credit constraints equity market liberalizations and international trade abstract this paper provides evidence that credit constraints are an important determinant of international trade flows i exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980 1997 period i show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets this result is not driven by cross country differences in factor endowments and is independent of simultaneous trade policy reforms moreover it obtains with equal strength in the full panel of countries as well as in both panel and event study analyses of countries which removed capital controls during the sample period finally the effects of liberalizations are more pronounced in economies with initially less active stock markets indicating that foreign equity flows may substitute for an underdeveloped domestic financial system similarly opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies

the interest group theory of financial development in china openness and the role of interest groups the interest group theory of financial development predicts that the incumbents opposition to financial development will be weaker when an economy is open to both trade and capital flows based on regressions of financial development on trade and financial openness existing studies only provide indirect tests of the hypothesis and deliver mixed findings this paper proposes models for direct tests of interest group theory for china using chinese cross province data we define and measure interest groups based on the close tie between state owned enterprises and local government in china the empirical results show that the opposition from interest groups to financial development cannot be weakened in provinces with high trade or financial openness alone however the opposition is indeed weakened in provinces with high levels of both trade and financial openness these results provide robust support for interest group theory in accounting for cross province differences and time series variation in financial development in china

off the cliff and back credit conditions and international trade during the global financial crisis abstract we study the collapse of international trade flows during the global financial crisis using detailed data on monthly us imports we show that credit conditions were an important channel through which the crisis affected trade volumes by exploiting the variation in the cost of capital across countries and over time as well as the variation in financial vulnerability across sectors countries with higher interbank rates and thus tighter credit markets exported less to the us during the peak of the crisis this effect was especially pronounced in sectors that require extensive external financing have limited access to trade credit or have few collateralizable assets exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries and this sensitivity rose during the financial crisis the quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention

the political business cycle new evidence from the nixon tapes drawing from the personal tape recordings made during the presidency of richard nixon we uncover and report in this paper new evidence that nixon manipulated arthur burns and the federal reserve bank into creating a political business cycle that helped secure nixon s reelection victory in 1972 nixon understood the risks that his desired monetary policy imposed but chose to trade longer term economic costs to the economy for his own short term political benefit

the heterogeneous effect of finance on international trade is the impact of financial development on international trade heterogeneous being positive negative or null across manufacturing sectors and is it dependent on the level of sectoral requirement on external finance for capital need to examine these questions this article uses a panel trade database on 21 manufacturing sectors in 80 countries between 2000 and 2009 the analysis demonstrates that the effect of financial development on trade is indeed heterogeneous by estimating a coefficient for each sector and showing that the signs and significance levels vary across them the article also demonstrates that sectors with strong reliance on external finance export higher volume from countries with developed financial system and that financial development reduces trade in industries with low financial dependence level

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

financial sector volatility banking market structure and exports this paper assesses the impacts of financial sector volatility and banking market structure on industrial exports by utilising the specification of rajan and zingales american economic review 1998 88 559 on the cross country cross industry data from manova journal of international economics 2008 76 33 we find that financial sector volatility measured as the standard deviation of the growth of private credit and banking market structure measured as the share of the three largest banks assets in a country respectively exert significantly negative and positive impacts on industrial exports particularly for those industries that are more externally financially dependent the findings are robust to a variety of kinds of sensitivity analysis and thus lend support to the notion that a more stable and concentrated banking system is important to the exports of those industries that rely more on external finance

