rafmacalaba/data-use-mentions-extended huggingface dataset:
<mark>WPS3440</mark>

# **Market Discipline under Systemic Risk: Evidence from Bank Runs in Emerging Economies**

Eduardo Levy-Yeyati Maria Soledad Martinez Peria Sergio L. Schmukler<sup>∗</sup>

## **Abstract**

This paper shows that systemic risk exerts a significant impact on the behavior of depositors, sometimes overshadowing their responses to standard bank fundamentals. Systemic risk can affect market discipline both regardless of and through bank fundamentals. First, worsening systemic conditions can directly threaten the value of deposits via dual agency problems. Second, to the extent that banks are exposed to systemic risk, systemic shocks lead to a future deterioration of fundamentals not captured by their current values. Using data from the recent banking crises in Argentina and Uruguay, we show that market discipline is indeed quite robust once systemic risk is factored in. As the latter increases, the informational content of past fundamentals declines. These episodes also illustrate how few systemic shocks can trigger a run irrespective of ex-ante fundamentals. Overall, the evidence suggests that, in emerging economies, the notion of market discipline needs to account for systemic risk.

## **JEL classification codes:** F30, F41, G14, G21, G28

**Keywords:** market discipline, idiosyncratic risk, systemic risk, emerging markets, depositor behavior, bank run, banking crises

> ∗ Eduardo Levy-Yeyati is professor at the Universidad Torcuato Di Tella. Maria Soledad Martinez Peria and Sergio Schmukler are both senior economists in the Development Research Group of the World Bank. For useful comments and suggestions we thank David Llewellyn, Roberto Rigobón, and participants at the BIS and Chicago Federal Reserve Bank sponsored conference on “Market Discipline: The Evidence across Industries and Countries”, the BIS and Journal of Financial Intermediation conference on “Accounting, Transparency and Bank Stability”, and the 2004 Latin American Econometric Society annual conference. We are grateful to Juan Miguel Crivelli, Federico Droller, Marina Halac, and, particularly, Juan Carlos Gozzi Valdez
Spring of 2001 and unanticipated costs owing to the final regional allocation to civil servants and the new organizations of local governments, and was not allocated on the basis of equalization.<sup>26</sup> Provinces received over a third of the 2001 contingency allocations or about 20 percent of their original DAU allocation, as they often took on “residual” employees that the local governments were unwilling to accept.

# **_DAU 2002 Allocations_**

4. The DAU 2002 attempted to improve on the DAU 2001, and drew on extensive domestic and international consultations (cf SBPKPD 2001) as well as political debate. Budgeted allocations were 69.1 trillion (4.1% of GDP or 20% of total central expenditures). Total shared taxes are estimated to add another 24.6 trillion to the regional coffers. The budget also allocated an additional 2.054 Trillion “balancing” fund ( _dana penyeimbang)_ , which effectively served as a contingency allocation.

5. Finally, allocations differed in five major respects: (i) did not include legacy centerregion INPRES/SDO allocations, but only estimates for actual post-decentralization realized regional wage bills for 2001; (ii) increased the fiscal gap formula component that sought to encompass both fiscal capacity and expenditure needs in fiscal equalization from 20 to 40 percent; (iii) introduced data for shared natural resources taxes (SDA) in the fiscal capacity formula component,<sup>27</sup> (iv) increased the lumpsum component that was equally distributed across regions, (v) the DAU 2002 was ultimately forced to “hold harmless” relative to the DAU 2001 (in part due to the addition to SDA allocations to fiscal capacity), (vi) the DAU was now allocated across more new regions (348 instead of 336) reflecting pressures for regional profusion in the system.

