nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2016‒03‒23
five papers chosen by
Karl Petrick
Western New England University

  1. The United States dominates global investment banking: does it matter for Europe? By Charles Goodhart; Dirk Schoenmaker
  2. Financial Innovation and Money Demand: Evidence from Sub-Saharan Africa By J Paul Dunne and Elizabeth Kasekende
  3. A Progress Report on Marxian Economic Theory: On the Controversies in Exploitation Theory since Okishio (1963) By Yoshihara, Naoki
  4. Reflections on the prospects for pro-poor low-carbon growth By Willenbockel, Dirk
  5. Immigration in American Economic History By Ran Abramitzky; Leah Platt Boustan

  1. By: Charles Goodhart; Dirk Schoenmaker
    Abstract: Highlights For the full references and the annex, please see the PDF version of this publication. In the aftermath of the global financial crisis, the market share of US investment banks is increasing, while that of their European counterparts is declining. We present evidence that US investment banks are on the verge of taking over pole position in European investment banking. Meanwhile, since 2015, Chinese investment banks have overtaken American and European investment banks in the Asia-Pacific market. Credit rating agencies and investment banks are the gatekeepers of the capital markets. The European supervisory institutions can effectively supervise the European operations of these US-managed players. On the political side, we suggest that the European Commission should continue to view its, albeit declining, banking industry as a strategic sector. The Commission, the European Central Bank and the Bank of England should jointly develop a strategic agenda for the EU-US Regulatory Dialogue. Finally, corporates rely on investment banks to issue new securities. We recommend that the big European corporates should cherish the (few) remaining European investment banks, by giving them at least one place in otherwise US- dominated banking syndicates. That could help to avoid complete dependence on US investment banks. 1. Introduction Europe’s banks are in retreat from playing a global investment banking role. This should not be a surprise. It is an, often intended, consequence of the regulatory impositions of recent years, notably of the ring-fencing requirements of the Vickers Report (2011) and the ban on proprietary trading by Liikanen (2012), but also including the enhanced capital requirements on trading books and other measures. The main concern is that a medium-sized European country, such as the United Kingdom or Switzerland, or even a larger country like Germany, let alone a tiny country like Iceland or Ireland, would find a global investment bank to be too large and too dangerous to support, should it get into trouble1. So, one of the intentions of the new set of regulations was to rein back the scale of European investment banking to a more supportable level. The European Union, of course, has a much larger scale than its individual member countries. If the key issue is the relative scale of the global (investment) bank and state that might have to support it, could a Europe-based global investment bank be possible2? We doubt it, primarily because the EU is not a state. It does not have sufficient fiscal competence. Even with the European banking union and European Stability Mechanism, the limits to the mutualisation of losses, eg via deposit insurance, mean that the bulk of the losses would still fall on the home country (Pisani-Ferry and Wolff, 2012). Moreover, there would be intense rivalry over which country should be its home country, and concerns about state aid and the establishment of a monopolistic institution. While the further unification of the euro area might, in due course, allow a Europe-based global investment bank to emerge endogenously, we do not expect it over the next half-decade or so. So the withdrawal of European banks from a global investment banking role is likely to continue. That will leave the five US ‘bulge-bracket’ banks, (Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup and Bank of America Merrill Lynch) as the sole global investment banks left standing. The most likely result is a four-tier investment banking system. The first tier will consist of these five US global giants. The second tier will consist of strong regional players, such as Deutsche Bank, Barclays and Rothschild in Europe and CITIC in the Asia-Pacific region. HSBC is in between, with both European and Asia-Pacific roots. The third tier consists of the national banks’ investment banking arms. They will service (most of) the investment banking needs of their own corporates and public sector bodies, except in the case of the very biggest and most international institutions (which will want global support from the US banks) or in cases of complex, specialist advice. Examples of this third tier are Australian and Canadian banks, which support their own corporates and public sector bodies without extending into global investment banking. The fourth tier consists of small, specialist, advisory and wealth management boutiques. Why should it matter if in all the European countries, the local banks’ investment banking activities should retrench to this more limited local role? After all, there are few claims that Australia and Canada have somehow lost out by not participating in global investment banking. We review the arguments in section 4. Before doing so, we take a closer look at the investment banking market in Europe. Section 2 investigates the development of the relative market shares of US and European investment banks over time. It appears that the US investment banks are about to surpass their European counterparts in the European investment banking market.