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

what makes stock exchanges succeed evidence from cross listing decisions despite the increasing integration of capital markets geography has not yet become irrelevant to finance between 1986 and 1997 european public companies have increasingly listed abroad especially in the u s we relate the cross listing decisions to the characteristics of the destination exchanges and countries relative to those of the home exchange and country european companies appear more likely to cross list in more liquid and larger markets and in markets where several companies from their industry are already cross listed they are also more likely to cross list in countries with better investor protection and more efficient courts and bureaucracy but not with more stringent accounting standards

indicator properties of the paper bill spread lessons from recent experience a feature of u s postwar business cycle experience that is by now widely documented is the tendency of the spread between the respective interest rates on commercial paper and treasury bills to widen shortly before the onset of recessions by contrast the paper bill spread did not anticipate the 1990 1991 recession empirical work presented in this paper supports two not mutually exclusive explanations for this departure from past experience first at least part of the paper bill spread s predictive content with respect to business cycle fluctuations stems from its role as an indicator of monetary policy but the 1990 1991 recession was unusual in postwar u s experience in not being immediately precipitated by tight monetary policy second movements of the spread during the few years just prior to the 1990 1991 recession were strongly influenced by changes in the relative quantities of commercial paper bank cds and treasury bills that occurred for reasons unrelated to the business cycle this lat

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

the political economy of wage and price controls evidence from the nixon tapes in late july 1971 nixon reiterated his adamant opposition to wage and price controls calling them a scheme to socialize america yet less than a month later in a stunning reversal he imposed the first and only peacetime wage and price controls in u s history the nixon tapes personal tape recordings made during the presidency of richard nixon provide a unique body of evidence to investigate the motivations for nixon s stunning reversal we uncover and report in this paper evidence that nixon manipulated his new economic policy to help secure his reelection victory in 1972 he became convinced that wage and price controls were necessary to grab the headlines away from the defeatist abandonment of the bretton woods agreement and the closing of the u s gold window nixon understood the impact of his wage and price controls but chose to trade off longer term economic costs to the economy for his own short term political gain

financial deepening trade openness and economic growth in latin america and the caribbean this contribution investigates the causal interactions between financial deepening trade openness and economic growth in 13 latin american and caribbean countries we construct a composite indicator for financial deepening and use it to detect granger causality within a modified vector autoregressive vector error correction model var vecm framework we find almost no evidence for the popular hypothesis of finance led growth evidence of bidirectional finance growth causality is stronger but mostly instable in the long run most results indicate a demand following or insignificant causal relationship between finance and growth there is also no evidence that finance indirectly induces growth via the channel of trade openness hence policies that prioritize financial and trade sector development cannot be supported

bank geographic diversification and systemic risk exploiting staggered interstate banking deregulation as exogenous shocks to bank geographic expansion we examine the causal effect of geographic diversification on systemic risk using the gravity deregulation approach we find that bank geographic diversification leads to higher systemic risk measured by the change in conditional value at risk delta covar and financial integration logistic r 2 furthermore we document that geographic diversification affects systemic risk via its impact on asset similarity the impact of geographic diversification on systemic risk is stronger in bhcs located in states comoving less with the u s aggregate economy

are financial development and trade openness complements or substitutes this article studies the long and short run relationships between financial development and trade openness using the pooled mean group estimator of pesaran shin and smith 1999 for unbalanced panel data for 87 countries over the 1960 2005 period our empirical results indicate that long run complementarity between financial development and trade openness coexists with short run substitutionarity between the two policy variables but when splitting the data into oecd and non oecd country groups this finding can be observed only in non oecd countries for oecd countries financial development has negligible effects on trade in addition we find nonlinearity in the relationship in that long run responses of trade decrease with financial development the article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth

stock market development and cross country differences in relative prices abstract we document a positive correlation between stock market capitalization and price levels wages within the group of countries with poorly developed stock markets and a negative correlation between these two variables within the group of countries with more developed stock markets this paper argues that there is a causal relationship behind these correlations stock markets initially stimulate growth pushing the demand for nontradables and increasing prices and wages stock markets also promote a shift toward more capital intensive technologies in the tradable sector increasing the migration of workers to services and eventually putting downward pressure on wages and prices

