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04698139 |
| By: | Moonhee Cho (Korea Institute for International Economic Policy); Hyungseok Joo (University of Surrey) |
| Abstract: | This paper investigates the effect of sovereign debt default on foreign direct investment (FDI) transactions by US firms into Argentina following the Argentine sovereign default in 2019–20. Using the synthetic control approach, we find that the number of FDI transactions decreased by approximately 60% after the Argentine default with a particularly pronounced decline in the non-manufacturing sector. By examining the changes in the number of transactions, we provide a more precise picture of the cost of sovereign default, capturing the FDI activity of small firms better. |
| JEL: | F13 F21 F34 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0324 |
| By: | Diego Vallarino |
| Abstract: | This paper examines the impact of fiscal incentives on industrial investment in Uruguay from 1974 to 2010. Using a mixed-method approach that combines econometric models with machine learning techniques, the study investigates both the short-term and long-term effects of fiscal benefits on industrial investment. The results confirm the significant role of fiscal incentives in driving long-term industrial growth, while also highlighting the importance of a stable macroeconomic environment, public investment, and access to credit. Machine learning models provide additional insights into nonlinear interactions between fiscal benefits and other macroeconomic factors, such as exchange rates, emphasizing the need for tailored fiscal policies. The findings have important policy implications, suggesting that fiscal incentives, when combined with broader economic reforms, can effectively promote industrial development in emerging economies. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.00002 |
| By: | Serena Sordi; Ahmad Naimzada; Marwil J. Dávila-Fernández |
| Abstract: | The global recession triggered by the great financial crisis and the response to the COVID-19 emergency have renewed the interest in connecting business cycle dynamics to financial conditions. This paper proposes a simple macro-dynamic behavioural model of the interaction between the stock market (SM) and the economy’s real sector (RS). We innovate by studying the interaction between two alternative sources of persistent fluctuations related to two different types of heterogeneity. The SM is modelled as a market with two heterogeneous speculators – chartists and fundamentalists. On the other hand, the RS is formalised as a simplified discrete-time version of Goodwin’s growth cycle model, distinguishing between labour and capital incomes. The interaction between the RS and the SM is the result of two assumptions: (i ) investment decisions depend on both profits and the stock price; (ii ) the fundamental value of the latter which is used by speculators in their demand functions is proportional to national output. The overlap between financial and real dynamics results in a novel source of economic fluctuations. We show that the dynamics generated by the resulting 2D map depend crucially on the sensitivity of investment to the stock price and a parameter entering the relation between the fundamental value of the stock price and national output. |
| Keywords: | Persistent fluctuations; Heterogeneous agents; Nonlinear dynamics; Stock market; Real-financial interactions |
| JEL: | C02 D84 E32 G12 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:906 |
| By: | Andrea Ajello; Giovanni Favara; Greg Marchal; Bálint Szőke |
| Abstract: | Financial conditions have swung considerably over the past two and half years. They moved from very accommodative levels in late 2021 to providing a significant drag on economic activity in 2022 and 2023. Since early this year, they eased moderately amid monetary policy communications signaling that the federal funds rate had likely reached its peak for this monetary policy tightening cycle. |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-09-20-1 |
| By: | Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar |
| Abstract: | We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to debt capital markets. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even after controlling for standard predictors including credit spreads. |
| Keywords: | credit conditions; primary and secondary corporate bond market; dimension reduction; financial conditions; real activity |
| JEL: | C38 E32 E44 G12 G32 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:98841 |
| By: | Xiaosai Liao; Xinjue Li; Qingliang Fan |
| Abstract: | Different from existing literature on testing the macro-spanning hypothesis of bond risk premia, which only considers mean regressions, this paper investigates whether the yield curve represented by CP factor (Cochrane and Piazzesi, 2005) contains all available information about future bond returns in a predictive quantile regression with many other macroeconomic variables. In this study, we introduce the Trend in Debt Holding (TDH) as a novel predictor, testing it alongside established macro indicators such as Trend Inflation (TI) (Cieslak and Povala, 2015), and macro factors from Ludvigson and Ng (2009). A significant challenge in this study is the invalidity of traditional quantile model inference approaches, given the high persistence of many macro variables involved. Furthermore, the existing methods addressing this issue do not perform well in the marginal test with many highly persistent predictors. Thus, we suggest a robust inference approach, whose size and power performance are shown to be better than existing tests. Using data from 1980-2022, the macro-spanning hypothesis is strongly supported at center quantiles by the empirical finding that the CP factor has predictive power while all other macro variables have negligible predictive power in this case. On the other hand, the evidence against the macro-spanning hypothesis is found at tail quantiles, in which TDH has predictive power at right tail quantiles while TI has predictive power at both tails quantiles. Finally, we show the performance of in-sample and out-of-sample predictions implemented by the proposed method are better than existing methods. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.03557 |
| By: | Fichtner, Jan (University of Amsterdam); Petry, Johannes |
