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on International Finance |
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Issue of 2011‒02‒12
thirteen papers chosen by Ajay Shah National Institute of Public Finance and Policy |
| By: | Joseph P. Byrne; Norbert Fiess |
| Abstract: | This paper examines international capital flows to emerging and developing countries. We assess whether commonalities exist, the permanence of shocks to commonalities and their determinants. Also, we consider individual country coherence with global capital flows and we measure the extent of co-movements in the volatility of capital flows. Our results suggest there are commonalities in capital inflows, although aggregate or disaggregate capital flows respond differently to shocks. We find that the US long run real interest rate is an important determinant of global capital flows, and real commodity prices are relevant but to a lesser extent. We also find a role for human capital in explaining why some countries can successfully ride the wave of financial globalisation. |
| Keywords: | Capital Flows; Emerging Markets; Developing Countries; Global Factors |
| JEL: | F32 F34 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2011_01&r=ifn |
| By: | Shah, Ajay (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy) |
| Abstract: | India embarked on reintegration with the world econ- omy in the early 1990s. At first, a certain limited open- ing took place emphasising equity flows by certain kinds of foreign investors. This opening has had myriad in- teresting implications in terms of both microeconomics and macroeconomics. A dynamic process of change in the economy and in economic policy then came about, with a co-evolution between the system of capital con- trols, macroeconomic policy, and the internationalisa- tion of firms including the emergence of Indian multi- nationals. Through this process, de facto openness has risen sharply. De facto openness has implied a loss of monetary policy autonomy when exchange rate pegging was attempted. The exchange rate regime has evolved towards greater flexibility. |
| Keywords: | India ; Financial globalisation ; Capital controls, Capital flows |
| JEL: | F15 F23 F32 F36 G15 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/79&r=ifn |
| By: | Ralph de Haas; Neeltje van Horen |
| Abstract: | The global financial crisis has reignited the debate about the risks of financial globalization, in particular the international transmission of financial shocks. We use data on individual loans by the largest international banks to their various countries of operation to examine whether banks’ access to borrower information affected the transmission of the financial shock across borders. The simultaneous use of country and bank fixed effects allows us to disentangle credit supply and demand and to control for general bank characteristics. We find that during the crisis banks continued to lend more to countries that are geographically close, where they are integrated into a network of domestic co-lenders, and where they had gained experience by building relationships with (repeat) borrowers. |
| Keywords: | Crisis transmission; sudden stop; cross-border lending; syndicated loans |
| JEL: | F36 F42 F52 G15 G21 G28 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:279&r=ifn |
| By: | Eleonora Pierucci; Luigi Ventura |
| Abstract: | By means of panel and time series regression analyses, and by resorting to a variance decomposition due to Asdrubali et al. (1996) we show that income flows to and from abroad did not play, in general, a large risk sharing role for a pool of EU countries over the horizon 1976-2007. This is particularly true in a pre-globalization period, but remains true for some countries, even in the finance globalization era. We then extend the analysis to consider a measure of cash flow, instead of income, available for consumption, and observe that capital flows to and from abroad have played a largely destabilizing role, to an extent that one might have not expected beforehand. Key to this result is also the study of asymmetries in smoothing positive and negative shocks by the different possible channels. These findings seem to provide some useful insights onto the origin of the recent global financial crisis. |
| Keywords: | Risk Sharing, Financial Globalization, Capital Flows |
| JEL: | E2 E6 F15 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:124&r=ifn |
| By: | Patnaik, Ila (National Institute of Public Finance and Policy); Gupta, Abhijit Sen (Jawaharlal Nehru University); Shah, Ajay (National Institute of Public Finance and Policy) |
| Abstract: | Traditional explanations for trade misinvoicing -- high custom duties and weak domestic economies - are less persuasive in a world of high growth emerging markets who have low trade barriers. We construct a 35- country data set over a 26 year span, covering both industrialised and developing countries, to study the phenomena of export and import misinvoicing. Capital account openness, differentials in interest rates, political stability, corruption, indebtedness and the exchange rate regime are identified as factors related to misinvoicing. Trade misinvoicing should be seen as one element of de facto capital account openness. |
| Keywords: | Trade misinvoicing, Capital account openness, Political stability, Custom duties |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:10/75&r=ifn |
| By: | Shah, Ajay (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy) |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/80&r=ifn |
| By: | Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy) |
| Abstract: | In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of tradable services, where the marginal cost of transport is near zero. We argue that in the purchase of services, buyers face uncertainty about product quality, especially when production is located far away. Firm optimisation then leads less productive firms to self-select themselves for FDI. We test this prediction with data from the Indian software industry, and find support for it. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/77&r=ifn |
| By: | Raul Razo-Garcia (Department of Economics, Carleton University) |
| Abstract: | We perform a survival analysis of the policy composed of an intermediate ex- change rate regime and a closed nancial account. The analysis proposed is novel because we overcome the potential endogeneity between the two policies by ana- lyzing the duration of the policy mix, estimate a multiple destinations model and control for unobserved heterogeneity. The deepness of the nancial system, in ation, per capita income, size, trade openness, and the global acceptance of intermediate regimes and capital controls aect the duration of the policy mix. Finally, the evi- dence shows that the single destination model hides interesting factors aecting the duration of the regime. |