6. To illustrate how the final DAU 2002 amounts were generated, we draw on the local government example, although the process of provinces is similar.
, Jimenez and Sawada (1999), Gertler, Patrinos, Rubio-Codina (2008) and Skoufias and Shapiro (2006) investigate the impact of specific participatory institutions in El Salvador and in Mexico respectively. In an ex post evaluation of the EDUCO program, Jimenez and Sawada (1999) found evidence that a local management system improved students' language skills and attendance.  The EDUCO program established community education associations, called ACEs, composed by _elected_ parents, which are given authority over the management of funds provided by the ministry, the hiring and firing of teachers, and the physical maintenance of the school. This program is therefore an example of the shortest possible route to teachers‟ accountability.

> 15 Parent associations also received training in the management of the funds and in participatory skills to increase their involvement in school activities. Based on qualitative data, such as interviews with parents, teachers and school directors, the authors argue that the program was successful in increasing parental participation in school matters. 16 Note that, compared to the EDUCO program, both AGE and PEC did not provide parents with direct means to hold teachers accountable, i.e. the route to accountability was much longer in this case.

> 17 Along the same lines, it may be the case that having parent associations in place but without financial resources is not as effective, that is it may be necessary to have a mandate and the resources.
recent violence.<sup>34</sup> Lastly, as an implied mechanism in this specification is that violence exposure raises or lowers the relative opportunity cost certain types of work, we also divide our results into the full, pooled sample (“All”) as well as by “Men” and “Women”. In particular, reports of the conflict noted that women were at particular risk of attack, including sexual assault.<sup>35</sup> Such a division also comports with other work, which has found differential labor responses for women versus men in the face of escalated violence (Vel ́asquez, 2020; Tsaneva _et al._ , 2019).

# **3.4 Sample Attrition**

Endogenous sample attrition represents a further threat to credible identification. This could well be the case if prior violent events or unobserved shocks affect the likelihood that an individual remains in the panel sample. Indeed, in our study context this is a sizeable threat. There are 12,918 individuals in the GHS data who were first interviewed in the 2010 and who are also located in enumeration areas that were part of the coverage of all four rounds. Of these, 3,732 (or 29 percent) are observed all the way through wave 4 of the GHS, including those who moved and were tracked. This gives a back-of-the-envelope, cumulative attrition rate of approximately 16 percent for each period. While this is not worrisome for each individual period, it does present problems cumulatively. Although a relatively long household-level panel dataset provides the ability to track individuals and households over time and account for timeinvariant individual or household characteristics, they also inherently lead to a greater risk of attrition bias. To address non-ignorable attrition, we use the following probit estimation to estimate attritioncorrected sampling weights: Equation (5) includes the enumeration area herder-related violent events, a state-time fixed effect and the full list of time-interacted co-variates as described above. From equation (5) we calculate a predicted probability of
Policy Research Working Paper 9398

# **Abstract**

This paper constructs and estimates a household-level search model to analyze Roma spouses’ utility maximization for leisure, home production, and work. The paper aims to explain labor market gender gaps in a marginalized Roma population with low labor market participation rates (males 53 percent and females 17 percent). The analysis uses data from the 2017 Regional Roma Survey for six Western Balkan countries. The simulation results show that the main source for gender differentials in the labor market is the unequal opportunities in favor of males— not gender preferences or differences in home production productivity. Therefore, most of the gender differences in the labor market can be closed by providing wives the same labor market conditions as husbands. Counterfactual policy experiments show that policies that increase the frequency of receiving a job offer, decrease the frequency of laying off workers, and reduce search increase Roma husbands’ labor participation. Policies that equalize wages induces more wives to join the labor market and husbands to withdraw from it. This outcome signals that the wage gap is the dimension that deters the greatest number of Roma wives from joining the labor market.

This paper is a product of the Poverty and Equity Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at mrobayo@worldbank.org or sbrodmann@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily
X and Li D (2014) Can night-time light images play a role in evaluating the Syrian Crisis? _International Journal of Remote Sensing_ , _35_ (18), 6648-6661. https://doi.org/10.1080/01431161.2014.971469.