| Abstract: | Global finance can be seen as a complex international network of portfolio investments, loans and financial transactions shaped by various private but also by public actors. The vast profit-seeking activities of private financial actors influence capital flows, market stability, and the allocation of financial resources have an impact on corporations, markets, and governments worldwide. In other words, global finance is not a ‘neutral’ tool for price-discovery or a ‘pass-through’ segment that merely provides capital to its most efficient use in the real economy – global finance is much more than that, it is about (re)shaping politico-economic power relations in the contemporary international political economy. Before the global financial crisis of 2007-2008, private commercial and investment banks arguably constituted the core of global finance and exerted an outsized influence. However, the crisis initiated a shift in the power distribution and actors’ constellations within global finance. This new era was arguably marked by a relative decline of big banking groups – and the concomitant rise of large asset management firms (e.g., BlackRock) and other emerging influential actors such as index providers (e.g., MSCI). In parallel, the traditional center of gravity of global finance, which revolved around the axis between New York and London, was complemented and also partly challenged by the ascent of new actors such as sovereign wealth funds and financial markets from the Global South, above all China. These new actors often follow a somewhat different logic than the frequently short-term oriented and primarily profit-driven financial market actors from the Anglo-American core, since they are often permeated by government interests and consequently aimed at incorporating long-term strategic goals. |
| Date: | 2024–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:asx7t |
| By: | Miguel D. Ramirez (Department of Economics, Trinity College) |
| Keywords: | Net Foreign Direct Investment (FDI); Gross fixed Capital Formation (GFCF); Net Payments of Profits and Interest; Net Reverse Transfers. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:tri:wpaper:2402 |
| By: | Liukun Wu |
| Abstract: | In this paper, I propose a new general equilibrium model that explains stylized facts about venture capitalists' impact on their portfolio firms. Venture capitalists can help increase firms' productivity, yet they face increasing entry costs to enter. I characterize steady state effort choice, entry threshold, and mass of venture capitalists, and show how they are affected by change in upfront investment, interest rate, and entry costs. The key contribution is that public policy to stimulate startups by subsidizing upfront investments or reducing interest cost have limited success if not accompanied by an increasing supply of experts who can improve business ideas. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.09960 |
| By: | Liukun Wu |
| Abstract: | In this paper, I conduct a policy exercise about how much the introduction of a cash transfer program as large as a Norwegian-sized lottery sector to the United States would affect startups. The key results are that public cash transfer programs (like lottery) do not increase much the number of new startups, but increase the size of startups, and only modestly increase aggregate productivity and output. The most important factor for entrepreneurs to start new businesses is their ability. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.09955 |
| By: | Marcus Dejardin (University of Namur); Luca Farè (University of Bergamo); Éric Toulemonde (University of Namur) |
| Abstract: | This study examines the impact of a bankruptcy system reform process implemented in Slovenia on access to credit conditions and investments in innovation by small businesses. The reform process increased the recovery rate and reduced the time to resolve insolvency procedures, thus improving the efficiency of the bankruptcy system. Leveraging a dataset of 1, 245 Slovenian micro-, small-, and medium-sized enterprises, our results document an increase in innovation investments by small businesses after the reform process due to more accommodating access to credit conditions. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nam:defipp:2405 |
| By: | Koki Kanazawa (Digital Research Assistant, RONIN International); Kyosuke Kurita (School of Economics, Kwansei Gakuin University) |
| Abstract: | Using unique data on the amount of money held by the Indonesian three largest banks in each district and firm-level data of Indonesian micro enterprises in 2013 and 2014, we examine effects of four types of partnership with a private company, NPO/NGO, bank, and the government on access to finance of micro enterprises. Previous studies consider social capital as unofficial connection with other organizations. However, we newly examine an effect of official contracts as partnership and contribute to the literature by investigating many types of partnerships which have never considered and considering effect of supplier's side by utilizing data on bank's money in our estimation. It is found that firms with partnership with NPO/NGO are more likely to obtain loaned money as well as that with a bank. However, indicators of firms' performance and ability, such as ROA, entrepreneurs' education, and firms' size are statistically insignificant for loan approval. In addition, the amount of banks' money does not have statistically significant effect on loan approval. Therefore, it becomes explicit that Indonesian banks cannot effectively allocate loans to private sector because of corruption between specific private companies and public institutions and a simple policy like increasing money holdings of banks has no effect on distributing corporate loans to enterprises. |
| Keywords: | Partnership, SMEs, Bank loan, Indonesia, Microeconometrics |
| JEL: | G21 L14 O16 Z13 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:279 |
| By: | Guerrazzi, Marco |
| Abstract: | In this note, I evaluate the private and the social welfare gains that in the Diamond-Dybvig model of bank runs characterize the switch from a decentralized to a centralized equilibrium that may hold even in an atomistic environment with banking intermediation. Specifically, relying on logarithmic preferences, I show that such a social welfare gain is an increasing function of the discount rate of more patient agents. Moreover, I show that for each level of the discount rate of patient agents, there is an optimal value of the proportion of these agents in the economy that maximizes the social welfare gain. |