personal bankruptcy and credit market competition we document a link between u s credit supply and rising personal bankruptcy rates we exploit the exogenous variation in market contestability brought on by banking deregulation the relaxation of entry restrictions in the 1980s and 1990s at the state level we find deregulation explains at least 10 of the rise in bankruptcy rates we also find that deregulation leads to increased lending lower loss rates on loans and higher lending productivity our findings indicate that increased competition prompted banks to adopt sophisticated credit rating technology allowing for new credit extension to existing and previously excluded households the last quarter century saw a dramatic increase in the share of u s con sumers filing for personal bankruptcy thereby seeking a discharge of their unsecured debt in 2005 this increase led to the most comprehensive change to u s bankruptcy law since 1978 while several causes for the rise in bankruptcies have been advanced and it is the subject of ongoing research two potentially significant changes occurred during this period banking deregulation the relaxation of bank entry restrictions in the 1980s and 1990s and technological change in consumer lending banking deregulation by removing barriers to entry increases credit market competition and there fore affects the supply of credit new screening technologies change the way loans are made allowing for interest rates to better reflect underlying risk and thus facilitating lending to riskier borrowers in this paper we examine whether banking deregulation and technological change played a role in the increase in consumer bankruptcy the empirical literature has mostly focused on cross sectional differences in personal bankruptcy in particular it has revolved around legal institutions as a way to answer whether consumers file due to adverse events as part of a rational financial calculation or as a consequence of unfair or deceptive lending practices usually researchers have exploited the different asset exemptions across u s states i e the amount of personal assets protected from creditors

financial markets the pattern of industrial specialization and comparative advantage evidence from oecd countries due to underlying technological and organizational differences industries differ in their need for external finance since services provided by the financial sector are largely immobile across countries the pattern of industrial specialization should be influenced by the level of financial development among oecd countries we find a strong causal effect of the financial sector on industrial specialization further the financial sector is a source of comparative advantage in a way consistent with the hecksher ohlin vanek model results are also presented on which aspects of financial systems are important for specialization and comparative advantage

financial constraints the distribution of wealth and international trade we develop a simple theoretical model to examine the impact of the distribution of wealth on the patterns of trade when capital markets are imperfect our model predicts that the dispersion of wealth can be a determinant of comparative advantage for low income countries with poor financial institutions we find support for these prediction using export and financial panel data from a large sample of countries

financial integration and consumption smoothing we test if financial integration improves household consumption smoothing using microeconomic data we find that the process of financial market integration and liberalisation brought about by the introduction of the euro has not affected the sensitivity of consumption with respect to income shocks in italy this article also makes a significant contribution from a methodological point of view because our procedure does not require that consumption and income are available in the same panel data set it can therefore be applied in all countries in which repeated cross sectional consumption data can be combined with panel data on income

is financial globalization beneficial this lecture examines whether financial globalization is beneficial to developing countries by first examining the evidence on financial development and economic growth and concludes that financial development is indeed a key element in promoting economic growth it then asks why if financial development is so beneficial it often does not occur it then goes on to examine whether globalization particularly of the financial kind can help encourage financial and economic development and argues that it can however financial globalization does not always work to encourage economic development because it often leads to devastating financial crises the issue is thus not whether financial globalization is inherently good or bad but whether it can be done right

insecurity and the pattern of trade an empirical investigation corruption and imperfect contract enforcement dramatically reduce international trade this paper estimates the reduction using a structural model of import demand in which insecurity acts as a hidden tax on trade we find that inadequate institutions constrain trade as much as tariffs do we also find that omission of indices of institutional quality biases the estimates of typical gravity models obscuring a negative relationship between per capita income and the share of total expenditure devoted to traded goods finally we argue that cross country variation in the effectiveness of institutions and the consequent variation in the prices of traded goods offer a simple explanation for the stylized fact that high income capital abundant countries trade disproportionately with each other

