Template-Type: ReDIF-Article 1.0 Title: Varieties as a Source of Law of One Price Deviations Author-Name: Fernando Borraz Author-Name: Leandro Zipitría Keywords: Law of one price;Retail prices;Variety Classification-JEL:D4;F40;F41 Abstract: We analyze a new price mechanism to deviate from the Law of One Price. If stores differ in the varieties offered in a given product category, prices diverge more often regardless of distance. A simple extension to Hotelling (1929) explains this result. We test our prediction using a unique country-level detailed price database. To have one difference in variety in a product category between two stores increases the price difference by 0.6–0.8%. The store characteristics explain nearly half of the effect, which partially account for the selection of varieties. This result is robust to several controls and alternative specifications and increases as the distance between stores decreases. We offer causal evidence of the varieties-to-prices channel by exploiting an exogenous shock to store demand that changes the relative number of varieties. The results of the causal effect are in line with the baseline estimations. Our results show that store decisions on variety selection could have a significant aggregate impact on price volatility. Journal: International Economics Pages:1-14 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000543 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-1 Template-Type: ReDIF-Article 1.0 Title: Bunker fuel, commodity prices and shipping market indices following the COVID-19 pandemic. A time-frequency analysis Author-Name: Manuel Monge Keywords: Bunker fuel;Commodity prices;Shipping market indices;Transportation congestion;COVID-19;Fractional integration;FCVAR model;Wavelets Classification-JEL:Q41 ;N70;R40;R41 Abstract: This paper deals with the analysis of the evolution of international trade after COVID-19, examining commodity prices, the shipping industry, and the influence of the cost of bunker fuel. To this end, we use techniques based on fractional integration, fractional cointegration VAR (FCVAR) and wavelet analysis. Monthly data relating to heavy fuel oil prices and the shipping market from October 2011 to September 2021 are used. Using fractional integration in the post-break period, a lack of mean reversion is observed in all cases, which means that, for the commodity prices and shipping market indices, a change in trend will be permanent after COVID-19 unless strong measures are carried out by the authorities. Using wavelet analysis, we conclude that the demand shock represented in the indices mentioned above has led the price of fuel oil since the beginning of the pandemic, and bunker fuel is not relevant in determining the cost of maritime transport. Journal: International Economics Pages:29-39 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000634 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-2 Template-Type: ReDIF-Article 1.0 Title: The relationship between shipping freight rates and inflation in the Euro Area Author-Name: Nektarios A. Michail Author-Name: Konstantinos D. Melas Author-Name: Lena Cleanthous Keywords: Inflation ;Freight rates;Supply shock;Shipping ; Classification-JEL:E31;R4 Abstract: Consumer inflation across the globe has rebounded during 2021 due to supply-side disruptions, one of which is the increase in freight costs. To elaborate on the relationship between inflation and shipping costs, we employ a Vector Error Correction Model (VECM) and use disaggregated monthly data from January 2009 to August 2021, using both constant tax and the standard price indices. Following a shock in freight rates, the most hard-hit sectors appear to be garments and major household appliances, items that have traditionally been manufactured outside the euro area. In addition, using a threshold regression methodology, we show that when freight rates rise more than $1300-$1500 per day, the sensitivity of inflation to freight changes increases. Journal: International Economics Pages:40-49 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000646 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-3 Template-Type: ReDIF-Article 1.0 Title: A non-parametric assessment of the effects of the Euro on GVC trade Author-Name: Pierluigi Montalbano Author-Name: Silvia Nenci Author-Name: Laura Dell'Agostino Keywords: GVC trade;Currency union;Euro;Production fragmentation;Non-parametric estimates Classification-JEL:F10 ;F15;F45 Abstract: This work makes a fresh contribution to the long-standing debate on the trade effects of the euro. Its novelty lies in the joint use of trade in value added and non-parametric techniques. Specifically: i) we measure bilateral trade in value added to proxy backward and forward global value chain (GVC) linkages within the eurozone; ii) we compare these outcomes for treated and untreated units by disentangling long-term and short-term effects of the euro, taking advantage of panel data and combining matching and difference-in-difference approaches. Results show no significant evidence of a positive post-assessment of the euro effect on intra-eurozone GVC trade. These findings are robust to a set of sensitivity tests such as looking both at the intensity and composition of trade in value added flows and extending the sample to various control groups and datasets. We believe that our findings contribute to the long-standing debate on the euro by complementing the previous empirical evidence and providing an overall coherent and informative picture for policymaking. Journal: International Economics Pages:56-76 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000658 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-4 Template-Type: ReDIF-Article 1.0 Title: The COVID-19 pandemic, policy responses and stock markets in the G20 Author-Name: Guglielmo Maria Caporale Author-Name: Woo-Young Kang Author-Name: Fabio Spagnolo Author-Name: Nicola Spagnolo Keywords: Covid-19 pandemic;Stringency index;Covid-19 index;Fiscal policy;Shadow rates;Stock markets Classification-JEL:C33 ;G15;E52;E62 Abstract: This paper analyses the impact of the Covid-19 pandemic on stock market returns and their volatility in the case of the G20 countries. In contrast to the existing empirical literature, which typically focuses only on either Covid-19 deaths or lockdown policies, our analysis is based on a comprehensive dynamic panel model accounting for the effects of both the epidemiological situation and restrictive measures as well as of fiscal and monetary responses; moreover, instead of Covid-19 deaths it uses a far more sophisticated Covid-19 index based on a Balanced Worth (BW) methodology, and it also takes into account heterogeneity by providing additional estimates for the G7 and the remaining countries (non-G7) separately. We find that the stock markets of the G7 are affected negatively by government restrictions more than the Covid-19 pandemic itself. By contrast, in the non-G7 countries both variables have a negative impact. Further, lockdowns during periods with particularly severe Covid-19 conditions decrease returns in the non-G7 countries whilst increase volatility in the G7 ones. Fiscal and monetary policy (the latter measured by the shadow short rate) have positive and negative effects, respectively, on the stock markets of the G7 countries but not of non-G7 ones. In brief, our evidence suggests that restrictions and other policy measures play a more important role in the G7 countries whilst the Covid-19 pandemic itself is a key determinant in the case the non-G7 stock markets. Journal: International Economics Pages:77-90 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000683 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-5 Template-Type: ReDIF-Article 1.0 Title: Bayesian model averaging approach of the determinants of foreign direct investment in Africa Author-Name: Kazeem Bello Ajide Author-Name: Ridwan Lanre Ibrahim Keywords: Classification-JEL: Abstract: The possibility of misinforming policy direction is undoubtedly high when factors determining foreign direct investment (FDI) are haphazardly selected owing to the diverse nature of the underlying FDI theories, thus leading to model uncertainty. To resolve the econometric and policy concerns, this paper re-investigates the determinants of FDI for 53 African economies for which comprehensive data are available using the Bayesian Model Averaging (BMA) technique over the period 1984–2018. Interestingly, unlike the previously conducted studies on FDI determinants, variables such as gross fixed capital formation, trade openness, exchange rate, secondary school education, democratic regime type, and mobile subscriptions per 100 people take preeminent positions over other explanatory variables for the continent. However, government consumption expenditure, inflation, GDP per capita, capital openness, and credits to the private sectors constitute the major deterring factors of FDI into the continent. These variables remain the substantive predictors of FDI in the African continent out of the 23 explanatory variables used. Similarly, differences are observed in the determinants of FDI across the regions of the continent. Thus, assuming the general policy framework to region-specific concerns may not be an efficient policy menu for attracting foreign capital flows. In light of the preceding, understanding the salient African-wide determinants as well as each region's idiosyncratic details regarding the determinants holds a promising path to tread in attracting foreign direct investment. Journal: International Economics Pages:91-105 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000695 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-6 Template-Type: ReDIF-Article 1.0 Title: To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability Author-Name: António Afonso Author-Name: José Alves Author-Name: João Tovar Jalles Keywords: Fiscal consolidations;Cyclically-adjusted primary balance;Sustainability;Panel data;Time-varying Classification-JEL:C23 ;E21;E62;H5;H62 Abstract: We assess a country's specific need (or its absence) to implement a fiscal consolidation programme by focusing specifically on its degree of success, notably in terms of fiscal sustainability. The “need” to consolidate is based on having a primary balance above or below the debt-stabilizing primary balance (provided by the IMF's Debt Sustainability Analysis) for each country. We then link the need for and the actual (historical) existence of fiscal adjustments to their sustainability impact. Looking at a large sample of developed and developing economies over the period 1980–2018, we find that, on average, there is a higher need for consolidations in advanced economies than in developing economies. In addition, implementating a fiscal consolidation program implies an improvement in the degree of public finances' sustainability for advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises. Journal: International Economics Pages:106-123 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000725 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-7 Template-Type: ReDIF-Article 1.0 Title: Inflation and unemployment, new insights during the EMU accession Author-Name: Jean-Louis Combes Author-Name: Pierre Lesuisse Keywords: Phillips curve;European monetary union;Panel Classification-JEL:C33 ;E32;E52 Abstract: In the process of EU integration, toward the Eurozone (EA) accession, we try to understand, how changes in exchange rate regimes, attributed to the switch through the ERM-II and to the EA accession, influence the dynamic between inflation and unemployment, that is, swings on the Phillips curve coefficient. We look at a panel of EA countries, before and