macroeconomic shocks and banks foreign assets recent developments in international financial markets have highlighted the role of banks in the transmission of shocks across borders we employ dynamic panel methods for a sample of oecd countries to analyze whether banks foreign assets react to macroeconomic shocks at home and abroad we find that banks reduce their foreign assets in response to a relative increase in domestic interest rates and they increase their foreign assets when the growth rate of world energy prices rises the responses are characterized by a temporal overshooting and a dynamic adjustment process that extends over several quarters

the use of blanket guarantees in banking crises policymakers often use guarantees on bank liabilities to prevent or contain bank runs during systemic banking crises but their success has been debated using a sample of 42 episodes of banking crises this paper finds that blanket guarantees do help to reduce liquidity pressures on banks but only partially since they do not stem withdrawals from non residents withdrawals following the announcement of guarantees are much more pronounced for non resident liabilities than for foreign currency denominated deposits which may also be held by residents suggesting that the results on non residents are not driven by foreign currency risk but by concerns about the government s ability and commitment to honor the guarantee to non resident liability holders

bank mergers and crime the real and social effects of credit market competition using a unique sample of commercial loans and mergers between large banks we provide micro level within county evidence linking credit conditions to economic development and find a spillover effect on crime neighborhoods that experience more bank mergers are subject to higher interest rates diminished local construction lower prices an influx of poorer households and higher property crime in subsequent years the elasticity of property crime with respect to merger induced banking concentration is 0 18 we show that these results are not likely due to reverse causation and confirm the central findings using state branching deregulation to instrument for bank competition we examine the real and social impact of local credit competition by documenting a link between the competitiveness of the local banking market credit conditions urban development and crime several recent studies peek and rosengren 2000 cetorelli and gambera 2001 klein peek and rosengren 2002 and burgess and pande 2003 tie credit market imperfections to diminished real economic activity and growth other studies connect the economic environment to property crime freeman 1999 levitt 2001 raphael and winter ebmer 2001 and nilsson 2004 it is reasonable to hypothesize therefore that reductions in bank competition may lead to economic decline and subsequently increases in property crime we empirically investigate the effects of bank consolidation and increased market power on credit availability and real activity using a unique sample of commercial loans and mergers between large banks in the 1990s we provide micro level evidence that garmaise is from the ucla anderson school and moskowitz is from the graduate school of business university of chicago and nber we have benefited from the suggestions and comments of tony bernardo marianne bertrand phillip bond doug diamond mark duggan eugene fama

the impact of banking deregulation on inbound foreign direct investment transaction level evidence from the united states abstract we evaluate the effects of state level banking deregulation that resulted in improved access to cheaper local finance on foreign firms investing in the u s we provide direct micro level evidence from u s inbound foreign direct investment transactions showing that interstate banking but not intrastate branching deregulation increased the number of transactions reduced the average transaction value and boosted overall investment by foreign multinationals we also show that lower cost of local credit and greater local bank competition in each state following the interstate banking deregulation are potential mechanisms that stimulated fdi activity finally we demonstrate that after the adoption of the interstate banking deregulation both the number and the average value of transactions increased in industries that are more dependent on external finance relative to industries that are less dependent

input and output inventories abstract this paper presents a new stage of fabrication inventory model with delivery usage and stocks of input materials that distinguishes between gross production and value added it extends the linear quadratic model of output inventories by adding the joint determination of input inventories empirically input inventories are more important than output inventories maximum likelihood estimation of the decision rules yields correctly signed and significant parameter estimates using data for nondurable and durable goods industries but the overidentifying restrictions of the model are rejected the value added specification dominates because adjustment costs on materials usage are critical to fitting the data