takeovers improve firm performance evidence from the banking industry the hypothesis that takeovers provide managers with the incentive to maximize firm value is tested by examining the relationship between profitability and state statutes governing takeover activity among banks the evidence indicates that firms in states with an active takeover market are more profitable when takeover activity is restricted increased use of other mechanisms that provide an incentive to maximize firm value such as concentration of equity ownership and management ownership of stock is observed however these alternative methods have a smaller effect on profitability and do not completely compensate for the absence of an active takeover market

finance and trade a cross country empirical analysis on the impact of financial development and asset tangibility on international trade summary this paper investigates the interplay between financial development asset tangibility and international trade using industry level data on firms dependence on external finance and firms asset tangibility for 27 industries in 42 countries we find that economies with higher levels of financial development have higher export shares and trade balance in industries with more intangible assets using the same dataset we also show that the interplay between property rights protection and asset tangibility influences the pattern of trade higher levels of property rights protection lead to higher export shares and trade balance in industries with more intangible assets

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

trade and insurance with imperfectly observed outcomes abstractthe following sections are included introductionthe modelunobserved outcomescostly observationconcluding remarksreferences this abstract was borrowed from another version of this item

is globalization detrimental to financial development further evidence from a very large emerging economy with significant orientation towards policies abstractthis study attempts to explore the relationship between globalization and financial development by endogenizing economic growth population density inflation and institutional quality for india during the period from 1971 2013 using the more conclusivecombined cointegration method the study provides evidence of cointegration among these variables the long run and short run estimates from the ardl model and causality tests respectively suggest that globalization in its all forms political social and economic and its overall measure as well as inflation are detrimental to financial development while economic growth and population density both promote financial development furthermore the results also point out that institutional quality is not conducive to financial development in india and there exists a feedback effect between financial development and inflation moreover financial development is influenced by economic growth institutional quality and population density

markets for risk and openness to trade how are they related if protectionist trade policies aim to insure domestic industries against swings in world market prices the development of financial markets could lead to trade liberalization likewise trade lib

trade liberalization through asset markets abstract political economy expositions of trade policy have traditionally described asset or factor ownership as not subject to change asset markets however allow individuals to change the composition of income sources we consider an economy with stochastic productivity to show how the equilibrium composition of asset portfolios influences individual attitudes toward free trade the model links financial market completeness and trade liberalization in the second half of the 20th century and provides a contributing answer to why governments in poorer countries without well developed financial markets have failed to liberalize trade

financial dependence and growth revisited we revisit an earlier highly influential paper on financial dependence and growth by rajan and zingales 1998 we re examine their assumptions and the robustness of their results to alternative theories and interpretations we first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities rather than the extent that financial intermediaries allow firms to grow in industries with an inherent technological financial dependence we propose a more direct measure of growth opportunities if u s capital markets are perfect then actual growth in the u s is a good proxy for global growth opportunities we test this directly by including u s industry growth in rajan and zingales s original specification and find that our direct growth measure outperforms their financial dependence measure and is less vulnerable to controlling for outliers and level of development this still suggests an important role for finance in the allocation of resources but shifts the emphasis from financial dependence to global growth opportunities jel f3 g1 o4

global sourcing and credit constraints this paper incorporates credit constraints into a model of global sourcing and heterogeneous firms following antras and helpman 2004 heterogeneous firms decide whether to outsource or integrate input suppliers financing of fixed organizational costs requires borrowing with credit constraints and collateral based on tangible assets the party that controls intermediate inputs is responsible for these financing costs sectors differ in their reliance on external finance and countries vary in their financial development the model predicts that increased financial development decreases the share of integration relative to outsourcing in a country the effect is more pronounced in sectors with a high reliance on external finance however this effect is mitigated by higher productivity tfp and headquarter intensity empirical examination confirms the predictions of the model an improvement in financial development from the 25th to the 75th percentile in industries at the 75th percentile in finance dependence relative to those at the 25th percentile is associated with a 16 8 decrease in the median share of us intra firm imports an increase in tfp from the 25th to the 75th percentile in the tfp triple interactions increase the share of us intra firm imports at the median by 3 2 an increase in headquarter intensity from the 25th to the 75th percentile in the headquarter intensity triple interactions increase the share of us intra firm imports at the median by 21

