nep-ifn New Economics Papers
on International Finance
Issue of 2010‒09‒11
thirty papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. A Macro-Finance Approach to Exchange Rate Determination By Yu-chin Chen; Kwok Ping Tsang
  2. The exchange rate regime in Asia: From Crisis to Crisis By Ila Patnaik; Ajay Shah; Anmol Sethy; Vimal Balasubramaniam
  3. The Financial Crisis, Rethinking of the Global Financial Architecture, and the Trilemma By Joshua Aizenman; Menzie D. Chinna; Hiro Ito
  4. Taylor Rules and Exchange Rate Predictability in Emerging Economies By Galimberti, Jaqueson K.; Moura, Marcelo L.
  5. Are the Intraday Effects of Central Bank Intervention on Exchange Rate Spreads Asymmetric and State Dependent? By Rasmus Fatum; Jesper Pedersen; Peter Norman Sørensen
  6. The Solution to the Forward-Bias and Related Puzzles By Pippenger, John E
  7. A Floating versus Managed Exchange Rate Regime in a DSGE Model of India By Nicoletta Batini; Vasco Gabriel; Paul Levine; Joseph Pearlman
  8. "Market-specific and Currency-specific Risk during the Global Financial Crisis: Evidence from the Interbank Markets in Tokyo and London" By Shin-ichi Fukuda
  9. Drivers of exchange rate dynamics in selected CIS countries: Evidence from a FAVAR analysis By Christian Dreger; Jarko Fidrmuc
  10. Graduating to Globalisation: A Study of Southern Multinationals By Dilek Demirbas; Ila Patnaik; Ajay Shah
  11. Home Bias in Currency Forecasts By Yu-chin Chen; Kwok Ping Tsang; Wen Jen Tsay
  12. Have Foreign Banks Contributed to the Spread of the Global Financial Crisis to Saudi Arabia? By Mahmoud Haddad; Sam Hakim
  13. Foreign banks and financial stability in emerging markets: Evidence from the global financial crisis By Vogel, Ursula; Winkler, Adalbert
  14. Remittances and their Response to Portfolio Variables By Catalina Amuedo-Dorantes; Susan Pozo
  15. Banking globalization and international business cycles By Kozo Ueda
  16. Foreign Direct Investment and its Determinants in the Chilean Case: Unit Roots, Structural Breaks, and Cointegration Analysis. By Miguel D. Ramirez
  17. Understanding the ADR premium under market segmentation By Matthieu Stigler; Ajay Shah; Ila Patnaik
  18. FDI and Local Financial Market Development:A Granger Causality Test Using Panel Data By Abdel Aal Mahmoud, Ashraf
  19. Panel Data Evidence on Productivity Spillovers from Foreign Direct Investment: Firm-Level Measures of Backward and Forward Linkages By Pavel Vacek
  20. Global Banking and International Business Cycles By Robert Kollmann; Zeno Enders; Gernot J. Müller
  21. On The Influence of Oil Prices on Stock Markets: Evidence from Panel Analysis in GCC Countries By Mohamed El Hedi Arouri; Christophe Rault
  22. Do countries “graduate” from crises? Some historical perspective By Reinhart, Carmen; Qian, Rong; Rogoff, Kenneth
  23. Yield Curve Dynamics: Regional Common Factor Model By Boril Šopov; Jakub Seidler
  24. Funding Costs and Loan Pricing by Multinational Bank Affiliates By Alexis Derviz; Marie Rakova
  25. Productivity Gains From Exporting: Do Export Destinations Matter? By Pavel Vacek
  26. Trends in National and Regional Investors Financing Crossborder Infrastructure Projects in Asia By Prabir De; Muthi Samudram; Sanjeev Moholkar
  27. Not all financial regulation is global By Nicolas Véron
  28. Credit constraints and the north-south transmission of crises By Nguyen, Ha
  29. Self-Selection into Export Markets by Business Services Firms: Evidence from France, Germany and the United Kingdom By Temouri, Yama; Vogel, Alexander; Wagner, Joachim
  30. From estimation results to stylized facts. Twelve recommendations for empirical research in international activities of heterogeneous firms By Joachim Wagner

  1. By: Yu-chin Chen; Kwok Ping Tsang