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

the impact of u s tax reform on foreign direct investment in the united states abstract this study empirically examines how taxes shape foreign direct investment and finds that increased taxes spur inward foreign investment this finding conforms with theories that recognize that foreign investor response is critically shaped by the tax provisions faced by the foreign investor in his home country and by the effects of tax reform on pre tax asset returns we demonstrate that average tax rates may better proxy tax effects than do effective tax rates our findings are more robust than previous results since we utilize the entire 1980s tax history consider a fuller set of industry distinctions and estimate the tax responsiveness in the context of exchange rate fluctuations

firm specific assets and the link between exchange rates and foreign direct investment foreign direct investment fdi theory and empirical studies have generated mixed support for a link between exchange rates and fdi this paper argues that exchange rate movements may affect acquisition fdi because acquisitions involve firm specific assets which can generate returns in currencies other than that used for purchase using data on japanese acquisitions in the united states across three digit sic industries from 1975 to 1992 maximum likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make japanese acquisitions more likely in u s industries particularly those which more likely have firm specific assets copyright 1997 by american economic association

price changes maintenance and the rate of depreciation this study estimates rates of deterioration and depreciation for a sample of used privately owned single and twin engine aircraft over the period 1971 1991 the adoption of a strict liability stan

the impact of regional financial depth on outbound cross border mergers and acquisitions abstract drawing on china s experience this study examines the role of source province credit conditions and its interplay with host country financial openness in determining the intensity of cross border mergers and acquisitions m as we first show that improved credit conditions in source provinces of china measured by the number of newly established bank branches boost the volume and frequency of their firms cross border m as the effect is stronger for deals where cash is mainly used as the payment method then we identify a complementary effect between the financial openness in host countries and the improved financial depth in source regions more importantly by defining the members of china s the belt and road initiative as countries with higher political openness to china we find that acquirers in china especially the firms affiliated to central government are more political oriented than market oriented when choosing target countries additionally we show that acquirers facing lower political uncertainty from source province benefit more from the enhanced bank access

the effects of wrongful discharge protection on foreign multinationals evidence from transaction level data using detailed micro level data from 1977 to 1994 we analyze the impact of employment protection measures adopted across us states on the number and the value of new inbound foreign direct investment fdi transactions completed by foreign owned companies our findings point to a robust negative association between the implementation of employment protection laws and both the extensive and the intensive margins of fdi in the us when states adopt regulations that increase employers firing costs fdi transactions by foreign multinational companies become less frequent and decrease in value with stronger negative impacts in more labour intensive industries there is also some evidence of diversion and spillover effects from the adoption of these measures by neighbouring states

catastrophic risk and credit markets we provide a model of the effects of catastrophic risk on real estate financing and prices and demonstrate that insurance market imperfections can restrict the supply of credit for catastrophe susceptible properties using unique micro level data we find that earthquake risk decreased commercial real estate bank loan provision by 22 in california properties in the 1990s with more severe effects in african american neighborhoods we show that the 1994 northridge earthquake had only a short term disruptive effect our basic findings are confirmed for hurricane risk and our model and empirical work have implications for terrorism and political perils

survive another day using changes in the composition of investments to measure the cost of credit constraints abstract we introduce a novel empirical strategy to measure the size of credit shocks theoretically we show that credit shocks reduce the value of long term relative to short term investments empirically we can therefore compare the reduction of long term relative to short term investments within firms allowing for firm times year fixed effects using spanish firm level data we estimate the credit crunch to be equivalent to an additional tax rate of around 11 on the longest lived capital to pin down credit constraints as the underlying cause we apply triple differences strategies using foreign ownership or precrisis debt maturity

troubled banks impaired foreign direct investment the role of relative access to credit during the 1980 s theories were developed to explain the striking correlation between real exchange rates and foreign direct investment fdi however this relationship broke down for japanese fdi in the 1990 s as the real exchange rate appreciated while fdi plummeted we propose the relative access to credit hypothesis and show that unequal access to credit by japanese firms contributes to the explanation of declining japanese fdi using bank level and firm level data sets we find that financial difficulties at banks were economically and statistically important in reducing the number of fdi projects by japanese firms into the united states jel g21 f36