financial structure in the age of globalization using a large panel data set covering 160 countries over the period 1990 to 2010 this article aims to address the question of how financial structure bank based versus market based system changes when economies are liberalized and opened to international capital markets specifically in this study globalization is characterized not only by trade and financial integration but also by other important aspects such as social globalization political globalization and cultural globalization the empirical results support the impacts of globalization on financial structure which are however diverse and strongly depend on the way to measure globalization and financial structure our finding also reveals a significant change in financial structure after the globalization process except the case of low income countries in which financial structure seems to be not correlated with either globalization process or other macroeconomic variables

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

empirical relevance of the hillman condition for revealed comparative advantage 10 stylized facts the theoretically necessary and sufficient condition for the correspondence between revealed comparative advantage and pre trade relative prices derived by hillman 1980 is analysed empirically for virtually all countries of the world over an extended period of time this yields 10 stylized facts including that i violations of the hillman condition are small as a share of the number of observations but substantial as a share of the value of world exports ii violations occur relatively frequently in the period 1970 1984 and more rarely in the period 1985 1997 and iii violations occur foremost in primary product and natural resource intensive sectors and for countries in africa the middle east latin america and central and eastern europe an additional bonus of verifying the hillman condition in empirical research is its ability to identify erroneously classified trade flows

the finance trade nexus revisited is the global trade slowdown also a financial story abstract this paper studies the role of non linearities in the finance trade nexus while we confirm the positive impact of financial development on the level of trade openness our findings reveal that the marginal effect decreases considerably with the size of the financial sector the study contributes to two different strands of the economic literature first while widely examined in the finance growth nexus literature the discovered non linearities have been neglected so far in studies on the link between finance and trade second the diminishing marginal effect of finance appears to be an important factor in explaining the recent slowdown in global trade growth

trade and insurance with moral hazard abstract previous literature on the use of trade policy for insurance has relied implicitly on moral hazard and adverse selection as the reasons for the failure of private markets for risk bearing this paper begins with the observation that such forces should be incorporated explicitly into the models to ensure a fair comparison between markets and governments for the case of moral hazard it is found that market equilibrium given exclusive insurance is an informationally constrained pareto optimum in one case of non exclusive insurance a systematic role for government insurance is found but the scope of trade policy is ambiguous

trade and insurance with adverse selection this paper considers a small open economy with a safe sector and a risky sector the probability of success in the risky activity differs across individuals and is private information it is shown that policies that sustain informationally constrained pareto optima should not include tariffs a laissez faire competitive equilibrium if it exists is pareto optimal these results contrast with previous literature on the role of tariffs as insurance where private risk markets are assumed away in an ad hoc manner

comparative advantage in manufactured goods a re appraisal japanese input coefficients are used to investigate the pattern of comparative advantage in the exportation of manufactured products in a cross country framework estimates are made for the imports of manufactured products as well as for net exports also alternative techniques of estimation are utilized and an attempt to explain the residuals in the regression equations and to indicate the predictive power of these equations is made the paper shows that patterns of comparative advantage in manufactured goods can be explained by reference to commodity characteristics and country characteristics in turn intercountry differences in the extent of trade orientation the concentration of exports and foreign direct investment explain part of the residuals of the cross country regression equations finally it has been found that the method applied permits projecting the factor intensity of trade for individual countries

