rafmacalaba/datause-encoder-data huggingface dataset:
# **Sovereign Debt Distress and Corporate Spillover Impacts**

## **I. Introduction**

At a time when rising sovereign credit risk in highly indebted developed economies represents a major source of policy concern and market anxiety, drawing attention to the corporate debt problems that may loom ahead is not only a call for a more systematic approach to debt management, but an opportunity to highlight the hidden dynamics between sovereign and corporate debt that could create a negative feedback loop if investors lose confidence in the government’s ability to use public finances to stabilize the economy or provide a safety net for corporations in distress. Though such sovereign credit events are rare, with global financial markets still unsettled and public finances stretched to the limit in many countries, their likelihood is rising, even in countries with seemingly manageable external debt profiles. Under such circumstances, markets’ assessment of public and private credit risk takes on a completely different dynamic than during normal times, when markets’ belief in a government’s power of taxation and spending provides a cushion against macroeconomic shocks. Understanding such market dynamics is, thus, crucial in formulating mitigating policy support measures before investor fear sets in that could have adverse consequences for private firms’ access to foreign capital.

This paper investigates the degree to which heightened sovereign default risk perceptions during times of market turmoil—gauged by widening of bond market spreads beyond a critical threshold—influence the determination of corporate bond yield spreads in emerging markets. Using a new database that covers nearly every emerging-market corporate and sovereign entity that has issued bonds on global markets between 1995 and 2009 (4,441 transactions, amounting to $1.46 trillion), we develop an empirical methodology to analyze whether sovereign risk is priced into corporate bond spreads, controlling for specific bond attributes and common global risk factors. We model emerging corporate bond spreads as incorporating three risk premiums: corporate default, home-country sovereign debt distress, and a compensation for the fact that emerging bond market spreads vary systematically with global business cycle and with global financial market conditions. The first point, representing the standard credit risk component of corporate spreads, has received much attention in corporate finance literature, but the other two points are controversial and are based on two sets of considerations. First, private borrowing entities in emerging economies cannot insure the risk of their own home sovereigns through, for instance, selling protection in the credit derivatives swap (CDS) market; and second, emerging market investors are risk averse.

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5 consequences of the economic reforms for the previous social arrangements, which were tied to individual work units – agriculture communes, collective firms and state-owned enterprises (Section II:1). I continue with various social developments, which reflect a complex mix of social advances in some respects and regress in others (Section II:2). China’s future policy options in the social field (Section III) are classified into three broad categories: those influencing the level and distribution of factor income (i. e., incomes from labor and capital), income transfers (in particular, social insurance) and the provision of human services. Section IV contains brief concluding remarks about China’s achievements and unsolved problems in the economic and social fields. It is unavoidable that the analysis shoots at a moving target – both because the reform process moves on and because of ongoing revisions of the national accounts.<sup>1</sup> I make no attempt to explain the internal political processes among the Chinese leadership behind the economic reforms. Although Deng Xiaoping stands out as the dominant political leader in the initial stages of the reforms, the views, interest and actions of political leaders at all levels must also have been crucial for the process.

> 1 When no other sources are mentioned, I rely on official Chinese statistics published by the National Bureau of Statistics of China. I have then taken note of the revisions of the national accounts of China reported in December 2005 (published in Statistical Abstract, 2006). For a short summary of these revisions, see Oxford Analytica, 2005, and People Daily, 2005. For a discussion of the production of statistics in China and the recent revision of the national accounts, see Holz (2005a and 2006).
based area measurement is a reliable alternative to traversing and that 80 percent of the sample plots were measured with negligible error.