    Abstract: The nominal exchange rate is both a macroeconomic variable equilibrating international markets and a financial asset that embodies expectations and prices risks associated with cross border currency holdings. Recognizing this, we adopt a joint macro-finance strategy to model the exchange rate. We incorporate into a monetary exchange rate model macroeconomic stabilization through Taylor-rule monetary policy on one hand, and on the other, market expectations and perceived risks embodied in the cross-country yield curves. Using monthly data between 1985 and 2005 for Canada, Japan, the UK and the US, we employ a state-space system to model the relative yield curves between country-pairs using the Nelson and Siegel (1987) latent factors, and combine them with monetary policy targets (output gap and in‡ ation) into a vector autoregression (VAR) for bilateral exchange rate changes. We find strong evidence that both the financial and macro variables are important for explaining exchange rate dynamics and excess currency returns, especially for the yen and the pound rates relative to the dollar. Moreover, by decomposing the yield curves into expected future yields and bond market term premiums, we show that both expectations about future macroeconomic conditions and perceived risks are priced into the currencies. These …ndings provide support for the view that the nominal exchange rate is determined by both macroeconomic as well as financial forces.
    Keywords: Exchange Rate, Term Structure, Latent Factors, Term premiums
    Date: 2010
  2. By: Ila Patnaik; Ajay Shah; Anmol Sethy; Vimal Balasubramaniam (National Institute of Public Finance and Policy)
    Abstract: Prior to the Asian financial crisis, most Asian exchange rates were de facto pegged to the US Dollar. In the crisis, many economies experienced a brief period of extreme flexibility. A `fear of floating' gave reduced flexibility when the crisis subsided, but flexibility after the crisis was greater than that seen prior to the crisis. Contrary to the idea of a durable Bretton Woods II arrangement, Asia then went on to slowly raise flexibility and reduce the role for the US Dollar. When the period from April 2008 to December 2009 is compared against periods of high inflexibility, from January 1991 to November 1991 and October 1995 to March 1997, the increase in flexibility is economically and statistically significant. This paper proposes a new measure of dollar pegging, the "Bretton Woods II score". We find that by this measure Asia has been slowly moving away from a Bretton Woods II arrangement.
    Keywords: Exchange rate regime, Asia, Bretton Woods II hypothesis
    JEL: F31 F33
    Date: 2010
  3. By: Joshua Aizenman; Menzie D. Chinna; Hiro Ito (Asian Development Bank Institute)
    Abstract: This paper extends our previous paper (Aizenman, Chinn, and Ito 2008) and explores some of the unexplored questions. First, we examine the channels through which the trilemma policy configurations affect output volatility. Secondly, we investigate how trilemma policy configurations affect the output performance of the economies under severe crisis situations. Thirdly, we look into how trilemma configurations have evolved in the aftermath of economic crises in the past. We find that trilemma policy configurations and external finances affect output volatility mainly through the investment channel. While a higher degree of exchange rate stability could stabilize the real exchange rate movement, it could also make investment volatile, though the volatility-enhancing effect of exchange rate stability on investment can be cancelled by holding higher levels of international reserves (IR). Greater financial openness helps reduce real exchange rate volatility. These results indicate that policymakers in a more open economy would prefer pursuing greater exchange rate stability and greater financial openness while holding a massive amount of IR. We also find that the “crisis economies” could end up with smaller output losses if they entered the crisis situation with more stable exchange rates or if they continue to hold a high level of IR and maintain greater exchange rate stability during the crisis period. Lastly, we find that developing countries are often found to have decreased the level of monetary independence and financial openness, but increased the level of exchange rate stability in the aftermath of a crisis, especially for the last two decades. This finding indicates how vulnerable developing countries, especially emerging market ones, are to volatile capital flows as a result of global financial liberalization.