| JEL: | F32 F33 |
| Date: | 2011–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:11-01&r=ifn |
| By: | M Morys |
| Abstract: | Conventional wisdom has that most countries were not able to issue debt denominated in domestic currency before World War I. We show that Austria-Hungary had a vast external paper debt until the 1870s; only then became foreign residents reluctant to hold unsecured debt. Austria-Hungary attempted to counteract the repatriation of paper debt by issuing gold debt. As a result, the external debt became increasingly “golden” but the dual monarchy was a net exporter of capital in the period 1880-1913. This suggests that Austria-Hungary had been free from original sin initially but began to be affected by it in the 1870s. Based on a reconstruction of the balance-of payments, we then demonstrate that a strong export performance and large remittances from emigrants counteracted capital exports and interest payments abroad and made gold standard adherence feasible. |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:yor:cherry:10/02&r=ifn |
| By: | Joachim Wagner (Institute of Economics, Leuphana University of Lüneburg, Germany) |
| Abstract: | This paper summarizes in a non-technical way what we know from empirical studies based on firm-level data about the mutual links between international activities of firms and productivity. It is written with a view to inform policy makers in an evidencebased way. A special focus is on the empirical evidence we have from studies using firm-level data from the Nordic countries. It is argued that this empirical evidence does not provide a sound basis to search for similarities and differences (and their causes) between the Nordic countries, and the empirical results reported cannot qualify as stylized facts that can inform policy makers in an evidence-based way. |
| Keywords: | International firm activities, productivity, firm level data, Nordic countries |
| JEL: | F14 F23 L25 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:194&r=ifn |
| By: | Barba Navaretti, Giorgio; Calzolari, Giacomo; Pozzolo, Alberto Franco |
| Abstract: | This paper examines whether multinational banks have a stabilising or a destabilising role during times of financial distress. With a focus on Europe, it looks at how these banks’ foreign affiliates have been faring during the recent financial crisis. It finds that retail and corporate lending of these foreign affiliates has been stable and even increasing between 2007 and 2009. This pattern is related to the functioning of the internal capital market through which these banks funnel funds across their units. The internal capital market has been an effective tool to support foreign affiliates in distress and to isolate their lending from the local availability of financial resources, notwithstanding the systemic nature of the recent crisis. This effect has been particularly large within the EU integrated financial market and for the EMU countries, thus showing complementarity between economic integration and multinational banks’ internal capital markets. In light of these findings, this paper supports the call for an integration of the European supervisory and regulatory framework overseeing multinational banks. The analysis is based on an analytical framework which derives the main conditions under which the internal capital market can perform this support function under idiosyncratic and systemic stresses. The empirical evidence uses both aggregate evidence on foreign claims worldwide, and firm-level evidence on the behaviour of banking groups’ affiliates, compared to standing alone national banks. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G2 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11056&r=ifn |
| By: | Caiazza, Stefano; Clare, Andrew; Pozzolo, Alberto Franco |
| Abstract: | Given the recent traumatic events in the world’s banking industry it is important to understand what drives bankers to create larger and larger, often multinational, banking groups. In this paper we investigate whether the targets in cross-border bank M&As are materially different from those banks targeted in domestic M&A deals. To address this question we use a sample of over 24,000 banks from more than 100 countries. We begin by estimating the probability that a bank will be a M&A target; this probability is based upon both bank specific and country specific characteristics. The sample also naturally includes banks that were not involved in any M&A deal, this set of banks acts as a control sample for the study. We then estimate a multinomial model that distinguishes between (i) targets in domestic operations, (ii) targets in cross-border operations and (iii) non-targets. The main message of the paper is that, with few exceptions, domestic and foreign investors target similar banks. In particular, contrary to what one might expect, bank size does not affect differently the probability of being a domestic or a cross-border target, but it has a positive and highly significant effect in both cases. What differs between national and international M&As are the characteristics of the countries where banks operate. On average, banking systems characterized by lower leverage, higher cost inefficiency and lower liquidity are more likely to be targets of cross-border acquisitions, while none of this characteristics affects the likelihood of being acquired domestically. |
| Keywords: | M&As, M&Asbank internationalisation |
| JEL: | G15 G21 G34 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11058&r=ifn |
| By: | Gulamhussen, M. A.; Piheiro, Carlos; Pozzolo, Alberto Franco |
| Abstract: | Multinational banks are a distinctive feature of today’s globalized economy with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that cross-border expansion is a profitable process from a firm’s perspective. The analyses of the costs and benefits of focusing or diversifying the activities of a firm have a long tradition in the economic and business literatures. The overall evidence is mixed, due to the opposite effects of scale and scope economies on one side and agency costs on the other. In this paper, we study the value of internationally diversified commercial banks. In our analysis we construct a measure of banks’ excess value using a large sample of more than 500 large banks from 56 countries between 2001 and 2007, and relate it to different measures of the international diversification of their activities. We find robust evidence of a statistically and economically significant diversification premium, suggesting that, in banking, the benefits of geographic scale and scope economies more than offset the agency costs. |
| Keywords: | Geographical diversification, Corporate diversification, Multinational banking, Foreign Direct Investment |
| JEL: | G34 G21 G15 L22 F23 F36 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp11057&r=ifn |