One major advantage of GPS, as with any objective measure, is that of being immune of the potential biases linked to respondent characteristics and the use of non-standard measurement units. Despite the great potential of GPS technology, GPS-based coordinates are subject to known types of measurement error stemming from satellite position, signal propagation, and receivers. Approximate contributions of these factors to the overall position error are significant, ranging from 0.5 to 4 meters (HofmannWellenhof et al., 2008). The number of satellites, in particular, can cause the distribution of position error to be elliptical, rather than spherical (van Diggelen, 2007). Additional factors that may be expected to influence the quality of GPS measures include the presence of dense tree canopy or cloud cover, which may interfere with the signal. The quality of the GPS device used also has non-negligible impact on the magnitude and distribution of measurement error (Palmegiani, 2009). Although position estimates are subject to a certain level of inaccuracy and may be distributed in a non-spherical manner, in theory the error associated with area measurement should be random—that is, the factors that cause non-spherical position error are largely macro level factors that are unlikely to change in the short period of time required to pace the perimeter of a plot, rendering the position error distribution consistent at all points along the perimeter. A study by Bogaert, Delince and Kay (2005) using simulated coordinates and European Geostationary Navigation Overlay Service (EGNOS) augmentation concluded that the position error can be reasonably assumed to be normally distributed.

The literature suggests some concern that errors in GPS measures may vary systematically with key plot characteristics, namely plot size, slope, and shape. Few published studies have tested the use of GPS measurement against the gold-standard measure, the traditional compass and rope method. Recent research by FAO points out possible effects of slope on the accuracy of GPS-based area measurement (Keita et al., 2010). Slope-related effects on area measurement are rooted in the fact that the actual area should be the horizontal projection of the plot, as opposed to the plot area itself (Muwanga-Zake, 1985). The difference between actual area and projection appears to be particularly important for slopes greater than 10 degrees (Fermont and Benson, 2011).

Bogaert, Delincè and Kay (2005), based on modeling and simulations conclude that “for GPS/EGNOS measurements made by an operator moving along the border of a field, area measurement error is linked both to the operator speed and to the acquisition rate of the GPS device. For typical field sizes found in the European Union, ranging from 0.5 ha to 5 ha, the coefficient of variation (CV) for area measurement errors is about 1% to 5%. These results depend on the field area, but they can be considered to be 9
commitments of all four countries are not reflected in good policies or better performance over time. Annex Table 4 confirms the analysis and identifies Moldova, Kyrgyzstan, and Georgia as particularly striking examples of “better theory than practice”, whereas it does the reverse for Poland and the Czech Republic.

**Figure 2. Time Path of Service Sector Reform, 1990–2004, by Country**

<!-- Start of picture text --> Service Sector Reform Index Service Sector Reform Index<br>1990-2004 Group (a) 1990-2004 Group (b)<br>4.50 4.50<br>4.00 4.00<br>3.50 3.50<br>Hungary<br>3.00 3.00 Latvia<br>2.50 Slovak Republic 2.50 Lithuania<br>2.00 Czech 2.00 Estonia<br>1.50 Republic 1.50 Slovenia<br>1.00 Poland 1.00<br>0.50 0.50<br>0.00 0.00<br>1990 1995 2000 1990 1995 2000<br>Service Sector Reform Index Service Sector Reform Index<br>1990-2004 Group (c) 1990-2004 Group (d)<br>4.50 4.50<br>4.00 4.00<br>3.50 3.50<br>3.00 Croatia 3.00 Kyrgyzstan<br>2.50 2.50<br>Macedonia Georgia<br>2.00 2.00<br>1.50 Romania 1.50 Moldova<br>1.00 1.00<br>Bulgaria Armenia<br>0.50 0.50<br>0.00 0.00<br>1990 1995 2000 1990 1995 2000<br><!-- End of picture text --> _Source_ : EBRD (2004).

Table 6 ranks countries – not groups – according to their GATS commitment index and reports their most recent EBRD index score as well as the average EBRD score for the period as a whole (1990-2004). The numbers in parentheses following each of the EBRD columns are the rankings based on the average and most recent EBRD scores, respectively. These rankings do not differ across the two EBRD measures, with the exception of group (a). Comparing the 2004 and 14
# **_Only a small share of freight forwarders use multimodal transport_**

Multimodal transport is the combination of air/rail/road/sea type of transport to carry goods from the country of origin to the final destination. The majority of freight forwarders use multimodal transport for less than 25% of their shipments and close to a quarter do not use multimodal transport for any of their shipments. This is driven to a large extent by the geographic position of Serbia and the fact that on average 70% of the handled import shipments come from the EU, therefore freight forwarders mainly use road transport to transit within Europe.