    Keywords: economic crisis, financial crisis, trilemma, financial openess, exchange rate stability
    JEL: F15 F21 F31 F36 F41 O24
    Date: 2010
  4. By: Galimberti, Jaqueson K.; Moura, Marcelo L.
    Date: 2010–10
  5. By: Rasmus Fatum (School of Business, University of Alberta); Jesper Pedersen (Danish Economic Council); Peter Norman Sørensen (Department of Economics, University of Copenhagen)
    Abstract: This paper investigates the intraday effects of unannounced foreign exchange intervention on bid-ask exchange rate spreads using official intraday intervention data provided by the Danish central bank. Our starting point is a simple theoretical model of the bid-ask spread which we use to formulate testable hypotheses regarding how unannounced intervention purchases and intervention sales influence the market asymmetrically. To test these hypotheses we estimate weighted least squares (WLS) time-series models of the intraday bid-ask spread. Our main result is that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions: intervention purchases of the smaller currency, on average, reduce the spread while intervention sales, on average, increase the spread. We also show that intervention only affects the exchange rate spread when the state of the market is not abnormally volatile. Our results are consistent with the notion that illiquidity arises when traders fear speculative pressure against the smaller currency and confirms the asymmetry hypothesis of our theoretical model.
    Keywords: Foreign Exchange Intervention; Exchange Rate Spreads; Intraday Data
    JEL: D53 E58 F31 G15
    Date: 2010–08
  6. By: Pippenger, John E
    Abstract: The forward-bias puzzle is probably the most important puzzle in international finance. But there is a simple solution. Covered interest parity implies that the forward-bias puzzle is the result of two omitted variables: (1) the future change in the forward exchange rate and (2) the future interest rate differential. As Table 3 shows, at least for my data, the downward bias produced by those two omitted variables completely explains the forward-bias puzzle. Covered interest parity also solves three related puzzles.
    Keywords: exchange rates; forward bias; covered interest parity; uncovered interest parity, arbitrage
    Date: 2010–04–01
  7. By: Nicoletta Batini; Vasco Gabriel; Paul Levine; Joseph Pearlman (National Institute of Public Finance and Policy)
    Abstract: We first develop a two-bloc model of an emerging open economy interacting with the rest of the world calibrated using Indian and US data. The model features a financial accelerator and is suitable for examining the effects of financial stress on the real economy. Three variants of the model are highlighted with increasing degrees of financial frictions. The model is used to compare two monetary interest rate regimes: domestic Inflation targeting with a floating exchange rate (FLEX(D)) and a managed exchange rate (MEX). Both rules are characterized as a Taylor-type interest rate rules. MEX involves a nominal exchange rate target in the rule and a constraint on its volatility. We find that the imposition of a low exchange rate volatility is only achieved at a significant welfare loss if the policymaker is restricted to a simple domestic inflation plus exchange rate targeting rule. If on the other hand the policymaker can implement a complex optimal rule then an almost fixed exchange rate can be achieved at a relatively small welfare cost. This finding suggests that future research should examine alternative simple rules that mimic the fully optimal rule more closely.
    Keywords: DSGE model, Indian economy, monetary interest rate rules, floating versus managed exchange rate, financial frictions
    JEL: E52 E37 E58
    Date: 2010
  8. By: Shin-ichi Fukuda (Faculty of Economics, University of Tokyo)
    Abstract: This paper explores how international money markets reflected credit and liquidity risks during the global financial crisis. After matching the currency denomination, we investigate how the Tokyo Interbank Offered Rate (TIBOR) was synchronized with the London Interbank Offered Rate (LIBOR) denominated in the US dollar and the Japanese yen. Regardless of the currency denomination, TIBOR was highly synchronized with LIBOR in tranquil periods. However, the interbank rates showed substantial deviations in turbulent periods. We find remarkable asymmetric responses in reflecting market-specific and currency-specific risks during the crisis. The regression results suggest that counter-party credit risk increased the difference across the markets, while liquidity risk caused the difference across the currency denominations. They also support the view that a shortage of US dollar as liquidity distorted the international money markets during the crisis. We find that coordinated central bank liquidity provisions were useful in reducing liquidity risk in the US dollar transactions. But their effectiveness was asymmetric across the markets.
