nep-ifn New Economics Papers
on International Finance
Issue of 2013‒12‒15
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Changing Forces of Gravity: How the Crisis Affected International Banking By Claudia M. Buch; Katja Neugebauer; Christoph Schröder
  2. Do countries falsify economic data strategically? Some evidence that they might. By Tomasz Michalski; Gilles Stoltz
  3. Do Foreign Owners Favor Short-Term Profit? Evidence from Germany By Verena Dill; Uwe Jirjahn; Stephen C. Smith
  4. Financial Globalization, Growth and Volatility In Developing Countries By Ayhan Kose; Eswar Prasad; Kenneth Rogoff; Shang-Jin Wei; Ann Harrison

  1. By: Claudia M. Buch; Katja Neugebauer; Christoph Schröder
    Abstract: The global financial crisis has brought to an end a rather unprecedented period of banks’ international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years 2002-2011, we study bank internationalization before and during the crisis. Our data allow analyzing not only the international assets of the banks’ headquarters but also of their foreign affiliates. We show that banks have lowered their international assets, both along the extensive and the intensive margin. This withdrawal from foreign markets is the result of changing market conditions, of policy interventions, and of a weakly increasing sensitivity of banks to financial frictions.
    Keywords: International banking, gravity model, financial frictions
    JEL: G01 F34 G21
    Date: 2013–12
  2. By: Tomasz Michalski (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - GROUPE HEC - CNRS : UMR2959); Gilles Stoltz (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - GROUPE HEC - CNRS : UMR2959, DMA - Département de Mathématiques et Applications - CNRS : UMR8553 - École normale supérieure [ENS] - Paris, INRIA Paris - Rocquencourt - CLASSIC - École normale supérieure [ENS] - Paris - INRIA)
    Abstract: Using Benford's Law, we find evidence supporting the hypothesis that countries at times misreport their economic data strategically. We group countries with similar economic conditions and find that for countries with fixed exchange rate regimes, high negative net foreign asset positions, negative current account balances or more vulnerable to capital flow reversals we reject the first-digit law for the balance of payments data. This corroborates the intuition of a simple economic model. The main results do not seem to be driven by countries in Sub-Saharan Africa or those with low institutional quality ratings.
    Keywords: capital flows; public information provision; misinformation; Benford's Law; transparency
    Date: 2013–05–01
  3. By: Verena Dill; Uwe Jirjahn; Stephen C. Smith
    Abstract: Comparing domestic- and foreign-owned firms in Germany, this paper finds that foreign-owned firms are more likely to focus on short-term profit. This influence is particularly strong if the local managers of the German subsidiary are not sent from the foreign parent company. Moreover, the physical distance between the foreign parent company and its German subsidiary increases the probability of focusing on short-term profit. These findings conform to the hypothesis that foreign owners facing an information disadvantage concerning the local conditions of their subsidiaries are more likely to favor short-term profit. However, we do not identify differences in “short- termism” between investors from “Anglo-Saxon” and other foreign countries; rather, results point in the direction of more general features of international business investment.
    Keywords: Foreign Ownership, Short-Termism, Asymmetric Information, Globalization
    JEL: F23 G34 M16 P10
    Date: 2013
  4. By: Ayhan Kose; Eswar Prasad; Kenneth Rogoff; Shang-Jin Wei; Ann Harrison
    Abstract: This paper provides a comprehensive assessment of empirical evidence about the impact of financial globalization on growth and volatility in developing countries. The results suggest that it is difficult to establish a robust causal relationship between financial integration and economic growth. Furthermore, there is little evidence that developing countries have been consistently successful in using financial integration to stabilize fluctuations in consumption growth. However, we do find that financial globalization can be beneficial under the right circumstances. Empirically, good institutions and quality of governance are crucial in helping developing countries derive the benefits of globalization. Similarly, macroeconomic stability appears to be an important prerequisite for ensuring that financial globalization is beneficial for developing countries. Finally, countries that employ relatively flexible exchange rate regimes and succeed in maintaining fiscal discipline are more likely to enjoy the potential growth and stabilization benefits of financial globalization.

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