after their EA entry, over the last twenty years, using a recent work from McLeay and Tenreyro (2020), to clarify the impact of losing the monetary autonomy. Accession to the Eurozone leads to a non-significant inflation/unemployment relationship. We link this result to the fact that the small economies of the Eurozone do not have sufficient weight to influence the single monetary policy. This is corroborated by the fact that within the Eurozone, what we call the “economic leaders” maintain a significant trade-off between inflation and unemployment. Journal: International Economics Pages:124-142 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000713 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-8 Template-Type: ReDIF-Article 1.0 Title: On the political economy of trade agreements: A de jure and de facto analysis of institutions Author-Name: Asmaa Ezzat Author-Name: Chahir Zaki Keywords: Trade agreements;Institutions;Spaghetti bowl;Compliance Classification-JEL:F10 ;F14;F50 Abstract: This paper examines the effect of the quality of institutions on membership in trade agreements from de jure and de facto perspectives, with a particular focus on the Middle East and North Africa (MENA) countries. First, for the de jure aspect, we analyze how the quality of domestic institutions in a country affects its likelihood of joining a trade agreement. Moreover, for the de facto aspect, this paper examines how the difference in the quality of institutions among trading partners and enforceability degree affects the volume of trade among them. Our main findings show that the larger the difference in the quality of institutions among MENA countries and their trade partners, the less likely they are to sign a trade agreement (deep compared to a shallower one). Moreover, the higher the enforcement degree of the agreement is, the greater the positive effect on trade flows. This result holds for the enforcement of the aspects related to the World Trade Organization provisions (WTOP) and those not associated with it (WTOX). Yet, this positive effect of enforceability differs according to the content of legally enforceable provisions. Finally, our results hold even when we control for the selection bias related to joining a trade agreement, the endogeneity of enforcement and the way we measure both institutions and enforcement. Journal: International Economics Pages:143-156 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000737 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-9 Template-Type: ReDIF-Article 1.0 Title: Improved output gap estimates and forecasts using a local linear regression Author-Name: Marlon Fritz Keywords: Business cycles;Nonparametric methods;Output gap;Trend identification Classification-JEL:C14 ;C22;E31;E52 Abstract: The output gap, the difference between potential and actual output, has a direct impact on policy decisions, e.g., monetary policy. Due to methodological problems, estimating this gap and its further analysis remains the subject of many debates. We propose a local polynomial regression and its forecasting extension for a systematic output gap estimation. Further, the local polynomial regression is proposed for the (multivariate) OECD production function approach, and its reliability is demonstrated in forecasting output growth. Comparing the proposed gap to the Hodrick-Prescott filter and to estimations by experts from the FED and OECD shows a higher correlation of our output gap with those from economic institutions. Furthermore, it sometimes happens that gaps with different magnitudes and different positions above or below the trend are observed between different methods. This may cause competing policy implications which can be improved with our results. Journal: International Economics Pages:157-167 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000749 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-10 Template-Type: ReDIF-Article 1.0 Title: MaGE 3.1: Long-term macroeconomic projections of the World economy Author-Name: Erica Perego Author-Name: Lionel Fontagné Author-Name: Gianluca Santoni Keywords: Growth models;Long-term growth;Energy use;Total Factor Productivity;Energy efficiency Classification-JEL:O.04;E01;F01;F64 Abstract: What will the global economy look like in a generation? The answer depends on the multiple forces driving long-term growth (demography, education, diffusion of technical progress, energy costs, investment and saving behaviour, international capital mobility) and requires a comprehensive framework to conceptualize them. We re-estimate the three-factor (capital, energy, labour) MAcro-econometric model of the Global Economy (MaGE), initially developed by Fouré et al. (2013), with a database covering 170 countries using state-of-the-art methods. We thus establish the long-term structural relationships that drive the dynamics of the World economy. The model projections to 2050 illustrate the expected changes in the World economy and their driving forces. In light of the projected volume of energy consumption, making these projections compatible with climate imperatives calls for increased technology sharing at the international level in order to decouple economic growth from energy use. Journal: International Economics Pages:168-189 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000622?dgcid=coauthor File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-11 Template-Type: ReDIF-Article 1.0 Title: Making the EU cohesion policy work to support exports at time of Covid-19: Evidence on the Italian regions Author-Name: R. Boffardi Author-Name: P. Di Caro Author-Name: R. Arbolino Keywords: Trade resilience;Covid-19 shock;EU cohesion Policy;Adjustment scenarios Classification-JEL:O3 ;R11;R12 Abstract: This study investigates regional trade resilience and the role of the EU cohesion policy to support exports during the first wave of the Covid-19 crisis. We compare regional export resilience during the pandemic shock and the Great Recession in order to find possible similar patterns. We also use panel estimates obtained for the years of the Great Recession to construct regional trade adjustment scenarios at time of Covid-19. Our results suggest that the main adverse consequences of the first wave of the pandemic crisis on regional exports are localised in the regions that show high integration in international global value chains, and high exposure to tourism activities. We also find that the drop in regional exports observed during the first wave of the Covid-19 shock can be limited if more EU funds are timely transferred to beneficiaries. We develop different trade adjustment scenarios to account for heterogeneity among the Italian regions and specific characteristics of the Covid-19 crisis. The main policy implications of our study are finally discussed. Journal: International Economics Pages:190-202 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000750 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-12 Template-Type: ReDIF-Article 1.0 Title: European investment bank loan appraisal, the EU climate bank? Author-Name: Antoine Ebeling Keywords: European Investment Bank;Green investment;Climate policy Classification-JEL:E22 ;G24;Q56 Abstract: What are the determining factors in the allocation of European Investment Bank (EIB) green investments? Using data describing more than 17,000 EIB loans to European Union (EU) member states from 1960 to 2020, we first break down EIB loans into green, neutral and brown loans. We then provide evidence that EIB green investments tend to be allocated to the most advanced economies, specifically, that green investment is positively correlated with high GDP per capita and increases with national environmental expenditure. Our findings illustrate the dichotomy between economic development and environmental objectives faced by the EIB. Journal: International Economics Pages:203-216 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000701 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-13 Template-Type: ReDIF-Article 1.0 Title: This time is different: Fiscal response to the COVID-19 pandemic among EU countries Author-Name: Bettina Bökemeier Author-Name: Marcin Wolski Keywords: COVID-19 pandemic;Discretionary fiscal policy;New Member States;Counter-cyclical policies;Fiscal rules Classification-JEL:E62 ;O52 Abstract: This paper empirically analyzes fiscal policy behavior in the European Union (EU) Member States and assesses how it has changed during the recent pandemic crisis compared to previous crisis periods. Based on panel estimations, we find that the fiscal reaction has been different this time, both concerning the policy direction as well as its magnitude. We argue that fiscal policy has turned from formally pro-cyclical design prior to COVID-19 period to counter-cyclical in the pandemic years, on average. While this is naturally driven by the wide roll-out of fiscal support measures during the pandemic, including health care expenditures and spending on job security, the change in the fiscal reaction function is still visible if these effects are taken away from the budget, even though the move is less pronounced and signifies a change from a pro-cyclical to an a-cyclical fiscal regime. Journal: International Economics Pages:217-226 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000774 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-14 Template-Type: ReDIF-Article 1.0 Title: Does FDI have differential impacts on exports? Evidence from developing countries Author-Name: Pravakar Sahoo Author-Name: Ranjan Kumar Dash Keywords: FDI;Exports;LICs;LMICs;ECs;GMM Models Classification-JEL:C51;F10;F21;O19 Abstract: Theoretical literature indicates that foreign direct investment (FDI) inflows can, directly and indirectly, promote exports by augmentation of domestic capital, technological and knowledge-based spillovers, improvements in competitiveness, and strengthening export channels. However, empirical studies have shown that the benefits of FDI for exports may not be automatic and could vary according to the characteristics of the recipient country. Accordingly, the objective of the current study is to understand the implications of foreign investment for exports of 93 developing countries during 2000–2017 using panel data analysis. It also distinguishes between different types of developing countries – dividing the sample into lower-income countries (LICs), lower and middle-income countries (LMICs), and emerging countries – to study the differential effects of FDI for these different country groups. The study finds that FDI complements exports, and the complementary effect is contingent upon the development levels of the host country. FDI is most effective for promoting exports for emerging countries and least effective for LICs. Accordingly, the study advocates for well-designed policies that prioritize channeling FDI to strategic sectors and push for improvements in the quality of human capital, financial markets, and infrastructure. Journal: International Economics Pages:227-237 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000786 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-15 Template-Type: ReDIF-Article 1.0 Title: Green bonds and oil price shocks and uncertainty: A safe haven analysis Author-Name: Khaled Mokni Author-Name: Walid Mensi Author-Name: Shawkat Hammoudeh Author-Name: Ahdi Noomen Ajmi Keywords: Green bonds;Gold;Oil shocks;Oil uncertainty;Hedging;Safe haven Classification-JEL:G10 ;G15;Q41;Q50 Abstract: This paper investigates the hedge and safe-haven properties of green bonds (GBs) performing as a safeguard against oil price shocks and uncertainty, in comparison to the corresponding roles of gold, the 3-month European government