**Table 5. Use of Multimodal Transport for Import Shipments by Freight Forwarders**

||Number of<br>freight<br>forwarders|75% or more<br>Share of firms i|50‐75%<br>ndicating sha|25‐49%<br>re of shipmen|Less than 25%<br>ts using multimod|Zero<br>al transport|
|---|---|---|---|---|---|---|
|Small|141|9%|9%|6%|53%|23%|
|Medium/Large|12|8%|0%|25%|33%|33%|
|Total|153|9%|8%|8%|52%|24%|

Source: Authors’ calculations based on data from the Survey of Serbian Freight Forwarders.

# **_Fewer freight forwarders handle imports coming from North America than from East Asia_**

Focusing on non-European shipments, only 19% of freight forwarders handle imports coming from North America while half of the freight forwarders do handle imports from East Asia, as seen in Figure 5. Medium/large freight forwarders are more likely to handle nonEuropean shipments. Of the freight forwarders that handle non-European import shipments, more than 50 percent organize those shipments from the source country itself (not limiting themselves just to moving the goods within Europe).

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# **“Economic development as opportunity equalization”**

by John E. Roemer<sup>*</sup> Yale University Key words: economic development, equality of opportunity JEL categories: O1, D3, D63 Sector Board: Economic Policy (EPOL) and Poverty Reduction (POV)

* John Roemer is a professor of political science and economics at Yale University; his e- mail address is <u>john.roemer@yale.edu</u> I am grateful to referees of this journal for suggestions leading to important revisions, and to the many scholars with whom I have discussed these ideas.  This article is based upon a lecture given at the ABCDE meeting in Paris, 2011.
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Policy Research Working Paper 10458

# **Abstract**

This paper studies the effect of bank ownership on product innovation by borrowing firms, highlighting the role of the state, foreign, and combined foreign-state bank ownership. It uses Enterprise Survey data for more than 22,000 firms in 49 countries from 2016 to 2020, linked to Fitchconnect data on banks: their ownership, soundness indicators, and legal origins. The paper confirms that a firm’s access to bank credit is associated with a greater probability of product innovation, even when adjusting for possible reverse causality. If the credit is provided by a state-owned bank, the probability that the borrowing firm will innovate increases. The analysis does not find a similarly positive effect for foreign bank ownership. But when considering the combined effect of foreign state ownership, the results are most statistically and economically significant. Although the results may not be extendable to research and development spending (a key input to innovation), the findings show that foreign state banks can serve as an additional financing vehicle to stimulate radical innovation alongside equity financiers.

This paper is a product of the Finance, Competitiveness and Innovation Global Practice and the International Finance Corporation. 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 fdenicola@worldbank.org; mmelecky@worldbank.org; and miootty@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 represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Table 8: Cross-country covariates associated with changes in deposit accounts penetration**

The results of OLS regressions of the changes in the natural logarithm of number of deposit accounts per 1,000 adults in commercial banks on different country characteristics.