- Li X, Zhou Y, Zhao M and Zhao X (2020) A harmonized global nighttime light dataset 1992–2018. _Scientific Data_ , 7(1), 1-9. https://doi.org/10.1038/s41597-020-0510-y.

- Marx A and Goward S (2013) Remote sensing in human rights and international humanitarian law monitoring: Concepts and methods. _Geographical Review_ , _103_ (1), 100-111. <u>https://doi.org/10.1111/j.19310846.2013.00188.x.</u>

- Oxfam (2018) HHs needs assessment in drought affected villages and districts in Herat and Badghis provinces. Available at <u>https://www.humanitarianresponse.info/en/operations/afghanistan/assessment/hhs-needs-assessmentdrought-affected-villages-and-districts-herat (accessed 10 December 2021).</u>

- Pelizari PA, Spröhnle K, Geiß C, Schoepfer E, Plank S and Taubenböck H (2018) Multi-sensor feature fusion for very high spatial resolution built-up area extraction in temporary settlements. _Remote Sensing of Environment_ , 209, 793-807. <u>https://doi.org/10.1016/j.rse.2018.02.025.</u>

- Quinn JA, Nyhan MM, Navarro C, Coluccia D, Bromley L and Luengo-Oroz M (2018) Humanitarian applications of machine learning with remote-sensing data: review and case study in refugee settlement mapping. _Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences_ , 376(2128). <u>https://doi.org/10.1098/rsta.2017.0363.</u>

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41 1990, 2000, 2015). European Commission, Joint Research Centre (JRC) [Dataset] PID: http://data.europa.eu/89h/jrc-ghsl-ghs_pop_gpw4_globe_r2015a.

Gascoigne, Bamber. (2001) “History of Latin America” HistoryWorld. From 2001, ongoing.

http://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=850&HistoryID=aa87& gtrack=pthc (retrieved 2017-06-12).

Gencer, E. A. (2013). Natural Disasters, Urban Vulnerability, and Risk Management: A Theoretical Overview. In The Interplay between Urban Development, Vulnerability, and Risk Management. Volume 7 of the series SpringerBriefs in Environment, Security, Development and Peace (pp. 7-43). New York, NY: Springer Berlin Heidelberg.

Glaeser EL (1998) Are cities dying? _Journal of Economic Perspectives_ 12: 139–160 Hasse, J. E. and Lathrop, R. G. (2003) Land resource impact indicators of urban sprawl, Applied Geography, _23_ , 159–175.

- Hsu, F. C., Baugh, K. E., Ghosh, T., Zhizhin, M., & Elvidge, C. D. (2015). DMSP-OLS radiance calibrated nighttime lights time series with intercalibration. _Remote Sensing_ , _7_ (2), 1855–1876. https://doi.org/10.3390/rs70201855

Huang, J., Lu, X. X., & Sellers, J. M. (2007). A global comparative analysis of urban form:

- Applying spatial metrics and remote sensing. _Landscape and Urban Planning_ , _82_ (4), 184–197. https://doi.org/10.1016/j.landurbplan.2007.02.010

- Inostroza, L; Baur, R; Csaplovics, E (2013). Urban sprawl and fragmentation in Latin America: A dynamic quantification and characterization of spatial patterns. Journal
**Figure 13. Contribution by each firm characteristic to explain total variance of markup performance across firms**

<!-- Start of picture text --> 13.6%<br>21.4%<br>6.4%<br>11.3%<br>7.9%<br>34.7%<br>4.7%<br>capital intensity Export status R&D status age ownership size region<br><!-- End of picture text --> _Source:_ World Bank staff calculations based on SBS data set. _Note:_ The pie chart reflects markup variance decomposition results. It decomposes the variance of markup performance across firms after removing the proportion accounted for by omitted factors, NACE 4-digit sector, and year contributions.

