nep-ifn New Economics Papers
on International Finance
Issue of 2013‒09‒26
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries By Joshua Aizenman; Hiro Ito
  2. Quantifying Productivity Gains from Foreign Investment By Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E; Villegas-Sanchez, Carolina; Volosovych, Vadym
  3. Capital Flows are Fickle: Anytime, Anywhere By John C Bluedorn; Rupa Duttagupta; Jaime Guajardo; Petia Topalova
  4. Impact of Corruption on Firm Level Export Decisions By William W. Olney

  1. By: Joshua Aizenman; Hiro Ito
    Abstract: This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate stability, and financial openness, we find that emerging market countries have adopted trilemma policy combinations with the least degree of relative policy divergence in the last fifteen years. We also find that a developing or emerging market country with a higher degree of relative policy divergence is more likely to experience a currency or debt crisis. However, a developing or emerging market country with a higher degree of relative policy divergence tends to experience smaller output losses when it experiences a currency or banking crisis. Latin American crisis countries tended to reduce their financial integration in the aftermath of a crisis, while this is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of relative policy divergence in the aftermath of the crisis, probably aiming at macroeconomic policies that are less prone to crises. The degree of relative policy divergence is affected by past crisis experiences – countries that experienced currency crisis or a currency-banking twin crisis tend to adopt a policy combination with a smaller degree of policy divergence.
    JEL: F31 F36 F41 O24
    Date: 2013–09
  2. By: Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E; Villegas-Sanchez, Carolina; Volosovych, Vadym
    Abstract: We quantify the causal effect of foreign investment on total factor productivity (tfp) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small.
    Keywords: FDI; Knowledge Spillovers; Multinationals; Selection
    JEL: E32 F15 F36 O16
    Date: 2013–04
  3. By: John C Bluedorn; Rupa Duttagupta; Jaime Guajardo; Petia Topalova
    Abstract: Has the unprecedented financial globalization of recent years changed the behavior of capital flows across countries? Using a newly constructed database of gross and net capital flows since 1980 for a sample of nearly 150 countries, this paper finds that private capital flows are typically volatile for all countries, advanced or emerging, across all points in time. This holds true across most types of flows, including bank, portfolio debt, and equity flows. Advanced economies enjoy a greater substitutability between types of inflows, and complementarity between gross inflows and outflows, than do emerging markets, which reduces the volatility of their total net inflows despite higher volatility of the components. Capital flows also exhibit low persistence, across all economies and across most types of flows. Inflows tend to rise temporarily when global financing conditions are relatively easy. These findings suggest that fickle capital flows are an unavoidable fact of life to which policymakers across all countries need to continue to manage and adapt.
    Keywords: Capital flows;Globalization;Developed countries;Developing countries;Cross country analysis;international capital flows; volatility; persistence; comovement; global factors
    Date: 2013–08–22
  4. By: William W. Olney (Williams College)
    Abstract: This paper examines the impact of corruption on the self-selection of firms into domestic and export markets. The heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive data set of over 24,000 firms in more than 90 developing countries. The results confirm both the self-selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets.
    Keywords: Corruption, Exports, Intermediaries
    JEL: F1 D73
    Date: 2013–07

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