bills, and the U.S. 3-Month T. bills. Oil price shocks are disentangled into oil supply, oil demand, and oil risk shocks based on the recent methodology of Ready (2018), generated in a framework that includes gold, oil shocks, and oil uncertainty (OVX). The ability of GBs to protect against oil price shocks and oil uncertainty is examined using the GARCH and quantile regression (QR) models. The results show that GBs are more appropriate than gold and conventional bonds (CBs) as hedging and safe haven tools against oil price shocks and oil uncertainty. Besides, the ability of GBs to protect against oil price shocks and uncertainty depends on whether the oil shocks are supply, demand, or risk shocks. Furthermore, we find that GBs serve as a strong hedge and/or a safe haven against structural oil shocks generally under bearish GBs market conditions. The European government bills and the US T. bills play the role of weak hedge and a safe haven asset against oil uncertainty and oil shocks. This role varies across quantiles (bear and bull market conditions). Relevant risk management implications are discussed. Journal: International Economics Pages:238-254 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000853 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-16 Template-Type: ReDIF-Article 1.0 Title: Reshoring and plant closures in Covid-19 times: Evidence from Italian MNEs Author-Name: Enrica Di Stefano Author-Name: Giorgia Giovannetti Author-Name: Michele Mancini Author-Name: Enrico Marvasi Author-Name: Giulio Vannelli Keywords: Reshoring;MNEs;Global Value Chains;Covid-19;Heterogeneous firms Classification-JEL:F14 ;F23;F60 Abstract: This paper provides new evidence on the reorganization of global production exploiting a novel dataset of Italian multinational firms surveyed throughout 2020 and 2021 as well as consolidated data sources. We find that Covid-19 did not spur large waves of reshoring nor plant closures. Even though the pandemic caused severe losses to firms, including multinationals, most did not stop foreign production nor are willing to do so in the near future. Trade policy uncertainty, conversely, is more likely to induce reshoring and plant closures. This evidence is consistent with a simple multi-period model, illustrating how offshoring, on the one side, and reshoring, on the other side, are asymmetric in important ways. In the presence of sunk costs, reshoring requires sufficiently large and permanent shocks to demand, trade and foreign production costs to induce behavioral changes. Covid-19 was a major shock, but it was mostly perceived as temporary, while persistent trade policy uncertainty, especially if combined with other shocks, is more likely to induce firms to revise their internationalization strategies. Journal: International Economics Pages:255-277 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000762 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-17 Template-Type: ReDIF-Article 1.0 Title: Financial market economy vs self-financing economy and the role of risk aversion Author-Name: Laurent Augier Author-Name: Chao Yin Keywords: Economic development;Financial markets;Risk aversion Classification-JEL:D15 ;O16;E20 Abstract: This paper revisits the thesis of Levine (1991) on the positive contribution of the financial market on the rate of economic growth. According to the author, the stock market performs, because it facilitates the formation of capital by increasing the liquidity of the market. In contrast, the economy private financial markets would be less effective. Such a conclusion is yet far from obvious. From the model of Levine (1991), we examine the equilibrium proportion invested in high-return (illiquid) projects and we show that the self-financing economy can record a growth rate higher than that of the economy of financial markets. Regardless of the stock market, economic growth is related to the interactions between the aversion to risk and the parameters of the set of production. Journal: International Economics Pages:15-28 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000555 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-19 Template-Type: ReDIF-Article 1.0 Title: Editorial Author-Name: Romain Houssa Author-Name: Xavier Debrun Keywords: Classification-JEL: Abstract: Materially improving a country's income and employment levels demands sustained investment in productive capacities (physical and human capital) and public infrastructure. The world being a closed economy, global resources available for investment (public and private) correspond to the level of global savings. Because the ability to save depends on income levels, developing economies, especially Low-Income Countries (LICs), must plug a significant gap between limited domestic savings and large investment needs by mobilizing foreign savings—including through official funding in the form of subsidized loans or grants. Financing needs for development are indeed considerable. For LICs alone, the United Nations (UN)1 estimates that achieving the Millennium Development goals would require those countries to mobilize the equivalent of 20% of their GDP in tax revenue to be able to fund the desired accumulation of public capital. With tax revenues currently averaging about 16% of GDP, LICs fall well short of the UN benchmark. There is a strong case for international coordination to ensure adequate financing for development. Although standard theory predicts that capital should flow from rich to poor countries (as relatively scarce capital makes investment in the latter more profitable), we know since Lucas (1990) that relative resource endowments do not drive international capital flows. Quite contrary, capital often moves “upward” from poor to rich countries. A large literature has explored potential reasons for this paradox, ranging from lower risk-adjusted returns in developing economies to weak financial institutions that fail to efficiently allocate funds, as well as inefficient public sectors unable to properly coordinate, plan and execute infrastructure projects. Three international conferences on Financing for Development gathering the international donor community (Monterrey, 2002; Doha, 2008 and Addis Ababa, 2015) have stressed the importance of a comprehensive and integrated approach to shaping policies and pooling the resources needed for sustainable development in LICs. For instance, the Monterrey Consensus led to agreements in core areas of Financing for Development (FfD), including: • mobilizing domestic, regional, and international public and private financial resources and related issues regarding their efficient use and management (including debt management); • advancing the contribution of trade and global value chains to development; • enhancing the international financial and technical cooperation for development; • ensuring a stable and efficient international monetary, financial, and trading system supporting development, including through cooperation on tax issues, principles guiding international capital mobility and the strengthening of global financial safety nets (to discourage the accumulation of excessive precautionary savings by vulnerable countries). The Adis Ababa conference of 2015 furthered progress in these different areas. For instance, the Platform for Collaboration on Tax (PCT) – a joint effort by the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations (UN), and World Bank Group – has developed several initiatives aimed at improving domestic tax revenue in developing countries. While achieving the FfD objectives represents a great opportunity for sustainable international development, developing countries and donors face multiple challenges. In particular, there is no clear path to meeting the FfD targets. Furthermore, addressing only selected issues related to FfD may lead to unintended side effects in the short run, with potentially adverse consequences on the credibility of development policies. This special issue (SI) gathers a series of original articles shedding new light on some of those challenges. After an extensive call for papers in 2020, we selected the following contributions: 1 Aid allocation: The role of external discipline, by François Bourguignon and Jean-Philippe Platteau; 2 Delays in public investment projects, by Raphael Espinoza and Andrea F. Presbitero; 3 Abnormal pricing in international commodity trading: Evidence from Ghana, by Ama A. Ahene-Codjoe, and Angela A. Alu, and Rahul Mehrotra; 4 When do we repair the roof? Insights from responses to fiscal crisis early warning signals, by Jiro Honda, René Tapsoba and Ismael Issifou; 5 A time to build: Does technical assistance matter for revenue mobilization? by Ralph Chami, Elorm Darkey and Oral Williams. 6 Moral hazard index for credit risk to SMEs, by José A. Castillo, Andrés Mora-Valencia and Javier Perote; 7 Financial market economy vs. self-financing economy and the role of risk aversion, by Laurent Augier and Yin Chao 8 Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic control experiments, by Chuku Chuku and Yasin Yenice Mustafa The selection process was organized in two steps. First, we selected 12 papers for presentation at a conference on June 22, 2021.2 Second, the papers went through a regular peer review process. Aside from the paper presentations, the conference featured two keynote addresses. Prof. Njuguna Ndung'u (Executive Director of the African Economic Research Consortium and former Governor of the Central Bank of Kenya) discussed digital space and financial inclusion in Africa. Prof. Ugo Panizza, Professor of International Economics at the Graduate Institute Geneva, in an address entitled “Legal air cover,” built the case for ex-post adjustments to debt contracts aimed at temporarily protecting debtor countries forced to divert resources to handle the effects of the COVID-19 pandemic. Mr. Jan Van de Poel, representing Mrs. Meryame Kitir, the Belgian Minister of Development Cooperation and of Major Cities (BMDC), delivered introductory remarks to the conference, which due to the covid pandemic, took place virtually. About 60 international scholars, including academics and policymakers, joined the event. This Special Issue was initiated by the Belgian policy research group on Financing for Development (BeFinD), coordinated by Romain Houssa at the University of Namur (UNamur). BeFinD is a consortium of four academic research centers in Belgium: Centre of Research in the Economics of Development (UNamur), HIVA Research Institute for Work and Society (KU Leuven), Leuven Centre for Global Governance Studies (KU Leuven), Institute of Development Policy (Universiteit Antwerpen). BeFinD has worked on policy and research questions that are the most relevant on issues related to financing for development in the framework of ACROPOLIS (Academic Research Group for Policy Support) project. The ACROPOLIS project is financed by the Belgian Directorate General for Development Cooperation (DGD) in collaboration with the Belgian Minister of Development Cooperation and of Major Cities. It aims to support the decision-making of DGD with evidence-based research on issues related to financing for development. The project is managed by ARES-CCD and VLIR-UOS. It brings together policymakers from DGD, BMDC, Enabel, and other relevant governmental actors on the one hand and researchers from universities in Belgium on the other over the 2014–2018 period. We are also grateful for the anonymous reviewers for evaluating the manuscripts as well as providing constructive comments and suggestions that helped to improve the accepted manuscripts. We are grateful for the valuable support received from BeFinD and ACROPOLIS project. We would also like to thank Valerie