# 4.4. WHAT WOULD BE THE PRODUCTIVITY DIVIDENDS FROM MARKUP REDUCTION?

**While it became evident that aggregate market power in Romania has been rising, it is important to analyze its consequences for economic growth.** An indirect way to measure this is to estimate the productivity dividends that would come from markup reduction. The association between markup and productivity can be positive or negative, depending on the nature of competition in the specific markets/sectors. As shown by Autor et al. (2017) and Van Reenen (2018), there are markets—such as high-tech sectors or knowledge-intensive ones— where the nature of competition tends to emphasize the importance of network effects, economies of scale and scope, and intangible assets, so the most productive and dynamic firms exert higher markups and obtain larger market shares. On the other hand, in certain markets, where recouping fixed costs (such as R&D) because of higher-risk investments is not that relevant, high-markup firms are not necessarily more productive and efficient. Another way to look at this contrast is through the inverted-U relationship of innovation and competition to an increase in productivity, as explored by Aghion et al.
.0318**|-0.0578***|-0.0383**|-0.0390**|
||(0.0150)|(0.0163)|(0.0157)|(0.0152)|
|Age squared|0.000372*|0.000332|0.000432*|0.000398*|

21 There was a drought in some regions when the 2015/16 survey was undertaken. This could have contributed to the increase in child undernutrition rates in most of the regions between the two waves. 22 A Hausman test was used to determine whether a fixed effects or a random effects model was relevant. Our p- value was less than 0.05 for all the specifications, rejecting the null hypothesis that our fixed effects are not consistent and efficient.

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social networks and people in their religious community. Finally, we enquired about the potential sanctions individuals would face if they decided to deviate from the social norm.

Our second online survey collected similar information from 4,478 similarly selected respondents. The information intervention was embedded in the survey just prior to survey exit. The intervention is detailed further below in Section 4.<sup>9</sup>

# **3 Social Context**

Female labor force participation in Indonesia has remained relatively constant over the – past two decades with around 50% of women working even with high economic growth, concomitant large increases in women’s educational attainment and the service sectors

> 8Women with upper secondary education have the lowest female labor force participation in Indonesia, Cameron et al. (2019).

> 9Ethics approval for the surveys and interventions was obtained from the University of Melbourne (202223161-28577-5) and University of Indonesia (LPEM FEB - 14/UN2.F6.D2.LPM/PPM.KEP/2022). The trial and pre-analysis plan were registered with the AEA RCT Registry (AEARCTR-0009493). Unless otherwise indicated, the analysis presented follows that laid out in the pre-analysis plan.

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defined microregions, grouping the 5571 municipalities in the data. To ensure a consistent definition of microregions over time, when necessary we merge microregions whose boundaries changed over the period of analysis.<sup>11</sup> We merge RAIS with customs records on export transactions by microregion, industry, and destination each year from the administrative data collected by _Secretaria do Com ́ercio Externo_ (SECEX) of the Ministry of Development, Industry and Foreign Trade. These data are defined at the level of the municipality, detailed product category, and destination market, and are available since 1997. For consistency with the RAIS data and our definition of the labor market, we restrict the analysis to the post-2003 period and aggregate the customs records to the microregion-sector level. We further use yearly data on the industry-level imports of each of 189 Brazilian destinations reported in the customs data (sourced from all countries except Brazil) to construct the instrument and link them to the information on industry-level imports from the UN COMTRADE. We use the data of the year 2003 only for initial weights in our instrument and in the regressions, and the main analyses draw on yearly changes of variables of interest during 2004-2015 as specified in the next subsection.

# **2.2 Econometric Model**

We now describe the econometric strategy for examining the effects of export shocks on labor markets. Our baseline specification is: where _Yt_<sup>_k_</sup> denotes the log of the outcome variable of interest in the region-sector pair, i.e., labor market, _k_ in year _t_ ; _Zt_<sup>_k_isthelogofexportrevenueoriginatedin</sup><sup>_k_;</sup><sup>_κt_denotesayearfixedeffect;and</sup> _ε_<sup>_k_</sup> _t_<sup>istheerrorterm.The∆operatordenotesthelinearchangeofavariablebetweenyear</sup><sup>_t_andyear</sup> _t −_ 1 throughout the paper.

