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on International Finance |
| By: | de Boer, Jantke; Eichler, Stefan |
| Abstract: | We empirically test Gabaix and Maggiori (2015)'s prediction that currencies are repriced by the country's external capital dependence when financial constraints of FX intermediaries change. Using solvency indicators, we develop a novel intermediary constraints index capturing riskbearing capacity. We find that constraints are a priced risk factor in currency portfolios sorted by countries' net foreign assets. Portfolios of external debtors (creditors) have higher (lower) intermediary risk premia, but pay lower (higher) returns when constraints tighten. Tightening constraints are associated with a depreciation of countries with low net foreign assets, particularly emerging markets with high net debt and low FX reserves. |
| Keywords: | Foreign exchange, financial intermediation, net foreign assets |
| JEL: | E44 F31 F32 F37 G12 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:rwirep:311303 |
| By: | Horn, Sebastian Andreas; Parks, Bradley Christopher; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. It builds the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent. |
| Date: | 2023–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10380 |
| By: | de Castro, Luciano; Frischtak, Claudio R.; Rodrigues, Arthur |
| Abstract: | Most developing economies rely on foreign capital to finance their infrastructure needs. These projects are usually structured as long-term (25–35 years) franchises that pay in local currency. If investors evaluate their returns in terms of foreign currency, exchange rate volatility introduces risk that may reduce the level of investment below what would be socially optimal. This paper proposes a mechanism with very general features that hedges exchange rate fluctuation by adjusting the concession period. Such mechanism does not imply additional costs to the government and could be offered as a zero-cost option to lenders and investors exposed to currency fluctuations. This general mechanism is illustrated with three alternative specifications and data from a 25-year highway franchise is used to simulate how they would play out in eight different countries that exhibit diverse exchange rate trajectories. |
| Date: | 2023–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10568 |
| By: | Di Filippo, Mario; Panizza, Ugo G. |
| Abstract: | This paper uses a unique dataset with matched information at the firm-bank level covering 13, 000 firms and 550 banks in 36 emerging and developing economies over 2012–20. The analysis tests whether government-owned banks fulfill their social mandate by targeting credit constrained firms or firms that are more likely to generate positive externalities. The findings show that credit constrained firms are more likely to borrow from government-owned banks, and that this is especially the case in countries with good institutions. However, the paper does not find any evidence that government-owned banks target innovative firms or “green” firms. The findings show that in firms that borrow from government-owned banks, employment reacts less to business cycle conditions relative to firms that borrow from private banks. The paper further shows that employment is more stable in credit constrained firms that have a relationship with a government-owned banks with respect to credit constrained firms that borrow from a private bank. |
| Date: | 2023–03–28 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10384 |
| By: | Yiming Ma; Kairong Xiao; Yao Zeng |
| Abstract: | Liquidity provision is often attributed to debt-issuing intermediaries like banks. We develop a unified theoretical framework and empirically show that mutual funds issuing demandable equity also provide an economically significant amount of liquidity by insuring against idiosyncratic liquidity shocks. Quantitatively, bond funds provide 12.5% of the liquidity that banks provide per dollar. Our model further shows that when equity values incorporate the liquidation cost from redemptions, as in swing pricing, liquidity provision is not necessarily reduced. This is because swing pricing may increase funds' capacity for holding illiquid assets without inducing panic runs. |
| JEL: | G2 G21 G23 G28 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33472 |
| By: | Bénétrix, Agustín; Pallan, Hayley Marie; Panizza, Ugo G. |
| Abstract: | This paper revisits the link between FDI and economic growth in emerging and developing economies. Analysis of the early decades of the sample shows that there is no statistically significant correlation between FDI and growth for countries with average levels of education or financial depth. In line with previous contributions, this correlation is positive and statistically significant for countries with sufficiently well-developed financial sectors or high levels of human capital. However, the findings also show that the link between FDI and growth varies over time. For more recent periods, there is a positive and statistically significant relationship between FDI and growth for the average country, with local conditions having a negative effect on this link. The paper also develops a novel instrument aimed at addressing the endogeneity of FDI inflows. Instrumental variable estimates suggest that the results are unlikely to be driven by endogeneity, and the results on the role of absorptive capacities may be due to the GVC revolution in the 1990s. |
| Date: | 2023–04–25 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10422 |
| By: | Cortina Lorente, Juan Jose; Martinez Peria, Maria Soledad; Schmukler, Sergio L.; Xiao, Jasmine |