the effects of real wages and labor productivity on foreign direct investment the volume of foreign direct investment fdi both into and out of the united states has grown rapidly in the past several decades theoretically labor costs in both source and host countries could be important determinants of these flows but thus far no consistently significant effects have been reported for fdi flows between the u s and other industrialized countries in this paper i estimate equations for u s fdi flows to and from five other industrialized countries the explanatory variables include both source and host country real wages and labor productivity but to put my work in perspective i shall first in section ii discuss recent literature in the area then section iii briefly discusses a theoretical model to highlight the possible effects of the labor variables the empirical procedure and results are presented in section iv and a summary in section v

the performance implications of relationship banking during macroeconomic expansion and contraction a study of japanese banks social relationships and overseas expansion we propose a social perspective emphasizing the opportunities and constraints of bank firm relationships to understand the determinants of relationship banks performance using japanese banks to test our theory using social exchange and role theories we found banks that have strong social relationships performed differently during japan s macroeconomic expansion and contraction cycles however our results indicate that social exchange and role relationships are context specific banks benefited from internationalization during a domestic macroeconomic expansion as a result of their home country social relationships but they were less constrained by the same social relationships in their international operations during a domestic macroeconomic contraction

foreign direct investment and regulatory remedies for banking crises lessons from japan can regulatory interventions alleviate financial crises if so which ones work we draw inferences from the japanese banking crisis of the 1990s using a hand gathered database of bank loans gathered from original sources our results indicate that whereas risk based capital infusions in japan similar to those following the 2009 supervisory capital assessment program stress tests in the us were successful in stimulating aggregate lending by japanese banks earlier blanket infusions comparable to the 2008 troubled asset relief program tarp in the us were not effective moreover changes in accounting rules in japan that revalued bank assets similar to the relaxation of mark to market requirements for banks in the us did not increase aggregate japanese bank lending but rather reallocated it capital constraints during the crisis also induced many japanese banks to close their overseas branches and switch their charters from international to domestic this endogenous charter switch reversed the process of foreign direct investment fdi for many japanese banks therefore we use the japanese banking crisis as a natural experiment to test fdi theories and find empirical support for the relative access hypothesis but not for the industrial organization approach or for the relative wealth hypothesis

the consumption effects of the 2007n2008 financial crisis evidence from households in denmark did the financial crisis in 2007 2008 spread from distressed banks to households through a contraction of the credit supply we study this question with a dataset that contains observations on all accounts in danish banks as well as comprehensive information about individual account holders and banks we document that banks exposed to the financial crisis reduced their lending relative to nonexposed banks which in turn caused a significant decrease in the borrowing and spending of their customers the effects were persistent borrowing remained lower through the postcrisis years and spending foregone during the crisis was not recovered

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

strict product liability and safety evidence from the general aviation market i introduction beginning in the 1960s the legal system in the united states began a gradual transition to a standard of strict product liability the proponents of the strict liability standard argued that such a move would enhance both economic efficiency and safety by placing the burden of accident prevention on manufacturers who presumably have lower marginal costs of preventing accidents than consumers 1 in addition it was argued that the adoption of a strict liability standard would make it easier for consumers to obtain financial compensation from manufacturers for any injuries that they suffered a key component of the strict liability standard is the notion of design defect according to which a manufacturer can be held liable if the risk of product injuries exceeds the product s utility based on current design standards 2 the manufacturers of short lived goods deemed to be guilty of design defect may replace existing products with safer versions passing on the higher costs associated with accident prevention and liability insurance to consumers in the form of price increases 3 the manufacturers of long lived products however may be physically or financially unable to retrofit previously sold items to bring them up to current design standards thus exposing manufacturers to retroactive liability for goods sold in the past in this situation the manufacturers of long lived products are faced with one of two choices a absorb the increased costs in the form of lower profits or b attempt to pass on the liability costs for the previously sold units to new customers in the form of higher prices this latter scenario may lead to a downward spiral in which sales fall leading producers to further price increases in an effort to recoup the sunk liability costs from an ever declining number of new units sold one of the industries hardest hit by the change in liability standards was the general aviation ga industry martin 1991 pattillo 1998 priest 1991 stimpson 1988 and viscusi 1991 among others have discussed the devastating impact of strict product liability on the manufacturers of ga aircraft 4 ga planes are an example of a durable good with extremely long service lives in 2005 the average age of the ga fleet in the united states was 34 yr although 75 85 of ga accidents are attributed to pilot error 90 of all accidents involving a fatality or serious injury result in a lawsuit against aircraft manufacturers 5 as a result of the increase in litigation claims and other legal expenses for aircraft manufacturers and their suppliers increased from 24 million in 1976 to 210 million in 1986 an increase of 775 6 as manufacturers attempted to pass on the higher liability costs by increasing prices sales of new aircraft over the same period declined by 90 from 15 451 units in 1976 to 1 495 units in 1986 according to the general aviation manufacturers association 2006 supporters of the move to a strict liability standard in the ga market have argued that it forced manufacturers to cease production of outmoded models of aircraft that suffered from design flaws and manufacturing defects thus improving the level of safety this claim they argue is consistent with the fact that ga accidents and fatalities declined following the transition to the strict liability standard 7 martin 1991 86 87 however argues that in formulating the rule of strict liability no one considered the distinction between products purchased and used as capital items with a long service life and those purchased as consumables general aviation airplanes are prime examples of a capital item that has a long service life each general aviation airplane in the active u s fleet that carries a manufacturer s data plate represents a separate product liability risk to that manufacturer the cost of that risk whether self insured or under written must be paid each year