Mignon and Mario Larch, the editors of International Economics, for their guidance and encouragements. Valerie Mignon provided gracious help at each stage of this SI project. Special thanks are due to the BeFinD's “Academic Stakeholders” for their unwavering support throughout this project: Jean-Philippe Platteau (CRED), Paul Reding (CRED), Danny Cassimon (IOB), Huib Huyse (HIVA) and Axel Marx (GGS). We also wish to thank the policy coordinators of ACROPOLIS and key collaborators of BeFinD at DGD, in the cabinet of BMDC, at BIO-invest and at ARES and VLIR (Jan Van de Poel, Christian de Lannoy, Vermaerke Pieter, Gaëlle Jullien, Johan Debar, Julie Poppe, Inge Vandevyvere, Nathalie Francken, Noémie Nyst, Camille Roegiers, and Gaetan Herinckx). We also thank Kelbesa Megersa and Karel Verbeke for their constant administrative support to the academic coordinator of BeFinD. Finally, we wish to thank all researchers involved in the ACROPOLIS-BeFinD project from the three universities (UNamur, KU Leuven, UAntwerp) and all the contributors as well as participants of the SI conference. Journal: International Economics Pages:50-52 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000671 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-19 Template-Type: ReDIF-Article 1.0 Title: Aid allocation: The role of external discipline Author-Name: François Bourguignon Author-Name: Jean-Philippe Platteau Keywords: Aid effectivenes;Governance quality;Poverty aversion;Monitoring of aid use;External discipline Classification-JEL:D02 ;D86;O12;F35 Abstract: Using an approach that embodies an explicit tradeoff between need and governance considerations, we propose an optimal aid allocation formula. We first assume exogenous, then endogenous governance. In the former case, a central concept is need-adjusted aid effectiveness while in the second case the donor has policing instruments under the form of monitoring and sanctioning capacities. We show that external disciplining has two advantages when the donor is sensitive enough to poverty intensity: (1) to cater to poor countries to a greater extent than is possible when local governance cannot be influenced by external forces, and (2) to respond (non-perversely) to improvements in the local governance of a country by raising its aid share. In institutionally weak countries, populations should welcome wisely applied donor's discipline as a way not only to get access to financial support but also to constrain their elites to refrain from abusing their position excessively. Imposing discipline when the release of externally-provided development funds is at stake seems more acceptable than aid directed to the explicit purpose of combatting corruption. Journal: International Economics Pages:278-296 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000457 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-20 Template-Type: ReDIF-Article 1.0 Title: Delays in public investment projects Author-Name: Raphael Espinoza Author-Name: Andrea F. Presbitero Keywords: Public investment;Time delays;Investment projects;World bank;Investment scaling up Classification-JEL:H43 ;H54;O12;O22 Abstract: The returns from public investment, especially during periods of scaling up, are often lower than expected. To understand the mechanisms behind this regularity we exploit original information on investment projects obtained from World Bank project reports to document the extent and the drivers of time delays in project implementation. We find that almost 60 percent of investment projects are delayed by at least one year. Time overruns are common across sectors and countries. A sound planning and preparation matter for the timing of project execution. Country characteristics also play a role, as projects undertaken in countries with weaker institutions and in periods of public investment scaling up are completed with longer delays. Journal: International Economics Pages:297-310 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172100069X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-21 Template-Type: ReDIF-Article 1.0 Title: Moral hazard index for credit risk to SMEs Author-Name: José A. Castillo Author-Name: Andrés Mora-Valencia Author-Name: Javier Perote Keywords: SME credit;Credit risk;Moral hazard;Moral hazard index Classification-JEL:G320 Abstract: This article proposes a methodology to calculate the effect of moral hazard on short term credit (working capital) to small and medium-sized enterprises (SMEs). The methodology incorporates four categories of moral hazard ratio defined in a previous study, which are employed to determine probability of default based on a logit model. To this end, a novel Colombian database is used to calculate a moral hazard index that considers the percentages of the odds ratios of the moral hazard variables for positive coefficients on the probabilities of default. The empirical analysis result in an index measuring the impact of moral hazard on odds ratio mainly based on underinvestment moral hazard category in the sample of analyzed companies for the period ranged from 2007 to 2014. Journal: International Economics Pages:311-323 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000706 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-22 Template-Type: ReDIF-Article 1.0 Title: A time to build: Does technical assistance matter for revenue mobilization? Author-Name: Ralph Chami Author-Name: Elorm Darkey Author-Name: Oral Williams Keywords: Revenue mobilization;Fiscal policy;Institutions;Financing for development;Sustainable development goals Classification-JEL:H00 ;O11;O43;Q01 Abstract: We use a unique data set for 115 countries, from 2000 to 18, and 5-year non-overlapping averages to explore the impact of technical assistance on revenue mobilization. To the authors’ knowledge, this is the first such effort to determine a direct relationship between technical assistance and the improvement in tax revenues. The paper finds that technical assistance significantly and positively increases tax revenues. Both income per capita and openness were found to positively improve the tax ratio in line with findings in the literature. Dynamic estimations also uncovered a long-run relationship among technical assistance, income per capita, openness, and tax revenues. This result further underscores that building capacity and institutional resilience takes time. Journal: International Economics Pages:324-330 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000809 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-23 Template-Type: ReDIF-Article 1.0 Title: Abnormal pricing in international commodity trading: Evidence from Ghana Author-Name: Ama A. Ahene-Codjoe Author-Name: Angela A. Alu Author-Name: Rahul Mehrotra Keywords: Trade mispricing;Illicit financial flows;Natural resources;Commodities;Africa Classification-JEL: Abstract: Mispricing of international trade in natural resources contributes to significant tax base erosion from developing countries but is difficult to measure using aggregate trade statistics. In this paper, we apply a novel approach motivated by legal rules for trade and transfer mispricing to estimate abnormal pricing in gold and cocoa exports from Ghana, i.e., exports valued outside an assumed arm's length price range that indicates fair market values. Using daily frequency, transaction-level data from Ghana Customs, our results indicate abnormally undervalued exports of gold and cocoa from Ghana equalled USD 8.8 billion in constant prices (base year 2011) or USD 4.1 billion in current prices between 2011 and 2017. Approximately 11% of gold doré exports, 1% of cocoa bean exports, and 7.2% of cocoa paste exports appear abnormally undervalued. The implied corporate tax base erosion equals USD 2.2 billion in constant prices (base year 2011), corresponding to an average annual decrease of 0.3% in Ghana's tax-to-GDP ratio. Journal: International Economics Pages:331-348 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000026 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-24 Template-Type: ReDIF-Article 1.0 Title: When do we repair the roof? Insights from responses to fiscal crisis early warning signals Author-Name: Jiro Honda Author-Name: René Tapsoba Author-Name: Ismael Issifou Keywords: Early warning signal;Fiscal consolidation;Fiscal crisis Classification-JEL:H68 ;E62;H62 Abstract: Should policymakers wait for fiscal crisis early warning signals before repairing the roof? We answer this question by investigating the interlinkages between early warning signals for fiscal crises, policy responses, and policy outcomes, using a broad panel of 119 countries. We find that fiscal adjustment is a good remedy for countries that act proactively, reducing their likelihood of facing fiscal crisis by up to 60 percent. These findings highlight the prominence of strengthening institutions towards further incentivizing policymakers to repair the roof when the sun is shining. Journal: International Economics Pages:349-367 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000166 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-25 Template-Type: ReDIF-Article 1.0 Title: Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic control experiments Author-Name: Chuku Chuku Author-Name: Mustafa Yasin Yenice Keywords: Eurobonds;Debt sustainability;Synthetic control experiments;Africa Classification-JEL:J34 ;F43;G15 Abstract: There has been a strong wave of Eurobond issuances by Africa's frontier market economies since the start of the century. But it is not clear how these issuances have affected economic performance. This paper uses synthetic control experiments to conduct comparative case study analyses of the impacts of Eurobond issuances on economic growth, debt sustainability, and domestic capital markets. Ex post, we compare the trajectories of the relevant macroeconomic outcomes against their synthetically constructed business-as-usual counterfactual in an environment with no Eurobond issuance. The results show that, on average, sovereign Eurobond issuances have led to improvements in per capita GDP in Africa by about 10 percent above the counterfactual, business-as-usual scenario. Although most issuances were within 3 percent of GDP, they potentially led to about 13 percentage point acceleration in the debt-to-GDP ratios after ten years, compared to the counterfactual. Public capital accumulation is, on average, faster in the first two to three years following an issuance in countries with positive correlations. Journal: International Economics Pages:368-388 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000506 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-26 Template-Type: ReDIF-Article 1.0 Title: Macroprudential policy: New challenges Author-Name: Camille Cornand Author-Name: Cyriac Guillaumin Author-Name: Julien Idier Keywords: Classification-JEL: Abstract: The 2008–2009 financial crisis was unprecedented because of both its size and duration. Some feel it is akin to the 1929 crisis and yet even more severe, especially because of growing financial integration, deregulation, and financial innovations. This crisis foreshadows future financial difficulties, caused especially today by excess liquidity that could lead to a new bubble in financial markets. All the dysfunctions observed on the financial markets over the past ten years have called for a radical renewal of our conception of the regulation of the financial system, in particular by complementing it with a macroprudential approach. Indeed, while the macroprudential view is not new, it has returned to the forefront through the emergence of numerous instruments, at both the macro and micro levels, in response to global financial instability. Over the last