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

what can explain the apparent lack of international consumption risk sharing recent research in international business cycles finds that international consumption comovements do not match the risk sharing predictions of standard complete markets models in this paper i ask whether two different types of explanations can help explain this result 1 nonseparabilities between tradables and nontradable leisure or goods and 2 the effects of capital market restrictions on consumption risk sharing i find that risk sharing cannot be resolved by either explanation alone however when i allow for both nonseparabilities and certain market restrictions risk sharing among unrestricted countries cannot be rejected this evidence suggests that a combination of these two effects may be necessary to explain consumption risk sharing across countries

financial development industrialization the role of institutions and government a comparative analysis between india and china this research is the first comparative attempt incorporating the role of economic demographic sectoral contribution government and trade in explaining financial development for india and china

an empirical analysis of information in the yield spread on future recessions in japan this article examines whether the yield spread contains information on the likelihood of future economic recessions using a probit model by taking the stability of the relationship between the yield spread and future recessions into account we also compare the accuracy of information in the yield spread with stock returns and money supply we find the following results in this article first a structural change in the relationship between the yield spread and future recessions occur at the end of 1996 second whereas the japanese yield spread contains more precise information on future recessions than stock returns and nominal money supply before the structural break we cannot predict future recessions using the yield spread after the break third the money supply does not forecast future recessions for the entire sample period

financial market development and trade openness evidence from emerging economies international trade is said to be the engine of economic growth despite an enormous effort to explain this phenomenon the relationship between financial market development and trade openness and integration into the world economy is still an enigma this article investigates the relationship between financial market development and trade openness to do this we develop a long run and short run model a bounds testing approach to cointegration for 18 emerging economies over the period 1980 to 2011 estimates from all models show that financial market development including both the stock market and the banking sector has significant effect on trade openness in both short run and long run phenomena in the majority of countries despite many similarities among emerging economies additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country s specific structure

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

credit constraints and demand for higher education evidence from financial deregulation abstract we use staggered banking deregulation across states in the united states to examine the impact of the resulting increased credit supply on college enrollment from the 1970s to the early 1990s our research design produces estimates that are not confounded by wealth effects due to changes in income or housing wealth we find that lifting banking restrictions raises college enrollment by about 2 6 percentage points 4 9 we rule out alternative interpretations by examining results for different income groups and bankrupt households we also find similar effects for two year or four year college completion and supporting evidence in household educational borrowing

openness country size and government abstract this paper shows that smaller countries have a larger share of public consumption in gdp and are also more open to trade these empirical observations are consistent with recent theoretical models explaining country formation and break up and may account for the observed positive empirical relationship between trade openness and government size

judging factor abundance recent theory casts doubt on the frequently used interindustry regression method of inferring a country s abundant factors this paper examines the empirical importance of these theoretical qualifications by comparing regression derived estimates of factor abundance with both revealed and actual factor abundances for 35 countries and 12 resources we demonstrate the theoretical importance of trade imbalances for the reliability of the regression estimates and therefore propose and implement a theoretically consistent trade imbalance correction the results indicate that despite valid theoretical concerns the regression estimates are generally reliable indicators of revealed factor abundance therefore the innumerable regression studies conducted over the past 30 years can be considered to provide reliable evidence concerning the validity of the factor abundance theory

credit quantity and credit quality bank competition and capital accumulation in this paper we show that bank competition has an intrinsically ambiguous impact on capital accumulation we further show that it is also responsible for the emergence of development traps in economies that otherwise would be characterized by unique equilibria these results explain the conflicting evidence emerging from the recent empirical studies of the effects of bank competition on economic growth we obtain them developing a dynamic general equilibrium model of capital accumulation where banks operate in a cournot oligopoly more banks lead to a higher quantity of credit available to entrepreneurs but also to diminished incentives to offer relationship services that improve the likelihood of success of investment projects we also show that conditioning on one key parameter resolves the theoretical ambiguity in economies where intrinsic market uncertainty is high low less more competition leads to higher capital accumulation

is the political business cycle for real abstract this paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models we augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities first that on average the economy expands early under democratic presidents and contracts early under republican presidents second that presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms the model generates both of these features that conform to u s post world war ii data