    Date: 2010–09
  9. By: Christian Dreger; Jarko Fidrmuc (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: We investigate the likely sources of exchange rate dynamics in selected CIS countries (Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the last dec-ade (1999-2010). Evidence is based on country VARs augmented by a regional com-mon factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and international drivers such as global trade, share prices, and oil price. Global, regional and idiosyncratic shocks are identified in a standard Cholesky fashion. Their relevance for exchange rates is ex-plored by a decomposition of the variance of forecast errors. The impact of global shocks to in the developments of exchange rates has increased, in particular, if financial shocks are considered. Because of the financial crisis, regional shocks have become more important at the expense of global shocks.
    Keywords: Exchange rates, CIS countries, financial crisis, FAVAR models
    JEL: F31 C22 G15
    Date: 2010–08
  10. By: Dilek Demirbas; Ila Patnaik; Ajay Shah (National Institute of Public Finance and Policy)
    Abstract: FDI by firms in developing countries is a recent phenomenon and demands a study of relationship between firm productivity and different modes of globalisation activities. This paper attempts to understand this relationship through ordered probit models, examining two key hypotheses using firm level panel data from India. First, we test whether there are characteristic differences between domestic firms, exporting firms and firms engaging with FDI. Second, we test if FDI is an integral part of the evolution of firms in developing countries. Our results suggest that there are strong differences between domestic firms, exporting firms, and firms that invest abroad, especially in their knowledge investment, indicating the presence of a ladder of quality in graduating to globalisation.
    Keywords: Outbound FDI, Panel data, India, Ordered Probit models
    JEL: F12 F14 F23 L1 D20
    Date: 2010
  11. By: Yu-chin Chen; Kwok Ping Tsang; Wen Jen Tsay
    Abstract: The "home bias" phenomenon states that empirically, economic agents often under- utilize opportunities beyond their country borders, and it is well-documented in various international pricing and purchase patterns. This bias manifests in the forms of fewer exchanges of goods and net equity-holdings, as well as less arbitrage of price differences across borders than theoretically predicted to be optimal. Our paper documents another form of home bias, where market participants appear to under-weigh information beyond their borders when making currency forecasts. Using monthly data from 1995 to 2010 for seven major exchange rates relative to the US dollar, we show that excess currency returns and the errors in investors' consensus forecasts not only depend on the interest differentials between the pair of countries, but they depend more strongly on interest rates in a broader set of countries. A global short interest differential and a global long interest differential are driving the results.
    Keywords: Survey Data, Excess Currency Returns, Global Shock
    Date: 2010
  12. By: Mahmoud Haddad (University of Tennessee-Martin, College of Business And Public Affairs); Sam Hakim
    Abstract: We analyze the role of domestic and foreign banks in Saudi Arabia during the latest financial crisis that has ravaged the world since 2007. The study is based on the growth rate in market share of the credit extended by each bank and investors’ perception about the risk exposure of this financial institution. We distinguish between purely domestic banks and institutions with joint ownership (local and foreign shareholders). While there is a suspicion that partly owned foreign banks are more risk exposed than their purely domestic counterparts, our findings suggest otherwise. Specifically we do not find evidence that foreign shareholders of Saudi banks, who suffered losses and liquidity problems in their home countries, cut credit in Saudi Arabia nor acted in a manner inconsistent with their domestic counterparts. As such, recommendations for a double standard in banking regulation are not supported by the evidence.