||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|(9)|(10)|
|---|---|---|---|---|---|---|---|---|---|---|
||-|-|-||||||||
|GDP per capita (log)|0.024***|0.023***|0.024***||0.002||-0.020*||||
||(0.007)|(0.007)<br>|(0.007)<br>||(0.011)<br>||(0.011)||||
|Population density (log)||-0.009<br>(0.007)|-0.012*<br>(0.007)|-0.007<br>(0.006)|-0.004<br>(0.007)||||||
|Etd rl nmi rth|||0.043*|0.040**||0.046***||0.048***|0.064***|0.065***|
|xpece ea ecooc gow|||(0.024)|(0.016)||(0.011)||(0.017)|(0.023)|(0.024)|
|# commercial bank deposit accounts in 2008<br>l||||-<br>0.040***|-0.043**|-<br>0.053***|-0.039**|-<br>0.047***|-<br>0.045***|-<br>0.045***|
|(og)||||(0.012)|(0.018)|(0.013)|(0.018)|(0.012)<br>|(0.013)|(0.014)|
|Deposit insurance||||||||0.029<br>(0.022)|||
|East Asia & Pacific|||||||||-0.008<br>(0.040)|-0.007<br>(0.041)|
|Europe & Central Asia|||||||||-0.020<br>(0.041)|-0.021<br>(0.041)|
|High income|||||||||0.054<br>(0.046)|0.052<br>(0.046)|
|Latin America & Caribbean|||||||||0.042<br>(0.034)|0.044<br>(0.035)|
|Middle East & North Africa|||||||||-0.017<br>(0.040)|-0.016<br>(0.041)|
|South Asia|||||||||-0.029<br>(0.042)|-0.030<br>(0.042)<br>|
|Offshore financial center||||||||||-0.018<br>(0.025)|
||||||0.333**||0.332**||||
|Constant|0.256***|0.288***|0.266***|0.305***|*|0.247***|*|0.295***|0.277***|0.272***|
||(0.063)|(0.072)|(0.072)|(0.088)|(0.082)|(0.081)|(0.069)|(0.085)|(0.089)|(0.091)|
|N<br>|74|74|73|73|74|73|73|73|73|73|
|Adjusted R<sup>2</sup>|0.108|0.108|0.146|0.233|0.197|0.315|0.331|0.241|0.250|0.240|
|Robust standard errors in parentheses<br>***p<0.01,**p<0.05,*p<0.1|||||||||||

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marketed by cooperative unions which maintain close ties to the Coffee Board and enjoy special protection. The licensing procedures for coffee traders are overly restrictive and in 2000/2001 the Coffee Board revoked the buying licenses of private traders, effectively handing the monopsony power to the unions (Baffes, 2003).

In other countries, such as Ethiopia, Angola and Central African Republic, internal marketing is liberalized, but the government maintains some level of control over the producer prices. The Angolan National Coffee Institute announces the minimum prices to producers at the beginning of each season. In Ethiopia the minimum export differentials are set daily, but there is no floor producer price. In Central African Republic the prices are indicative and are used as the basis for negotiations.

Finally, in the case of Colombia, the reforms of the coffee sector were very limited. The Federación Nacional de Cafeteros (FNC) continues to be the most powerful player on the market, controlling both domestic marketing and exporting and fixing grower prices and marketing margins.

The contents and the achievements of the reforms in each country are described in more detail in Appendix A. To get a preliminary idea of how the reforms affected producer prices, the shares of the domestic prices in the world prices before and after the reforms are shown in Figure 1. As expected, in almost all countries the producer price share seems to be larger after the reforms. The two exceptions are Angola and Tanzania (in the case of arabica coffee). In Angola, in the whole period 1983-1990 the producer prices changed only twice, so when the world coffee prices started dropping in 1989, the local prices in Angola were kept artificially high, exceeding the world prices by over 50%. As a result, for the pre-reform period on the whole, the average producer prices were close to 100% of the world robusta prices. Post-reform prices vary more often. Although the minimum prices are still fixed, they change far more frequently than before, reflecting to some degree fluctuations in the world coffee market. In Tanzania, the price share for arabica coffee decreased slightly, whereas the price share for robusta increased. This could potentially be due to the fact that the quality of the Tanzanian coffee has been decreasing in the last years. The data on coffee export by coffee class in Ponte (2001) shows that the quality has been declining steadily since 1995/1996. In all other countries the producer price share increased substantially, in particular in Brazil, Ethiopia, Kenya, Mexico, Madagascar and Uganda. Remarkably, in the latter the price share increased by almost 50 percentage points following the liberalization.