| Abstract: | The internationalization of China’s equity markets started in the early 2000s but accelerated after 2012, when Chinese firms’ shares listed in Shanghai and Shenzhen gradually became available to international investors. This paper documents the effects of the post-2012 internationalization events by comparing the evolution of equity financing and investment activities for (i) domestic listed firms relative to firms that already had access to international investors and (ii) domestic listed firms that were directly connected to international markets relative to those that were not. The paper shows significant increases in financial and investment activities for domestic listed firms and connected firms, with sizable aggregate effects. The evidence also suggests that the rise in firms’ equity issuances was primarily and initially financed by domestic investors. Foreign ownership of Chinese firms increased once the locally issued shares became part of the Morgan Stanley Capital International (MSCI) Emerging Markets Index in 2018. |
| Date: | 2023–06–28 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10513 |
| By: | Calice, Pietro; Diaz Kalan, Federico Alfonso; Dunz, Nepomuk Max Ferdinand; Miguel Liriano, Faruk |
| Abstract: | Economic activity depends on a flourishing biodiversity and intact environment through the provision of ecosystem services. The depletion of these services poses physical risks for the financial sector. This paper attempts to measure the potential exposure of the banking systems in 20 emerging markets to nature loss through their lending portfolio. The results show that banks in emerging markets allocate around half of their credit portfolio to firms whose business processes are highly or very highly dependent on one or more ecosystem services. The results also provide initial and preliminary evidence that points to a negative correlation between country income level and dependency on ecosystem services. Accounting for indirect dependencies on ecosystem services via supply chains and trade could change this observed relationship, however. Furthermore, the highest dependencies on ecosystem services across countries tend to be on climate regulation and flood and storm protection, indicating the interconnectedness of climate change and nature loss. |
| Date: | 2023–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10432 |
| By: | Cull, Robert J.; Goh, Chorching; Xu, L. Colin |
| Abstract: | Trade credit remains an important source of finance for firms in developing countries and many firms in developed countries, especially those that are young, small, or informationally opaque for other reasons. This paper summarizes the literature and explains the pervasiveness of trade credit, detailing its potential advantages over formal credit in terms of the information that buyers and sellers have about each other and their ability to monitor one another. Because it requires less formal contract enforcement, trade credit can be especially relevant where the rule of law and the legal system are weak. At the same time, reliance on information from social networks and informal institutional arrangements limits the scale of trade credit, and thus moderate improvements to formal enforcement can expand trade credit beyond social networks and enable customers to switch suppliers, which improves their credit terms. The patterns suggest a sweet spot or “Goldilocks” region where mid-size firms and those in countries at middling levels of development tend to rely relatively more heavily on trade credit than others. Going forward, detailed data on the relationship between suppliers and customers are crucial to enable more direct tests of theoretical predictions regarding trade credit. |
| Date: | 2023–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10468 |
| By: | Huberts, N.F.D. (Tilburg University, School of Economics and Management); Wen, Xingang (Tilburg University, School of Economics and Management); Dawid, Herbert; Huisman, Kuno (Tilburg University, School of Economics and Management); Kort, Peter M. (Tilburg University, School of Economics and Management) |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiutis:25f53a76-94e0-4028-a8a5-6e0e226c6658 |
| By: | Baumann, Michael Heinrich; Janischewski, Anja |
| Abstract: | Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes unspecified. Due to the multitude of bubble definitions, we conduct a systematic review with the following questions: What definitions of asset price bubbles exist in the literature? Which definitions are used in which disciplines and how frequently? We develop a system of definition categories and categorize a total of 122 papers from eleven research areas. Our results show that although one definition is indeed prevalent in the literature, the overall definition landscape is not uniform. Next to the mostly used definition as deviation from a present value of expected future cash flows, we identify several other definitions, which rely on price properties or other specifications of a fundamental value. This research contributes by shedding light on the possible variations in which bubbles are defined and operationalized. |
| Keywords: | asset price bubble; fad; financial crisis; local martingale; fundamental analysis |
| JEL: | G01 G12 G14 G18 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123676 |
| By: | Julia Manso |
| Abstract: | This paper narrowly replicates Chen and Kung's 2019 paper ($The$ $Quarterly$ $Journal$ $of$ $Economics$ 134(1): 185-226). Inspecting the data reveals that nearly one-third of the transactions (388, 903 out of 1, 208, 621) are perfect duplicates of other rows, excluding the transaction number. Replicating the analysis on the data sans-duplicates yields a slightly smaller but still statistically significant princeling effect, robust across the regression results. Further analysis also reveals that coefficients interpreted as the effect of logarithm of area actually reflect the effect of scaled values of area; this paper also reinterprets and contextualizes these results in light of the true scaled values. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.07692 |