    Date: 2010–08
  13. By: Vogel, Ursula; Winkler, Adalbert
    Abstract: Foreign banks have increased their market share in many emerging markets since the mid-1990s. We examine whether this contributed to financial stability in the respective host countries in the global financial crisis. Our results suggest that the stabilizing impact of foreign banks was limited to the cross-border component of financial globalization and to two regions: Eastern Europe and Sub-Saharan Africa. Only in the latter region was this translated into more stable credit growth. Thus hopes that a stronger presence of foreign banks might help host countries in isolating domestic credit from international shocks did not materialize in the current crisis. --
    Keywords: Foreign banks,cross-border lending,bank credit,financial crisis
    JEL: E44 F36 G21
    Date: 2010
  14. By: Catalina Amuedo-Dorantes (Department of Economics, San Diego State University); Susan Pozo (Department of Economics, Western Michigan University)
    Abstract: Using a recent Spanish database on immigrants from all across the globe, we show that remittances respond to differences in macroeconomic conditions at home and abroad. This behavior suggests that immigrants are sophisticated economic optimizers who take advantage of differential returns when accumulating assets. Immigrants remit more when per capita GDP growth rates at home are greater than in Spain, when the home-host real interest-rate differential increases, and when real exchange-rate uncertainty is higher. These patterns differ with ownership of home country assets and with the area of the globe from which immigrants originate, whether it is Africa, the Americas, Europe or Asia. The response of remittances to cross-country differences in portfolio variables suggests that remittances may not be counter-cyclical as often claimed. Hence, paradoxically, while remittances may promote consumption-smoothing at the individual or household level, remittances cannot be relied upon to shore up migrant- sending economies in times of need.
    Date: 2010–09
  15. By: Kozo Ueda
    Abstract: This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking crossborder borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business-cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
    Keywords: Globalization ; Global financial crisis ; Business cycles ; Financial markets
    Date: 2010
  16. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper examines the major economic and institutional factors underlying the surge in foreign direct investment (FDI) flows to Chile during recent decades. It presents econometric evidence for the 1960-2003 period which indicates that market-based economic reforms and major changes in the institutional-legal status of foreign capital are, in large measure, responsible for the rapid increase in FDI inflows to leading sectors of the Chilean economy. Single break unit root and cointegration analysis suggest that market size, the real exchange rate, the debtservice ratio, the secondary enrollment ratio, physical infrastructure, and institutional reforms such as the elimination of restrictions on profit and dividend remittances and the implementation of a selective debt conversion program are economically significant in explaining the variation in FDI inflows to the country. The paper also addresses the long-term negative effects which rapidly growing profit and dividend remittances may have on the financing of capital formation and the Chilean balance of payments.
    Keywords: Akaike Information Criterion (AIC), Chilean economy, cointegration analysis, error correction model, FDI flows, Granger causality test, Johansen and Juselius test, remittances of profits and dividends, Structural breaks and unit roots, Theil inequality coefficient, Zivot and Andrews one-break unit root test
    JEL: C22 O10 O40 O57
    Date: 2010–09
  17. By: Matthieu Stigler; Ajay Shah; Ila Patnaik (National Institute of Public Finance and Policy)
    Abstract: Capital controls can induce large and persistent deviations from the Law of One Price for cross-listed stocks in international capital markets. A considerable literature has explored firm-specific factors which influence ADR pricing when LOP is violated. In this paper, we examine the interlinkages between Indian ADR premiums and macroeconomic time-series. We construct an ADR premium index, whereby diversication across firms diminishes idiosyncratic fluctuations associated with each security. We find that the S&P 500 index and the domestic Nifty index influence the ADR Premium Index. Positive shocks to the ADR premium index precede higher purchases by foreign investors on the domestic market, and precede positive returns on the domestic index.