| Keywords: | Bank runs; Private and social welfare gains; Banking intermediation; Bernoulli distribution |
| JEL: | D02 E02 E44 G21 |
| Date: | 2024–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122102 |
| By: | Barth, Andreas; Mansouri, Sasan; Wöbbeking, Fabian |
| JEL: | G01 G21 G28 M41 M48 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302383 |
| By: | Shogo Nakano (Bank of Japan); Yu Sugioka (Bank of Japan); Hiroki Yamamoto (Bank of Japan) |
| Abstract: | The natural rate of interest (r*) is the real interest rate that is neutral to the economy and prices, and is one of the benchmarks for evaluating the stance of monetary policy. r* cannot be observed directly and must be estimated based on some assumptions. In this paper, we survey various methods that have been developed for estimating r*, summarize their characteristics, and apply them to the Japanese economy. We confirm all estimates of r* showed a downward trend in the long run. However, the estimated results of r* vary widely, depending on the method used, and current estimates can alter when new data are added to the estimation. Therefore, it is necessary to consider estimation uncertainties when conducting monetary policy. |
| Keywords: | Natural rate of interest; Equilibrium real interest rate; Equilibrium yield curve; Term-structure |
| JEL: | C32 E43 E52 |
| Date: | 2024–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e12 |
| By: | Bouzas Correa, Tulio Cesar (Tilburg University, Center For Economic Research) |
| Keywords: | Monetary Shocks; Distributional Effects; market incompleteness; Credit; Financial Development |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiucen:4be9a8e5-1b12-42e8-881e-57d418ec179e |
| By: | Solikin M. Juhro; Denny Lie |
| Abstract: | Should macroprudential policy be countercyclical or procyclical? Using an estimated medium-scale DSGE model with a wide array of shocks, we show that the optimal macroprudential (capital-requirement) response could be procyclical, in contrast to the standard recommendation of a countercyclical response. This finding is due to the existence of many shocks in the economy that imply a trade-off between achieving macroeconomic stability and financial stability. Our main, general finding on the possible desirability of a procyclical macroprudential policy response applies to any economy, even though the model for the analysis is fitted to the Indonesian economy. The only requirements are that there exists a shock that induces a trade-off between the two stability measures and that the objective of the policymakers is to maximize the welfare of economic agents. Under the scenario, the welfare loss from adopting a conventional, countercyclical macroprudential response could be sizeable. |
| Keywords: | monetary policy, macroprudential policy, policy mix, financial system procyclicality, capital requirement, countercyclical or procyclical policy, |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2024-22 |
| By: | Pablo Aguilar Perez |
| Abstract: | This paper examines the global spillovers of US monetary policy through the remittance channel. We use Jordà (2005) local projections to assess the effects of a US monetary policy tightening on 8 major remittance-sending countries and 41 recipient countries over the period from January 1997 to December 2017. Our findings reveal that such monetary tightening significantly impacts not only the US economy but also key remittance-sending nations, resulting in a global contractionary effect. The impact on recipient countries varies based on their reliance on remittances, underscoring the dual role of these personal transfers as both an amplifier and a mitigator of the global business cycle. Specifically, countries with high dependency on remittances experience heightened pro-cyclicality, leading to declines in both output and inflation, while those with moderate or low reliance exhibit counter-cyclical behavior. |
| Keywords: | Global spillovers, Remittances, US monetary policy |
| JEL: | F24 E52 F41 F44 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-27 |
| By: | Thiel, Luzie; Schwanebeck, Benjamin |
| JEL: | E50 E52 E58 E61 F41 F45 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302405 |
| By: | Aldasoro, Iñaki; Ferrari Minesso, Massimo; Gambacorta, Leonardo; Habib, Maurizio Michael; Cornelli, Giulio |
| Abstract: | Using a new series of crypto shocks, we document that money market funds’ (MMF) assets under management, and traditional financial market variables more broadly, do not react to crypto shocks, whereas stablecoin market capitalization does. U.S. monetary policy shocks, in contrast, drive developments in both crypto and traditional markets. Crucially, the reaction of MMF assets and stablecoin market capitalization to monetary policy shocks is different: while prime-MMF assets rise after a monetary policy tightening, stablecoin market capitalization declines. In assessing the state of the stablecoin market, the risk-taking environment as dictated by monetary policy is much more consequential than flight-to-quality dynamics observed within stablecoins and MMFs. JEL Classification: E50, F30 |
| Keywords: | Bitcoin, crypto, monetary policy shocks, money market funds, stablecoins |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242987 |
| By: | Teng Liu |
| Abstract: | The agricultural sector is particularly susceptible to the impact of climate change. In this paper, I investigate how vulnerability to climate change affects U.S. farms' credit access, and demonstrates that such impact is unequally distributed across farms. I first construct a theoretical framework of bank lending to farms faced with climate risks, and the model helps discipline ensuing empirical analyses that use novel panel datasets at county and at bank levels. I find that higher exposure to climate change, measured by temperature anomaly, reduces bank lending to farms. Such impact is persistent, nonlinear, and heterogeneous. Small and medium farms almost always experience loss of loan access. In comparison, large farms see less severe credit contraction, and in some cases may even see improvement in funding. While small banks carry the burden of continuing to lend to small farms, their limited market share cannot compensate for the reduction of lending from medium and large banks. These results suggest that factors such as farm size and bank type can amplify the financial impact of climate change. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.19463 |