foreign banks trends and impact over the past two decades foreign banks have become much more important in domestic financial intermediation heightening the need to understand their behavior we introduce a new comprehensive database made publicly available on bank ownership including the home country of foreign banks for 5 324 banks in 137 countries over the period 1995 2009 we document large increases in foreign bank presence in many countries but with substantial heterogeneity in terms of host and banks home countries bilateral investment patterns and bank characteristics in terms of impact we document that the relation between private credit and foreign bank presence importantly depends on host country and banks characteristics specifically foreign banks only seem to have a negative impact on credit in low income countries in countries where they have a limited market share where enforcing contracts is costly and where credit information is limited available and when they come from distant home countries this shows that accounting for heterogeneity including bilateral ownership is crucial to better understand the implications of foreign bank ownership

financial market development in host and source countries and their effects on bilateral foreign direct investment we study an underexplored research question namely whether financial market development in both host and source countries has an effect on bilateral stocks of foreign direct investment fdi and particularly whether the effect of financial market development in one member of the country pair conditions the effect of financial market development in the other member we estimate gravity type models in a global sample of 43 source and 137 host countries over the period 2001 12 we address reverse causality concerns by restricting the sample to observations where reverse causality if existent should be less relevant our major and robust findings are that bilateral fdi increases with better developed financial markets in both the host and the source country and that for developing host countries financial market development in source and host countries functions as substitutes for each other

the real exchange rate and foreign direct investment in the united states relative wealth vs relative wage effects abstract there has been a significant correlation between u s inward foreign direct investment and the united states real exchange rate since the 1970s in this paper we examine the determinants of four measures of inward foreign direct investment to the united states from seven industrial countries over the period 1979 1991 we find strong evidence that relative wealth significantly affects u s inward foreign direct investment we find no evidence that relative wages have a significant impact on the determination of u s foreign direct investment

the real effects of financial sector interventions during crises we assess the importance of supply side credit market frictions by studying the impact of bank recapitalization on firm growth in 50 countries during the recent crisis our identification strategy exploits the crisis as a shock to credit supply and combines an exogenous measure of firms dependence on external financing with policy interventions aimed at restoring bank capital we find that the growth of financially dependent firms is disproportionately positively affected by bank recapitalization this effect is quantitatively important and robust to controlling for other policies these results provide new evidence of the influence of credit market frictions on economic activity

a zero inflated negative binomial regression model with hidden markov chain abstract this paper proposes a zero inflated negative binomial regression model with hidden markov chain for panel count data with excess zeros and provides an estimation method using the em and quasi newton algorithms an application to the analysis of fdi is given