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# **Table A7: Impacts of mental health on labor outcomes – Weighted regression**

|Dependent variable:|Employment<br>status|Weekly labor income<br>($1,000 AUD)|
|---|---|---|
||(1)|(2)|
|Standardized mental health scores|-0.058***<br>(0.009)|-0.188***<br>(0.057)|
|_First stage of 2SLS (dependent varia_|_ble is standardized m_|_ental health scores)_|
|Trauma experience*Year after<br>arrival|-0.043***<br>(0.011)|-0.058***<br>(0.017)|
|Kleibergen-Paap F stat.|21.383|21.383|
|AR 95-CIs|[-0.111, -0.031]|[-0.400, -0.124]|
|Dep. Mean|0.455|0.716|
|Other controls|Yes|Yes|
|Individual FE|Yes|Yes|
|Survey wave FE|Yes|Yes|
|Observations|3,687|3,687|
|Number of individuals|1,609|1,609|

_Notes:_ *** p<0.01, ** p<0.05, * p<0.1. Results of IV-Logit-FE model (marginal effects) in Column (1) and IV-FE model in Column (2). Standard errors in parentheses are clustered at the individual level. Control variables include age group dummy variables, marital status, household size, language skills (listening, speaking, reading, and writing), residence area, and home ownership. Mental health scores are the sum of the 6-item Kessler Psychological Distress Scale (K6), with a higher score indicating worse mental health. The scores are standardized to have a mean of zero and standard deviation of one. The critical value of the F-test from Stock and Yogo (2005) is 16.38.

39
years, at least relative to exports in general. Figure 1 shows the evolution of services exports relative to total (non-copper) exports. The share of services exports has been relatively stable, representing 30%35% of non-copper exports. Actually, between 2001 and 2006 services exports grew at an average of 11% per year, whereas non-copper goods exports grew at 13% on average in the same period.

Figure 2 shows the decomposition of services exports for 2006. Most exports are accrued by traditional exportable services such as transportation and travel. However Business services represent close to 17% of total exports and have steadily been growing in their share up to more than 18% in 2010.

Finally, before moving to the empirical analysis it is important to notice two additional elements. Relative to other OECD countries innovation performance, Chile is in the bottom half of the distribution (see Figure 2A). So our findings are especially relevant for more advanced developing countries and other emerging markets and less relevant for OECD countries.

[Figure 2A about here] Furthermore, analyzing the overall structure of R&D in Chile, manufacturing industries appear not to be particularly innovative relative to services (and even more so relative to resource-based industries), at least to the extent that we can measure innovative effort using R&D investments data (see Figure 2B).

[Figure 2B about here] We now move to our analysis. We use micro level data available for Chilean manufacturing and service firms to evaluate empirically some of the hypothesis discussed in the previous section. We evaluate the differences between the manufacturing and services sectors as well as within sectors between exporters 11
41 rights of outside investors are not protected. Outside investors are reluctant to invest in companies if they will not be able to exert corporate governance and protect their investment from controlling shareholders/owners or the management of the companies. Thus, protection of property rights and effective enforcement of contracts are critical elements in financial system development.

Empirical evidence shows firms are able to access external finance in countries where legal enforcement is stronger (La Porta et al., 1997; Demirguc-Kunt and Maksimovic, 1998; Beck, Demirguc-Kunt and Maksimovic, 2005), and that better creditor protection increases credit to the private sector (Djankov, McLiesh and Shleifer, 2005). More effective legal systems allow more flexible and adaptable conflict resolution, increasing firms’ access to finance (Djankov et al., 2003; Beck, Demirguc-Kunt and Levine, 2005). In countries where legal systems are more effective, financial systems have lower interest rate spreads and are more efficient (Demirguc-Kunt, Laeven and Levine, 2004; Laeven and Majnoni, 2005).

Timely availability of good quality information is equally important, since this helps reduce information asymmetries between borrowers and lenders. The collection, processing and use of borrowing history and other information relevant to household and small business lending – credit registries - have been rapidly growing in both the public and private sectors (see Miller, 2003, for an overview). Computer technology has also greatly improved the amount of information that can be analyzed to assess creditworthiness, such as through credit scoring techniques. Governments can play an important role in this process, and while establishment of public credit registries may discourage private entry, in several cases it has actually encouraged private registries to enter in order to provide a wider and deeper range of services. Governments are also important in creating and supporting the legal system needed for conflict resolution and