    Keywords: capital market integration, depository receipts
    JEL: F30 F36 G15
    Date: 2010
  18. By: Abdel Aal Mahmoud, Ashraf
    Abstract: This paper reports the findings of Granger causality tests on the relationship between foreign direct investment (henceforth, FDI) and local financial market development across 62 countries from 1996 to 2007. In this paper we explore whether local financial market development is important in catalyzing the flow of foreign direct investment. findings results are robust to different measures of financial market development. Furthermore, the results indicate that most of the causal links are found in Non OECD, Low income and Lower middle Income countries.
    Keywords: FDI; Financial market; Capital markets; Credit markets;
    JEL: P45 G15 O16 F21 G10
    Date: 2010–08–27
  19. By: Pavel Vacek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: I examine whether foreign direct investment increases the productivity of manufacturing firms. I test the proposition that local firms benefit from supplying multinational firms (spillovers through backward linkages) and by purchasing inputs from multinationals (spillovers through forward linkages). The existing literature on productivity spillovers has relied on industry-level proxies for spillovers. I identify spillovers directly at the firm level. I have conducted field work in the Czech manufacturing sector and built a unique data set that enabled me to construct firm-level measures of backward and forward linkages. My results provide strong support for the existence of productivity spillovers through backward linkages.
    Keywords: FDI, spillovers, forward–backward linkages
    JEL: F23
    Date: 2010–08
  20. By: Robert Kollmann; Zeno Enders; Gernot J. Müller
    Abstract: This paper incorporates a global bank into a two-country business cycle model. The bank collects deposits from households and makes loans to entrepreneurs, in both countries. It has to finance a fraction of loans using equity. We investigate how such a bank capital requirement affects the international transmission of productivity and loan default shocks. Three findings emerge. First, the bank's capital requirement has little effect on the international transmission of productivity shocks. Second, the contribution of loan default shocks to business cycle fluctuations is negligible under normal economic conditions. Third, an exceptionally large loan loss originating in one country induces a sizeable and simultaneous decline in economic activity in both countries. This is particularly noteworthy, as the 2007-09 global financial crisis was characterized by large credit losses in the US and a simultaneous sharp output reduction in the US and the Euro Area. Our results thus suggest that global banks may have played an important role in the international transmission of the crisis.
    Date: 2010–08
  21. By: Mohamed El Hedi Arouri (Université d’Orléans); Christophe Rault
    Abstract: This paper implements recent bootstrap panel cointegration techniques and seemingly unrelated regression (SUR) methods to investigate the existence of a long-run relationship between oil prices and Gulf Corporation Countries (GCC) stock markets. Since GCC countries are major world energy market players, their stock markets are likely to be susceptible to oil price shocks. Using two different (weekly and monthly) datasets covering respectively the periods from 7 June 2005 to 21 October 2008, and from January 1996 to December 2007, our investigation shows that there is evidence for cointegration of oil prices and stock markets in GCC countries, while the SUR results indicate that oil price increases have a positive impact on stock prices, except in Saudi Arabia.
    Date: 2010–08
  22. By: Reinhart, Carmen; Qian, Rong; Rogoff, Kenneth
    Abstract: The widespread banking crises since 2007 among advanced economies and the “near” default of Greece in 2010 dashed the popular notion that rich countries have outgrown severe financial crises. Record or near-record declines in output accompanying these events signaled the end of the short-lived “great moderation era.” In fact, graduation from recurring sovereign external debt crises is a very tortuous process that sometimes takes a century or more. For banking crises, we simply do not know what it takes to graduate; it is unclear whether any country has managed it.
    Keywords: financial crisis; debt; default; banking; reversals; duration
    JEL: E0 F3 N0
    Date: 2010–08
  23. By: Boril Šopov (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jakub Seidler (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, we focus on thorough yield curve modelling. We build on extended classical Nelson-Siegel model, which we further develop to accommodate unobserved regional common factors. We centre our discussion on Central European currencies’ yield curves: CZK, HUF, PLN and SKK. We propose a model to capture regional dynamics purely based on state space formulation. The contribution of this paper is twofold: we examine regional yield curve dynamics and we quantify regional interdependencies amongst considered currencies’ yield curves. We conclude that the CZK yield curve possesses its own dynamics corresponding to country specific features, whereas other currencies’ yield curves are strongly influenced by the regional level, the regional slope factor or both.