foreign direct investment and external financing conditions evidence from normal and crisis times this paper investigates the effects that external financing conditions in source and destination countries have on foreign direct investment fdi in normal and crisis times using a difference in differences approach we find that source and destination countries financial development have a strong positive impact on the relative volume of fdi in financially vulnerable sectors in normal times on the other hand during the 2008 2010 global financial crisis the relative volume of fdi in financially vulnerable sectors fell relatively more in financially developed source and destination countries most notably if these countries experienced a credit crisis

foreign direct investment regulations and growth this paper explores the linkage between income growth rates and foreign direct investment fdi inflows so far the evidence is rather mixed as no robust relationship between fdi and income growth has been established the authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from fdi using a comprehensive data set for regulations they test this hypothesis and find evidence that excessive regulations restrict growth through fdi only in the most regulated economies this result holds true for different specifications of the econometric model including instrumental variable regressions

determinants of foreign direct investment in wind energy in developing countries abstract the renewable energy industry is one of the fastest growing industries attracting a great amount of foreign direct investment being one of the top 5 industries in 2015 in terms of the amount of investment allocated however the allocation of foreign direct investment in the sector greatly varies between developing countries preceding studies have tried to explain the location determinants of foreign direct investment mainly by looking at the effects of institutional and macroeconomic factors the renewable energy sector has been supported by various economic regulatory and political support policies considering the importance of these support policies the paper analyses their effects on foreign direct investment as location determinants in comparison with that of the widely accepted determinants institutional and macroeconomic determinants focusing on wind energy in developing countries the results show that renewable energy support policies have equivalent or greater effect compared to the widely accepted determinants such as corruption level price stability access to finance and gdp growth the paper demonstrates the importance of analysing determinants of foreign direct investment focusing on a specific sector rather than looking at overall foreign direct investment the paper also provides important policy implications including the need to improve the regulatory aspect of renewable energy sector such as access to grid infrastructure in order to attract foreign direct investment into the sector

unnatural selection perverse incentives and the misallocation of credit in japan we examine the misallocation of credit in japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms firms are more likely to receive additional bank credit if they arein poor financial condition because troubled japanese banks have an incentive to allocate credit to severely impaired borrowers in order to avoid the realization of losses on their own balance sheets this evergreening behavior is more prevalent among banks that have reported capital ratios close to the required minimum and is compounded by the incentives arising from extensive corporate affiliations

production in entrepreneurial firms the effects of financial constraints on labor and capital i model the contrasting capital labor decisions of financially constrained and unconstrained firms i show that financially restricted firms use relatively more labor than physical capital because informed employees provide more efficient financing than uninformed capital suppliers i demonstrate that constrained firms cannot easily attract new employees to replace existing staff their greater employee retention aligns owner worker incentives and encourages workers to make firm specific investments constrained firms however gradually suffer from their inability to replace low quality workers such that their relative labor productivity decreases over time empirical tests utilizing instrumental variables confirm several implications of the theory

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

japan s banking crisis an event study perspective we calculate abnormal stock returns for japanese non financial companies around major events associated with the banking crisis 1995 2000 and find that not all companies were equally sensitive to the malaise of the banking sector the most affected were small leveraged low tech companies with low credit ratings and low market to book ratios this is consistent with credit crunch theories companies with limited access to financial markets are sensitive to changes in bank lending and with claims that innovation is rarely financed by bank debt we do not find much evidence on the alleged misallocation of loans to support ailing bank clients

the modern expansion of tort liability its sources its effects and its reform this paper reviews the development of tort law during the 20th century with particular attention to the broad expansion of liability since the 1970s it attempts to explain the origins of the expansion of liability to present examples of its effects on product and service markets and to analyze the extensive efforts of the past five to six years toward liability reform efforts which i conclude have had only a slight relationship to the underlying sources of modern liability problems though the empirical evidence is thin virtually all studies of the effects of specific modern rules demonstrate that modern tort law has substantially dislocated product and service markets as one might expect of an assertive legal regime founded on largely noneconomic principles as we shall see market dislocations especially for insurance have increased sharply during the past decade