decade, policymakers have gained experience in applying macroprudential instruments, in particular in the banking sector, and economic research in the field of financial stability has largely developed. Against this background, it is now time to evaluate the effectiveness of these instruments but also to draw directions for novel fields of research and new macroprudential instruments to tackle new risks. This is the very purpose of this special issue of International Economics. Macroprudential policies are defined as a set of public policies aimed at preventing systemic risks that could compromise a sustainable financing of the national economy. Even with some nuances, this definition frames the action of most macroprudential authorities across the world. Several key aspects of this definition have strong implications in the conduct of such policies (and some are quite subtle!). In the first place, macroprudential policies are used in the plural. This clearly reflects the diversity of the regulatory instruments and sectors targeted by these policies. If they were focused on the banking sector right after the great crisis of 2008, macroprudential policies have also been deployed on new actors in the financial system such as insurance companies or investment funds: the entity-based aspect of macroprudential policies is now wider. They have also diversified in terms of targeted risks: although priority was given to the size of financial players after 2008, in particular with the implementation of systemic bank buffers, new risks are now better accounted for as liquidity, leverage, and concentration. In addition, reflections are currently carried out to better apprehend and understand how to consider new risks such as cyber, pandemic, or climate risks. Macroprudential policy is preventive by nature. Preventing risks requires being able to anticipate their emergence and/or their consequences if they were to materialize. This is always a delicate exercise, entailing a trade-off: authorities can either correctly detect weak signals of risks and take early action at low cost, accepting to be perceived as paranoid, or else do nothing, imposing no cost to the economy, but with the risk of being blamed for not having prevented crises. In the end, macroprudential policies, as any policy based on the principle of prevention, are easily perceived as useless, since their ex-ante (costly) effectiveness necessarily lessens or even hides the potential difficulties that could have shown up in their absence: by constraining the financial system, macroprudential actions impose short-term costs to the economy, optimizing benefits in the future by avoiding or limiting the impact of expected crises. This preventive nature of macroprudential policy distinguishes its action from that of resolution policies. Macroprudential policy targets risks that are systemic. This makes macroprudential policy complementary to but also different from microprudential policy. More precisely, it implies that the design of macroprudential instruments internalizes the negative externalities that individual behaviors impose on other agents in the financial system. Some fully optimal behaviors at the individual level—(such as investment decisions, strategies, or business models)—may not justify any microprudential action. However, at the aggregate level, by negatively impacting the overall level of risks in the financial system, such behaviors may need to be addressed by macroprudential policies. Take the example of leverage: while optimal at the individual level, and hence requiring no specific microprudential policy, it can contribute to the build-up of considerable aggregate risk if increased by all agents simultaneously, thus requiring the use of macroprudential policies. The ultimate objective of macroprudential policies is to ensure a sustainable financing of the economy. As already mentioned, macroprudential policies work on a ridgeline: too restrictive, they hamper the financing of the economy; too loose, they do not allow sustainable financing of the economy due to excessive procyclicality. The notion of sustainability thus directly refers to the amplitude of the financial cycle and the threat of this excessive alternation of bullish movements followed by devastating crashes. This is why macroprudential policies operate in two ways: cooling the upside of the cycle and ensuring shock-absorbing capacity in the downside. Finally, macroprudential policies are often conducted at the national level, targeting the national economy. At the national level, the diversity of the funding sources, the openness of the economy and financial system, and the actors composing the financial industry give rise to a set of specific macroprudential instruments, macroprudential governances, and finally, macroprudential policies. The latter may therefore differ across countries. These differences do not prevent coordination mechanisms at the international level. Some institutional forums have been created to play such a coordinating role (like the Financial Stability Board, Basel Committee on Banking Supervision, International Association of Insurance Supervisors, or International Organization of Securities Commissions). However, national macroprudential policies are pledged with the risk of spillovers such that any action (or inaction) in one country may raise the risk in another country as communicating vessels. Strong interconnectedness across actors worldwide or the existence of a worldwide financial cycle are key driving forces that have to be considered. Each paper selected for this special issue explores at least one aspect of macroprudential policies depicted above. Taken all together, they reflect the first aspect, namely the plurality of regulatory instruments. The first paper by Raphaël Cardot-Martin, Fabien Labondance, and Catherine Refait-Alexandre evaluates whether, and to what extent, macroprudential policies applied to banks (as higher solvency or leverage ratios) have been successful in limiting the probability of crises. Among other aspects, this paper illustrates very well the preventive nature of macroprudential policies. Using a probit model, it shows that such macroprudential policies have been successful in reducing the occurrence of crises in the European Union over the period 1998 to 2017, but the level of percentage of the leverage ratio as implemented by Basel III may not be sufficiently high to adequately reduce the probability of banking crises. The second paper by Stéphane Dées and Julio Ramos-Tallada considers the potential unintended consequences that the implementation of macroprudential policy could have. It echoes the national dimension of macroprudential policy conduct and its potential repercussion on the level of financial risks beyond borders. Focusing on the case of France, the authors study the effect of prudential policies set by French authorities, namely tightening of capital requirements and concentration limits on banks' exposures to specific borrowers over the period 1999 to 2017. They show that these two policies induced a reduction in bank inflows to France, which (virtuously) strengthened the effect of prudential policies in that country. However, this effect has been mitigated by the concomitant rise in foreign bank affiliates' local claims on French residents, brought to light owing to a counterfactual analysis (had the capital requirement policy not been implemented). The third paper by Cristina Badarau and Corentin Roussel illustrates how macroprudential policies target a sustainable financing of the economy along the financial cycle by showing how time-varying capital ratios can be a stabilizing tool against financial instability. More precisely, using a DSGE model, the authors compare the performance of a prudential rule that uses fixed capital buffers to that of a time-varying rule for capital requirements in the face of a negative shock on the banks' capital. The higher performance of the latter rule is due to the provision of an implicit countercyclical dimension and the inclusion of progressive adjustments of individual constraints to account for the specific situation of each bank. These two features perfectly exemplify the complementarity between micro- and macroprudential policies: as they both appropriately limit the risk of financial distress at the individual level and effectively contain systemic risk due to their countercyclical dimension, the proposed time-varying capital requirements approach simultaneously fulfills the micro- and macroprudential purposes. The last two papers pose new challenges on how macroprudential policies could play a role as regards new systemic risks that could affect the financial system: pandemic and climate risks. The paper by Iuliana Matei shows how the Covid pandemic has affected the financing of the economy by heterogeneously impacting sovereign spreads of the European Monetary Union. Pandemic risks belong to the class of risks that are the most difficult to foresee, in the sense that they are challenging to anticipate early enough (once early signals are perceived), such that a macroprudential approach of such risk can hardly be preventive. However, reading this paper, we can wonder if a more ex-ante pro-active macroprudential policy against unexpected risks (as higher cautionary buffers for financial actors) could have reinforced the positive impact found on sovereign spreads of other public interventions such as fiscal supports. This absence of macroprudential firewalls for disaster risks is the topic of the last paper by Gaëtan Le Quang and Laurence Scialom. The authors offer a critical overview of the current state of macroprudential regulation loopholes regarding these extreme risks and propose a new approach based on a definition of risk that goes beyond financial risk to include the non-measurable nature of climate-related financial risks. This new macroprudential framework that would help re-orientate financial flows from “brown” to “green” could integrate the increase of the regulatory capital ratio of banks for “brown” financing, the supplementation of the latter instrument owing to sectoral leverage ratios (to limit excessive debt on asset classes backed by carbon-intensive sectors), the definition of minimum floors and maximum credit limits and/or the conduct of a policy of credit guidance to channel financing towards more sustainable sectors, the restriction of the concentration of banks' exposure to high carbon sector to make sure that they do not exceed a certain fraction of their core capital, the activation of the systemic risk buffer to increase the capital of banks most exposed to transition risk, to mention but a few instruments. This special issue of International Economics draws new lines for further research regarding macroprudential policies. It first points to the poor adaptation of current preventive measures and the opportunity to design appropriate incentives in a novel macroprudential framework in the face of exogenous, unexpected shocks that do not originate from the financial system itself. Another potential challenge for macroprudential policy finds its roots in the rapid development of new asset classes such as cryptocurrencies, cryptoassets or new non-bank financial intermediaries that could contribute to the emergence of financial crises. Then, macroprudential policy may have huge redistributive effects (e.g., the ones targeting borrowers). While beneficial in bad times, badly designed they may exclude low-income households from the mortgage market in good periods. Finally, macroprudential authorities' recent actions or inaction call for a proper governance debate. The organization of macroprudential authorities, including or not central banks, ministry, market authorities, bank supervisors, is not neutral on macroprudential decision-making. It seems appropriate to invite a reflection on the mandate of macroprudential authorities and how conflicting they can be against the existing mandates of authorities contributing to macroprudential policy decision-making. More stringent independence of macroprudential authorities should be questioned in the future. Journal: International Economics Pages:53-55 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200066X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-28 Template-Type: ReDIF-Article 1.0 Title: Capital ratios and banking crises in the European Union Author-Name: Raphaël Cardot-Martin Author-Name: Fabien Labondance Author-Name: Catherine Refait-Alexandre Keywords: Banking regulation;Leverage ratio;Risk-weighted capital requirement;Banking crisis Classification-JEL:G21 ;E44 Abstract: We assess if capital ratios reduced the occurrence of banking crises in the European Union from 1998 to 2017. We use a Probit model and estimate the effect of two measures: the bank capital to total assets ratio and the bank regulatory capital to Risk Weighted Assets (RWA). We found that both measures affect negatively the probability of crisis. This result is robust to the exclusion of outliers, to the inclusion of various control variables for banking, financial and macroeconomic risks. Finally, we show that while the bank regulatory capital to RWA has always a negative effect on the probability of crisis, the bank capital to total assets ratio is only significant above a threshold, estimated between 10 ?