    Keywords: Dynamic Factor Model, Kalman Filter, Nelson-Siegel, State Space, Regional Yield Curve, Principal Component Analysis
    JEL: C51 C53
    Date: 2010–08
  24. By: Alexis Derviz; Marie Rakova
    Abstract: We conduct a theoretical and empirical investigation of the influence which the financial condition of a multinational bank group may have on the lending rates of its affiliates. We first propose a model of bank lending to risky clients in which the implicit opportunity costs of lending by a foreign bank affiliate are influenced by the abundance/scarcity of funds within the multinational conglomerate. The model predicts that parent banks’ influence should be stronger in loan segments with more pronounced information asymmetry problems. We then formulate an empirical model of the spread charged by the affiliate to clients over the local interbank rate as a function of affiliate-level controls and a parent influence variable. This model is tested for three categories of commercial non-financial borrowers (domestically owned firms, foreign-owned firms and the self-employed) from the ten biggest banks in the Czech Republic under foreign control. Evidence of parent influence on lending spread is found in a limited number of cases of banks and borrower classes for which the constraint on fund flow within the parent bank group is likely to be tight, particularly when the borrower class is of strategic importance for the affiliate’s overall performance. Therefore the parent bank influence probably is not a dominating factor in interest-rate setting on aggregate, but it can influence the cost of credit in borrower categories that are of major importance for the affiliate.
    Keywords: Bank loan pricing, internal capital market, multinational banks.
    JEL: D82 G21 G31 F36
    Date: 2009–12
  25. By: Pavel Vacek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, I have examined whether exporters benefit by exporting more, and also whether the productivity benefits from exporting more are heterogeneous across export destinations. I have conducted my own data collection field work and built a unique firm-level panel database of Czech manufacturing firms that includes data on the destinations of exports. I have found that firms do benefit from exporting more. However, my results also show that it is necessary to take into account export markets' heterogeneity. I have found that it is only exporting more to developed countries that brings productivity gains.
    Keywords: exporting, productivity, spillovers
    JEL: F14
    Date: 2010–08
  26. By: Prabir De; Muthi Samudram; Sanjeev Moholkar (Asian Development Bank Institute)
    Abstract: This study examines a range of crossborder infrastructure development issues related to the Asian countries. Despite active pursuit of private investment in infrastructure by most developing countries in Asia and a growing number of success stories, the pace of such investment remains slow. Participation by the private sector in infrastructure development has been mixed. While there has been moderate progress in national infrastructure development by the private sector, progress is rather limited in the case of development of crossborder infrastructure in Asia. This study documents that Asian countries have attracted higher private sector investment for the development of national infrastructure projects such as seaports and airports as compared to crossborder infrastructure projects. The rising trend among private investors in infrastructure projects indicates a decline of investments by developed country investors. One of the findings of this study is that crossborder energy projects have received greater private sector investment globally as compared to transport, telecommunication, and water projects. In the context of Asia, too, energy sector projects still dominate the investment scenario. By considering all modes of financing, this study finds that crossborder infrastructure financing in Asia has witnessed an upward trend in the last decade and a half. Aside from hydropower projects in Bhutan, crossborder infrastructure in Asia is pursued through public-private partnerships. Interestingly, these few crossborder projects in Asia have limited private sector investors, compared to other regions, despite a wide base of local investors in Asia. This paper also shows that public sector investment drives crossborder energy and transportation projects in Asia, whereas private sector investments have picked up the pace only recently, specifically after the 1997 Asian financial crisis. This study recommends that given the huge infrastructure investment needs of the region and insufficient government resources, the role of the private sector and public-private partnerships in enhancing infrastructure facilities in Asia is very crucial. A review of select case studies of crossborder infrastructure projects clearly indicates that the major reasons for slow progress of regional infrastructure development by private sector stem from both economic to non-economic issues that need to be addressed in order to promote seamless Asia.