when is quality of financial system a source of comparative advantage abstract dominant theories of trade tend to ignore the role of finance as a source of comparative advantage on the other hand the finance literature places financial institutions as a driver of economic growth this paper unites these two competing schools of thought in a general equilibrium framework for economies with high quality institutions defined by the competitiveness of the financial sector the quality of corporate governance and the level of property rights protection finance is passive on the other hand for economies with low quality institutions the quality of the financial system is an independent source of comparative advantage interestingly the conventional measure of financial development the size of the financial market relative to gdp does not adequately capture the underlying quality of financial institutions in addition free trade may reduce the aggregate income in south financial capital tends to flow from south to north

roadways input sourcing and patterns of specialization abstract we propose a model where the internal transport network facilitates the sourcing of intermediate goods from geographically diffuse locations a denser internal transport network promotes thus the growth of industries that rely on a large variety of inputs the model shows that heterogeneities in internal transport infrastructures can become a key factor in shaping comparative advantage and specialization evidence based on industry level trade data grants support to the main prediction of the model countries with denser road networks export relatively more in industries that exhibit broader input bases we show that this correlation is robust to several possible confounding effects proposed by the literature such as the impact of institutions on specialization in complex goods furthermore we show that a similar correlation arises as well when the density of the local transport network is measured by the density of their internal waterways and also when road density is instrumented with measures of terrain roughness

does international integration matter for financial development in africa this article analyses the links between international financial and trade integration and financial development in sub saharan african ssa countries it is based on a panel data set using methods that tackle slope heterogeneity cross sectional dependence and nonstationarity the results do not point to a general direct robust link between trade and financial integration and financial development in ssa once we control for other factors such as gdp per capita and inflation the findings may be due to a number of factors including distortions in domestic financial markets relatively weak institutions and or poor financial sector supervision we find some indication that financial integration is more important for financial development in countries with better institutional quality stronger scores in some measures of the quality of banking regulation and supervision are also linked to a positive association between integration and financial development in some of our results thus african policy maker

linkages between financial deepening trade openness and economic development causality evidence from sub saharan africa summary this contribution tests for causality between financial deepening trade openness and economic development for 16 sub saharan african countries the hsiao granger method is used to add to the existing empirical evidence only limited support is found for the popular hypothesis of finance led growth in general the evidence indicates that financial deepening and trade openness have swayed economic development rather marginally in particular the investigated countries have failed to benefit from financial deepening development strategies prioritizing financial or trade sector development hence cannot be supported

globalisation institutional reforms and financial development in east asian economies this study investigates the dynamic effects of globalisation on institutions and financial development in east asian economies using panel data tests our empirical results demonstrate that globalisation has a significant influence on institutional quality and that institutional reforms in turn facilitate and support financial development in particular the development of the banking sector in east asia globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel

the term spread as a monthly cyclical indicator an evaluation abstract this paper evaluates the monthly term spread as a predictor of the growth rates of the u s industrial production index and whether or not a month is classified as recessionary using techniques previously applied to quarterly data

privatization and the political economy of strategic trade policy this article considers the interdependence between international financial markets privatization and strategic trade policies we describe an economy where portfolio allocations are chosen by risk averse agents who rationally forecast future trade policies assuming a government responsive to the policy preferences of voters we show that ownership structure affects trade policy through the incentives for lobbying by private agents portfolios and trade policy are thus jointly determined in political economic equilibrium privatization of state owned industry exerts an important influence over the trade policies chosen by domestic and foreign governments by expanding the scope for individual diversification

tariffs as insurance optimal commercial policy when domestic markets are incomplete free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile ex post and markets for contingent claims are incomplete the government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti trade bias we also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context this abstract was borrowed from another version of this item

on the benefits from rigid labour markets norms market failures and social insurance the common view that far reaching labour market deregulation is the only remedy for high european unemployment is too simplistic first the evidence suggests that deeply rooted social customs are

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place