    Date: 2016–03
  2. By: J Paul Dunne and Elizabeth Kasekende
    Abstract: While the effect of financial innovation on money demand has been widely researched in industrialised countries, because of its major role in monetary policy, few studies have focussed on developing countries. This is surprising given the considerable growth in financial innovation in Sub-Saharan Africa in recent years and its potential implications for developing country macroeconomic policy. This paper investigates the development of financial innovation and its impact on money demand in the region using panel data estimation techniques for 34 countries between 1980 and 2013. The results indicate that there is a negative relationship between financial innovation and money demand. This implies that financial innovation plays a crucial role in explaining money demand in Sub-Saharan Africa and given innovations such as mobile money in the region this can have important implications for future policy design.
    Keywords: Money demand, financial innovation
    JEL: E41
    Date: 2016
  3. By: Yoshihara, Naoki
    Abstract: This report explores the development of exploitation theory in mathematical Marxian economics by reviewing the main controversies surrounding the proper definition of exploitation since the contribution of Okishio (1963). The report first examines the debates on the Fundamental Marxian Theorem and Class-Exploitation Correspondence Principle, developed mainly in the 1970s and 1980s, followed by the property relation theory of exploitation by Roemer (1982). Then, the more recent exploitation theory proposed by Vrousalis (2013) and Wright (2000) is introduced. Finally, the report introduces and comments on recent axiomatic studies of exploitation by focusing on the work of Veneziani and Yoshihara (2015).
    Keywords: Proper Definitions of UE Exploitation, Property Relations Definition of Exploitation, Profit-Exploitation Correspondence Principle
    JEL: D63 D51
    Date: 2016–02
  4. By: Willenbockel, Dirk
    Abstract: Eradicating extreme poverty from the face of the earth once and for all is a central goal of the post-2015 development agenda. Without a rapid transition of the world economy to a low-carbon growth path over the next few decades, this ambitious goal will remain elusive. Under current greenhouse gas (GHG) emission reduction pledges, the world is not on track to limit the average global temperature rise to +2o C above pre-industrial levels. Failure to meet this agreed target threatens to impede future progress and roll back past achievements in poverty alleviation. Irrespective of the responsibility of the “Global North” for the bulk of atmospheric GHG concentration levels accumulated in the past, most of the growth in energy demand and global GHG emissions over coming decades will arise from today’s developing countries. To avoid catastrophic climate change, a transition to a low-carbon growth path in today’s large fast-growing middle-income countries is imperative and mitigation efforts in other developing countries are also required. Yet developing countries are unlikely to adopt a low-carbon development strategy if such a strategy is perceived to be in conflict with domestic near-term poverty reduction aspirations. Thus, a better understanding of the potential distributional implications of different conceivable pathways to low carbon development is required to ensure the social acceptability and political viability of low carbon policy reforms. The growing recognition that the aims of equitable or pro-poor growth and low-carbon growth need to be addressed together has led to efforts in the literature to identify potential synergies and trade-offs between pro-poor and low-carbon growth. This chapter provides a selective review and some reflections on this literature.
    Keywords: Climate change mitigation; pro-poor growth; inclusive growth; green growth;
    JEL: O44 Q54 Q56
    Date: 2014–09
  5. By: Ran Abramitzky; Leah Platt Boustan
    Abstract: The United States has long been perceived as a land of opportunity for immigrants. Yet, both in the past and today, US natives have expressed concern that immigrants fail to integrate into US society and lower wages for existing workers. This paper reviews the literatures on historical and contemporary migrant flows, yielding new insights on migrant selection, assimilation of immigrants into US economy and society, and the effect of immigration on the labor market.
    JEL: J61 N11 N12
    Date: 2016–01

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