Figure 2 depicts the change in export revenue observed in different microregions over the period of our main
to cells of known<br>light areas and used<br>as<br>a<br>means<br>for<br>reallocating<br>population estimates<br>of<br>administrative<br>areas|

# **Accessibility**

We used an accessibility map constructed by Andrew Nelson, based on the DCW (Digital Chart of the World). This was the only available source of pan-continental road data, and is based on old and possibly inconsistent data. We arbitrarily assigned travel speeds of 10km/hr to 60 km/hr to roads of increasing quality, and 4 km/hr to off-road travel. These speed estimates were used to compute an accessibility map depicting the minimum travel time in hours, and distance in kilometers, along the fastest path, from each point to the nearest city of 100,000 or more (according to the DCW). Although our travel speed estimates are arbitrary, they are arguably better than an assumption of constant travel speed regardless of terrain. The resultant map (figure 2) appears to underestimate current accessibility in parts of the Brazilian Amazon. We emphasize that this map should be viewed only as a crude index rather than a literal measure of travel time, and stress the need for accurate, consistent national and continental maps of transportation networks.
. It also depends on the cost items included in a project. The capital costs of a project would be high if the project costs include the construction of access roads (especially for hydro or wind projects located away from existing roads). If the project costs include the cost of transmission lines to access the existing grids and the project site is away from the existing grid, it will cause the capital costs of the project to increase.

While we tried to standardize other data except for the capital costs so that the LCOEs are comparable, some data could not be standardized. Heat rate and capacity factors could not be standardized in some cases. For example, a thermal power plant with higher capital costs tends to have higher thermal efficiency or low heat rate. Therefore, we assign a low heat rate for a power plant with higher capital costs. A CSP plant with storage facilities has a higher capacity factor. For

> 9 IEA (2015) collected data from 181 electric power plants in 22 countries; IRENA (2020) data are collected through surveys of 17,000 renewable power generation projects around the world that represent more than 1,770 GW of total installed or pipeline capacity. Data used by EIA (2020), NREL (2019) and Lazard (2019) are for the United States.

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# WPS3795

We also review much of the extant research on SME credit availability through the lens of this more complete framework, yielding several conclusions. First, the findings argue against drawing simplistic conclusions from the extant research. For example, the finding that large financial institutions have a comparative advantage in transactions lending technologies and comparative disadvantage in relationship lending does not necessarily imply that large institutions are disadvantaged in providing credit to informationally opaque SMEs. On the contrary, some of the transactions lending technologies used by large institutions are well-suited for funding opaque SMEs. Similarly, there is no simple answer to the policy question of whether a sizeable presence of small institutions is needed for overall SME credit availability. A limited amount of research using U.S. data suggests little concern on this issue, but other research suggests that small institution presence may be more important in other nations because differences in financial structures that may limit the use of some lending technologies.

Second, the results make a strong case for taking into account the presence of foreign- and stateowned institutions, as well the presence of large and small institutions and conventional measures of financial institution competition, particularly when analyzing developing nations. All of these elements of financial institution structure may affect SME credit availability through comparative advantages in the different lending technologies. In particular, a greater presence of foreign-owned institutions and a lesser presence of state-owned institutions is likely to be associated with significantly higher SME credit availability in developing nations because foreign-owned institutions appear to have advantages in some of the lending technologies, and state-owned institutions appear to be generally disadvantaged.

Third, our investigation strongly suggests lending infrastructures have important effects on SME credit availability. “Better” lending infrastructures may significantly improve SME credit availability through facilitating the use of the various lending technologies. As examples, better accounting standards may help spur the use of financial statement lending, better commercial laws on security interests may facilitate the use of asset-based lending and fixed-asset lending, and greater sharing of information may help facilitate the use of small business credit scoring, although other