% and 12 ?%. Journal: International Economics Pages:389-402 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000494 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-29 Template-Type: ReDIF-Article 1.0 Title: Better safe than sorry: Macroprudential policy, Covid 19 and climate change Author-Name: Gaëtan Le Quang Author-Name: Laurence Scialom Keywords: Macroprudential policy;Climate change;Covid 19;Risk Classification-JEL:E58 ;G28;Q54 Abstract: The crisis of 2007-08 called for a renewal of banking regulation that took the shape of a shift toward macroprudential policy. However, a comprehensive assessment of the current state of financial regulation reveals that this shift is incomplete. In particular, the notion of risk that lies at the heart of the Basel framework is still blind to extreme events. Climate risk and pandemic risk fall into this category. The purpose of this article is twofold. On the one hand, we point out why current banking regulation is not adequate to face risks whose origin is grounded outside financial markets – as is the case for both the pandemic and the climate risks –; on the other hand, we offer avenues for reforming macroprudential regulation in a way that would allow to take those risks into account. Journal: International Economics Pages:403-413 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000482 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-30 Template-Type: ReDIF-Article 1.0 Title: Prudential policy spillovers: How do international bank flows react to French policies? Author-Name: Stéphane Dées Author-Name: Julio Ramos-Tallada Keywords: International banking;Prudential regulation;International spillovers Classification-JEL:F30 ;G21;G28 Abstract: Most of prudential regulations apply to national institutions while, in practice, banks operate at the global level, generating international banking flows which are not comprehensively captured by policies with a domestic remit. This may give rise to spillovers, i.e., effects not considered ex ante in the objectives and/or constraints of authorities in charge of prudential policy, the effectiveness of which may be harmed. Using BIS data on foreign bank lending over a large sample of countries, we investigate international spillovers from French prudential policies. Overall, we show that French prudential policies entail a reduction in foreign banks' lending to French residents. Yet some measures may lead to undesired leakages that potentially undermine authorities' goals: foreign bank affiliates’ exposure to France rose by 1.1% (1.9 Bn USD) on average over 2011–17 owing to the implementation of Basel capital requirements. Journal: International Economics Pages:414-430 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000652 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-31 Template-Type: ReDIF-Article 1.0 Title: Does pandemic risk affect yield spreads in the EMU? Author-Name: Iuliana Matei Keywords: Sovereign bond market;Debt;Pandemic risks;Heterogenous dynamic panel data models;Euro area Classification-JEL:F33 ;E42;G15 Abstract: Since 2020, the world is facing a huge pandemic crisis caused by an acute respiratory coronavirus syndrome. Beyond the impact on the population's health or on normal social interaction, the virus led to a huge economic slowdown, requiring the prompt EMU's authority's reaction. The current paper explores how the sovereign yield spreads of EMU countries with respect to German bonds were affected during the pandemic period. To this end, I employ dynamic panel methods, the Pooled Mean Group estimator of Pesaran et al. (1999) and the Dynamic Common Correlated Effects estimator of Chudik and Pesaran (2015), which accounts for heterogeneous effects across countries and the non-stationarity of spreads and of their determinants. The model uncertainty is studied with a Bayesian VAR (BVAR) approach. The results reveal that, in addition to fundamentals (economic growth, large public debt, inflation, financial instability, country's competitiveness and domestic investment), pandemic risk puts also substantial upward pressure on sovereign bond yields both, in the long-run and short-run on the selected period. Pandemic risk seems to raise yield spreads in the 14 EMU countries in the short-run, while disease mitigation measures reduce them in the long-run. Same negative effect of disease mitigation measures on yield spreads are also found with BVAR model. Results are relatively robust across different empirical methods and considered scenarios. Journal: International Economics Pages:431-450 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000664 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-32 Template-Type: ReDIF-Article 1.0 Title: A theoretical foundation for prudential authorities decision making Author-Name: Cristina Badarau Author-Name: Corentin Roussel Keywords: Prudential regulation model;Optimal CAR;Time-varying capital requirements;DSGE model Classification-JEL:E44 ;G21;G28 Abstract: In the aftermath of the Global Financial Crisis, financial regulation uses micro and macroprudential rules, most of the time motivated by empirical studies. This article suggests a theoretical explanation for countercyclical and progressive capital requirements that incorporate micro- and macro-prudential stabilization objectives. The Capital Adequacy Ratio (CAR) imposed to individual banks by a Prudential Authority (PA) would thus represent an optimal regulation whose aim is to avoid individual and systemic risk accumulation by imposing minimal constraints to financial institutions. This corresponds to the implementation of optimal time-varying prudential capital requirements to banks, with non-linear structure, that allows PA to take progressive countercyclical actions in order to ensure financial stability. We also test the mechanism in a DSGE model and show that it would be more suitable for the financial and real stability compared to the existing fixed prudential ratios. Journal: International Economics Pages:421-462 Issue: 172 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000038 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-172-33 Template-Type: ReDIF-Article 1.0 Title: “There is No vaccine for climate change” - How well Governments’COVID-19 green stimulus announcements contribute to business sustainability? Author-Name: Refk Selmi Author-Name: Farid Makhlouf Author-Name: Kamal Kasmaoui Author-Name: Youssef Errami Author-Name: Oussama Ben Atta Keywords: COVID-19;Green stimulus announcements;Business sustainability transition Classification-JEL:F64;G38;O57 Abstract: This study attempts to address how recent governments’ COVID-19 stimulus announcements affect business sustainability transition in Europe, emerging countries (including China and Brazil), Asia-Pacific developed region (in particular, Japan, South Korea and Singapore) and North America (Canada and the United States). We carry out an event study to assess differences in abnormal returns of the leading 20 percent of the largest 600 companies in Europe, North America and Asia-Pacific developed economies, and the top 10 percent of the largest 800 companies in emerging markets in terms of sustainability. Our results suggest that the stimulus announcements dedicated to green investments positively (moderately or insignificantly) contribute to sustainability transition in Europe and North America (emerging and Asia-Pacific countries, with the exception of South Korea). Investors trading on European exchanges display a more favorable perception about profitability of green recovery. Emerging economies most dependent on environmentally intensive sectors and without strong regulatory oversight have the biggest task to turn their stimulus green, and have so far failed to step up in the current situation of emergency. Even though Asia-Pacific governments are unleashing massive stimulus measures, the overall COVID-19 recovery packages can hardly be depicted as “Green” as the measures they do include seem insufficient to combat climate change and its devastating impacts. These countries would need to better hardwire environmental actions into their public spending and regulatory measures. Journal: International Economics Pages:1-17 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000373 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-1 Template-Type: ReDIF-Article 1.0 Title: Does foreign investment crowd in domestic investment? Evidence from Vietnam Author-Name: Van Ha Author-Name: Mark J. Holmes Author-Name: Tuyen Quang Tran Keywords: Foreign direct investment;Domestic private investment;Crowding effects;Generalized method of moments estimation Classification-JEL:D22;F21;F23;O12 Abstract: This paper examines the linkages between foreign and domestic investment at sector level in a transitional economy. Using System Generalized Method of Moments estimation on a strong balanced dataset covering all sectors across the country, our results consistently suggest that foreign direct investment in Vietnam positively motivates domestic private investment in the same sector. Examination of the linkages finds evidence of crowding-in effects from foreign investment on domestic private investment in downstream sectors that have strong linkages with foreign investment in upstream sectors. No significant impact is found in upstream domestic investment that has linkages with foreign investment in downstream sectors. State-owned investment and joint-venture investment by foreign and domestic investors have a generally negative effect on the investment behavior of private investors. Domestic private investment in export-oriented sectors appears to be more responsive to the presence of foreign investment in both upstream and downstream sectors through vertical linkages. Journal: International Economics Pages:18-29 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000385 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-2 Template-Type: ReDIF-Article 1.0 Title: Firm-level policy support during the crisis: So far, so good? Author-Name: Péter Harasztosi Author-Name: Laurent Maurin Author-Name: Rozália Pál Author-Name: Debora Revoltella Author-Name: Wouter van der Wielen Keywords: COVID-19;Policy support;Investment;Firm-level evidence;Economic rebound Classification-JEL:E22;D22;H0 Abstract: We use the 2021 vintage of the EIB Investment Survey (EIBIS) which contains a detailed set of questions regarding the nature of the policy support to firms during the COVID-19 crisis. Matched with hard data on the balance sheets and Profit and Loss (P&L) statements of corporations, the survey enables to disentangle the drivers of policy allotment and the impact of the policy support during the investment recovery. First, we focus on the distribution of the policy support and show that it has been allotted mostly owing to the sales losses during the crisis, going to firms most affected during the crisis. We do not find evidence that the support was tilted towards firms already weak before the crisis. Second, we show that the firms that have benefitted from the policy support tend to be more optimistic regarding their investment plans. The impact is especially pronounced for investment in digital technologies. Journal: International Economics Pages:30-48 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000312 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-3 Template-Type: ReDIF-Article 1.0 Title: The economic and welfare state determinants of well-being in Europe Author-Name: Mariangela Bonasia Author-Name: Oreste Napolitano Author-Name: Fabio Spagnolo Author-Name: Nicola Spagnolo Keywords: Happiness;Non-linearity;Social provision;Unemployment Classification-JEL:C22;D60;I31;O10 Abstract: This paper analyses the effects of unemployment and social provision on population well-being in ten European countries. We argue that the nature of the linkages between well-being and unemployment rate is non-linear, by identifying the presence of a threshold in unemployment by means of the Hansen test (1999, 2000). Happiness was found to be negatively affected by the unemployment rate both in the presence of linearity in unemployment and under the two regimes determined by the identified threshold. Our results show that social provision, as a whole, and health-care benefits in particular negatively affect happiness while spending on unemployment protection and active labour policies have a positive impact on the well-being suggesting a different allocation of social resources. Furthermore, these non-linear linkages would help the policy-makers to take into account different groups when making decisions about the allocation of social resources. Journal: International Economics Pages:49-57 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000336 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-4 Template-Type: ReDIF-Article 1.0 Title: Trade and structural change: An empirical investigation Author-Name: Mariarosaria Comunale Author-Name: Giulia Felice Keywords: Structural change;Trade;ECM Classification-JEL:F62;O11;C23 Abstract: This paper investigates the role of international trade in explaining the decrease of the tradable sector employment share (agriculture, mining and manufacturing). Borrowing insights from the vast theoretical literature on the determinants of structural change, we build an empirical model that allows distinguishing between long-run and short-run effects. This model is used to investigate the relative importance of the main traditional demand-side and supply-side mechanisms of structural change, assessing, in this context, the role of trade variables. To this end, we use an unbalanced panel of countries for the period 1960–2011 from the EU-KLEMS and GGDC 10-sector databases. Our results suggest that both Engelian income effects, i.e. so-called demand-side drivers, and relative productivity, i.e. the supply-side mechanism, are relevant drivers of structural change, the former, particularly, in the long-run and the latter in the short-run only. We show that international trade directly contributes to structural change: imports are negatively related with employment shifts to tradable sectors in particular in the long-run. By contrast, exports and shifts of employment towards tradables are positively associated. Trade affects structural change also indirectly by enhancing the two internal drivers of structural change, i.e. the supply-side and the demand-side one. When trade is split in intermediate and final goods, we show that in the long-run the negative elasticity of structural change to import is driven by imports of intermediate goods, while the positive sign of exports is driven by exports of final goods. Journal: International Economics Pages:80-109 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200035X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-5 Template-Type: ReDIF-Article 1.0 Title: Green energy indices & financial markets: An in-depth look Author-Name: Capucine Nobletz Keywords: Financial markets;Green energy indices Classification-JEL:G15 ;Q42 Abstract: This paper builds a new database on green energy stock indices, over the 2006–2020 period. We show that green energy indices follow different patterns than benchmark stock indices. Moreover, only a few firms simultaneously compose the green and benchmark indices. This could be an indication that the current leading financial indices might not be structured to finance a low-emissions economy. Journal: International Economics Pages:80-109 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000397 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-6 Template-Type: ReDIF-Article 1.0 Title: Trade credit and global value chain: Evidence from cross-country firm-level data Author-Name: Doan Ngoc Thang Author-Name: Le Thanh Ha Keywords: Trade credit;Global value chain;Financial constraint;Propensity score matching;Difference-in-difference Classification-JEL:F10;G20;L23 Abstract: This paper investigates the effect of joining the global value chain (GVC) on trade credit by using the World Bank Enterprise Survey (WBES) for 55 countries from 2003 to 2019. GVC participation reflects status when a firm is a two-way trader and owns a quality certificate. When exporting, a firm may extend trade credit to its customer (account receivable). When importing, a firm may receive trade credit from its suppliers (account payables). Taking into consideration endogeneity due to reverse causality, our empirical results show the positive effects of GVC participation on the use of trade credit. When a firm participates in GVC, it is more likely to receive trade credit from its suppliers, extend trade credit to its customers, and simultaneously be involved in both types of trade credit. These effects become pronounced for financially-constrained firms, especially for small and medium-sized firms. Our findings suggest that one of the firms’ incentives to participate in the global supply chain is to overcome liquidity shortages. Journal: International Economics Pages:110-129 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200049X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-7 Template-Type: ReDIF-Article 1.0 Title: Consistency of micro- and macro-level data on global value chains: Evidence from selected European countries Author-Name: A. Giunta Author-Name: P. Montalbano Author-Name: S. Nenci Keywords: Global value chain;Firms' internationalization;Trade in value added;Inter-country input–output tables;European countries Classification-JEL:F14 ;F60;D22;L22;O52 Abstract: This study investigates the degree of consistency and fungibility of micro and macro sources of global value chain (GVC) data. We combine two datasets for selected European countries over the period 2001–2014: the European Union-European Firms in a Global Economy (EU-EFIGE) firm-level dataset (integrated with panel balance sheet data from Amadeus) and the World Input–Output Database (WIOD) at the country and sectoral level. Although the two datasets come from different sources and are based on different assumptions, we find that (i) the WIOD-based country and sectoral GVC indicators are positively correlated with firm-level proxies based on EFIGE data; and (ii) the GVC indicators from both sources are positively correlated with firm-level labor productivity. These outcomes are robust to various empirical tests and specifications, as well as to controlling for firm, sector, and country heterogeneity. Our results hold relevance for scholars by demonstrating that the available inter-country input–output (ICIO) data can be used to compensate for the scarcity of firm-level data for evidence-based GVC analyses. Journal: International Economics Pages:130-142 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000464 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-8 Template-Type: ReDIF-Article 1.0 Title: Are there any robust determinants of growth in Europe? A Bayesian Model Averaging approach Author-Name: Sara D'Andrea Keywords: Bayesian model averaging;Growth econometrics;Economic growth;Bayesian methods Classification-JEL:O47;C38;C11 Abstract: Quantitative growth economists often have to deal with model uncertainty (Barro et al. (2003)) and the issue of open-endedness of theories (Brock and Durlauf (2001)). Bayesian Model Averaging (BMA) is the best statistical tool to evaluate the variables to include in a growth regression. This work aims to investigate the robustness of the determinants of growth in Europe from 2002 to 2019. Our dataset is composed of 70 explanatory variables for 19 European countries. We compare different BMA estimates by combining 2 model priors with 5 coefficient priors and we find that no variable is robust to all our specifications. Our results support neoclassical growth theories, as the initial level of GDP per capita and savings are robust determinants of growth. Other robust determinants include the share of manufacturing in GDP, demography, public accounts, wage and labor contract regulation, and fixed capital accumulation. Journal: International Economics Pages:143-173 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000518 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-9 Template-Type: ReDIF-Article 1.0 Title: Common and idiosyncratic movements in Latin-American exchange rates Author-Name: Fredy Gamboa-Estrada Author-Name: José Vicente Romero Keywords: Exchange rate;Exchange rate in Latin-American countries;Factor model Forecasting and simulation Classification-JEL:F31 ;F37;G17 Abstract: We propose a simple theoretical and empirical approach to differentiate between common and idiosyncratic exchange rate movements in 5 Latin-American economies: Brazil, Chile, Colombia, Mexico, and Peru. Our approach allows us to distinguish the effects of a regional exchange rate common factor and macroeconomic fundamentals differentials on exchange rates. The methodology and estimation strategy are suitable for both low- and high-frequency settings. We provide evidence that the regional common factor is important to assess the dynamics of the Latin-American exchange rates. In our estimations, the relation between exchange rates and the common factor is contemporaneous and stable during the studied period. Journal: International Economics Pages:174-190 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200052X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-171-10 Template-Type: ReDIF-Article 1.0 Title: Can taxes help ensure a fair globalization? Author-Name: François Langot Author-Name: Rossana Merola Author-Name: Samil Oh Keywords: Informal sector;Taxation;Income distribution;Trade liberalization;DSGE models Classification-JEL:D31;F16;F62;F66;J45 Abstract: This paper analyzes whether taxation can be successfully used to reduce the incidence of labor informality and achieve higher equality in a globalized economy. To