    Keywords: infrastructure, crossborder energy projects, public-private partnerships, 1997 Asian financial crisis
    JEL: F2 F3 G2
    Date: 2010
  27. By: Nicolas Véron
    Abstract: Financial regulation at global level has been high on the G20 agenda. However, financial multipolarity, with the rise of emerging economies, and its impact on decision-making at global level has made global convergence difficult. In this policy brief, the authors, Bruegel Senior Fellow Nicolas Véron and Stéphane Rottier, National Bank of Belgium, explain why now is the time to focus on building stronger global public institutions, ensuring globally consistent financial information, creating globally integrated capital-markets infrastructure and addressing competitive distortions among global capital-market intermediaries to set the foundation for global harmonisation of all aspects of financial regulation.
    Date: 2010–08
  28. By: Nguyen, Ha
    Abstract: Adverse shocks to rich countries often have a large and persistent negative impact on investment and output in developing countries. This paper examines a transmission mechanism that can account for this stylized fact. The mechanism is based on the existence of international financial frictions. Specifically, if a small, developing country has to collateralize its assets to borrow funds to invest, falling asset prices caused by a negative shock in an advanced economy worsen the developing country's collateral value and reduce its ability to borrow and reinvest. Hence, investment in the developing country declines, and international investors repatriate capital to the advanced country. As less capital now can be pledged as collateral, the developing country's credit constraint is further tightened, which leads to another round of decline in investment. This generates a downward spiral that may cause large output losses to the developing country. The mechanism finds empirical support in the 2008-2009 crisis data.
    Keywords: Debt Markets,Emerging Markets,Economic Theory&Research,Investment and Investment Climate,Country Strategy&Performance
    Date: 2010–08–01
  29. By: Temouri, Yama (Aston University); Vogel, Alexander (Leuphana University Lüneburg); Wagner, Joachim (Leuphana University Lüneburg)
    Abstract: This study reports results from an empirical investigation of business services sector firms that (start to) export, comparing exporters to firms that serve the national market only. We estimate identically specified empirical models using comparable enterprise level data from France, Germany, and the United Kingdom. Exporters are more productive and pay higher wages on average in all three countries. Results for profitability differ across borders – profitability of exporters is significantly smaller in Germany, significantly larger in France, and does not differ significantly in the UK. The results for wages and productivity hold in the years before the export start, which indicates self-selection into exporting of more productive services firms that pay higher wages. The surprising finding of self-selection of less profitable German business services firms into exporting does not show up among firms from France and the UK where no statistically significant relationship between profitability and starting to export is found.
    Keywords: business services firms, exports, self-selection, France, Germany, UK
    JEL: F14 D21 L80
    Date: 2010–08
  30. By: Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany)
    Abstract: Heterogeneous firms are at the heart of both the New New International Trade Theory and the Micro-econometrics of International Firm Activities. One important aim of microeconometric studies is to uncover stylized facts that hold over space and time, and that can both inspire theoretical models that are based on “realistic” assumptions, and inform policy debates in an evidence-based way. Which results from the thousands of empirical estimates reported in the literature on the micro-econometrics of international firm activities do we consider as convincing? Based on my own experience from the last twenty years I use the opportunity of this lecture to make twelve recommendations that, hopefully, will help to find the right way on the thorny road from estimation results to stylized facts. I will deal with the following topics: comparisons of means vs. comparisons of distributions; extremely different firms, or outliers; unobserved heterogeneity; simultaneous occurrence of differences across quantiles, outliers, and unobserved heterogeneity; heterogeneous effects of international firm activities on firm performance; replication; within-study replication by international research teams; meta-analysis; and talking to practitioners.
    Keywords: International firm activities, heterogeneous firms, stylized facts, robust statistics, replication, meta anaysis
    JEL: F14 C21 C23
    Date: 2010–09

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