this purpose, it develops a two-area model: a developed country and an emerging country. The two areas differ according to the size of the informal sector, which is characterized by a more flexible labor market and lower productivity. To illustrate the potential role of taxation in achieving a more fair income distribution, the paper introduces a trade shock to simulate the effects of trade liberalization. Trade expansion has often been blamed for leading to an expansion of the informal sector and a widening of wage income disparities. In this context, the paper analyzes whether a budget-neutral tax reform – switching the tax burden from payroll taxes paid by firms operating in the formal sector to a consumption tax – can mitigate possible adverse effects of trade liberalization and support labor formalization. The effects of taxation are seen in the context of the trade-offs between growth, labor formality and equity. The analysis suggests that small improvements in formalization, resulting from the tax reform, come at the cost of widening income inequality. To reduce the incidence of low-quality jobs, tax policy interventions should go hand in hand with more effective social protection systems and labor laws. Journal: International Economics Pages:191-213 Issue: 171 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000531 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-171-11 Template-Type: ReDIF-Article 1.0 Title: Searching the nature of uncertainty: Macroeconomic and financial risks VS geopolitical and pandemic risks Author-Name: Nicolas Himounet Keywords: Uncertainty;Principal component analysis;Economic activity;SVAR Classification-JEL:C38;D80;E32 Abstract: A growing empirical literature on how to measure uncertainty has emerged following the 2007–2008 financial crisis. This paper first reviews the different methods measuring uncertainty. Second, applying a principal component analysis (PCA) that includes the various measures of uncertainty provided by the literature, a monthly global measure of uncertainty for the United States on the period 1990–2020 is developed. If the first factor computes a general level of uncertainty, the second factor provides a switch between two natures of uncertainty: macroeconomic and financial. Applying a new SVAR framework where the identification of uncertainty shocks relies on event constraints, we get a negative effect of US general uncertainty on industrial production. Journal: International Economics Pages:1-31 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200018X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-1 Template-Type: ReDIF-Article 1.0 Title: Wealth, price levels, and product quality Author-Name: Clemens C. Struck Keywords: Engel's law;Product quality;Structural change;Price level;Exchange rates Classification-JEL:F30;F31;F40;F41 Abstract: Why are price levels in Germany lower than in Switzerland despite comparable productivity levels and the possibility of goods arbitrage in this region? Standard theories in macroeconomics have severe difficulties in explaining this theoretically important outlier. We construct a dataset of 73 developed and developing countries to highlight the tight connection between price levels, product quality, and household wealth. We find that wealth per capita has a 20 percentage points higher explanatory power than income per capita — the key variable implied by standard theories. Analyzing more than 4000 product import categories, we find that Swiss unit values are more than twice as high as German unit values in the median product category. We then provide a theory linking these three forces. Wealth induces consumption shifts toward more expensive goods. As official price statistics tend to underestimate quality improvements, they overstate prices. In turn, higher product quality that comes with higher wealth inflates prices and thus contributes toward explaining price level differences across countries. Journal: International Economics Pages:32-48 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000142 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-2 Template-Type: ReDIF-Article 1.0 Title: Do globalization and resource rents matter for human well-being? Evidence from African countries Author-Name: Issidor Noumba Author-Name: Armand Gilbert Noula Author-Name: Stéphane Mbiankeu Nguea Keywords: Globalization;Resource rents;Human well-being;Africa Classification-JEL:F63;QO1;I31;O55 Abstract: Many African countries are endowed with huge natural resources but still lag behind as far as human development is concerned. This study examines the link between globalization, natural resource rents and human development in 49 African countries over the 2000–2017 period. We use the two-step Generalized Method of Moments (GMM) estimations to analyse data coming from UNDP, the World Bank, and the KOF globalization index dataset. Our findings show that globalization improves human well-being. When further decomposition is done, we find that economic, social and political globalizations are positively and significantly associated with human development index. We also find evidence of a natural resources-human development curse. Moreover, our results show that the magnitude of the improving effect of globalization on human development depends on the natural resource rents with threshold of 9.15 (%GDP) at which the positive effect of globalization becomes negative. Finally, we perform sub-regional analyses and find that these patterns are shown to be robust across Sub-Saharan African countries. The main lessons learnt from the study are that African countries should care about how to seize opportunities offered by globalization and avoid rent-seeking behaviours when endowed with natural resource rents. Journal: International Economics Pages:49-65 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000129 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-3 Template-Type: ReDIF-Article 1.0 Title: Spillovers between exchange rate pressure and CDS bid-ask spreads, reserve assets and oil prices using the quantile ARDL model Author-Name: Shawkat Hammoudeh Author-Name: Walid Mensi Author-Name: Jin Seo Cho Keywords: Exchange rate pressure;CDS Bid-ask spreads;Reserve assets;Oil prices;Quantile ARDL Model Classification-JEL:G14 Abstract: This paper examines the quantile relationships between the Saudi Riyal (SAR) exchange rate pressure, Credit default swap (CDS) spreads, total reserve assets, and oil prices. Using the available monthly data ranging from 2008 to 2018 and employing the error correction model, the results show a negative and significant relationship between the long-run coefficient of the SAR exchange rate pressure and the long run coefficients of both the CDS and the oil price. However, the long run coefficient of the foreign reserves is statistically insignificant, thus indicating that the exchange rate pressure, CDS spread and oil price variables are cointegrated. As for the short-run coefficients, we find that the lag SAR pressure affects the current pressure. Moreover, the short-run coefficient of the foreign reserves affects negatively the SAR pressure. Moreover, using the quantile ARDL (QARDL) model, we find a significant relationship particularly in the extreme quantiles, regardless of the level or the log level series. Under the long-run coefficients, the positive (negative) relationship characterizes the nexus of the reserves-pressure and the CDS-pressure (oil-pressure) on the SAR. As for the short-run coefficients, we find that an increase in the lag SAR pressures contributes to the current pressure across all quantiles, whereas an increase in the reserves reduces the pressure in the extreme quantiles. These results have important implications for policy makers. Journal: International Economics Pages:66-78 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000075 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-4 Template-Type: ReDIF-Article 1.0 Title: Access to water and sanitation in Africa: Does globalization matter? Author-Name: Hervé Kaffo Fotio Author-Name: Stéphane Mbiankeu Nguea Keywords: Globalization;Drinkable water;Improved sanitation;Africa Classification-JEL:F63;Q27;Q25;O55 Abstract: Despite efforts to achieve universal access to safe drinkable water and improved sanitation, many Africans still lack access to these social services. There are also disparities between urban and rural areas in access to these services in Africa. If sustained, this adverse trend could undermine the achievement of the United Nations’ Sustainable Development Goal 6 to ensure access to safe drinkable water and sanitation for all by 2030. This paper examines the effect of globalization on access to clean water and improved sanitation in Africa over the 1990–2015 period. Based on the panel corrected standard errors estimator, the results show that overall globalization improves access to water and improved sanitation while increasing disparities between urban and rural areas in access to improved sanitation. Among the sub-indexes of globalization, social globalization enhances access to drinkable water and improved sanitation for the total, urban and rural population. However, social globalization widens the urban-rural gap in access to improved sanitation while its effect on disparities in access to drinkable water is not significant. Economic globalization reduces the share of the population with access to improved sanitation while its effects on access to drinkable water and the urban-rural disparities in access in both social services are not statistically significant. Finally, some differences are found when distinguishing between de facto and de jure aspects of globalization. Policy implications are discussed. Journal: International Economics Pages:79-91 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000130 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-5 Template-Type: ReDIF-Article 1.0 Title: Effects of the business cycle on real exchange rate misalignments with respect to exchange rate regimes Author-Name: Jihene Jebeniani Author-Name: Jamel Trabelsi Keywords: Business cycle;Exchange rate regime;Output gap;Real exchange rate misalignments;Technical inefficiency Classification-JEL:C32;F31;F32;F41 Abstract: This paper explores the relationship between real exchange rate (RER) misalignments and economic fundamentals with respect to the exchange rate regime choice. In a first step, using the technical inefficiency model, we measure RER misalignments and, more specifically, RER overvaluation. In a second step, we assess the effects of the main economic indicators and the choice of a country's exchange rate regime on RER overvaluation. Our empirical findings, based on nonlinear specifications and impulse response functions of Panel Vector Auto Regression (PVAR) estimations, reveal that for developing countries, and during the expansion and peak phases of the business cycle, the floating exchange rate regime may be used as a policy tool to contain the pressure in the exchange rate, and so limit overvaluation. Our findings also reveal that in the context of fixed and intermediate exchange rate regimes, an expansionary monetary policy is an effective tool to stabilize exchange rate fluctuations and mitigate overvaluation. Journal: International Economics Pages:92-102 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000178 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-6 Template-Type: ReDIF-Article 1.0 Title: Green energy indices & financial markets: An in-depth look Author-Name: Capucine Nobletz Keywords: Financial markets;Green energy indices Classification-JEL:G15 ;Q42 Abstract: This paper builds a new database on green energy stock indices, over the 2006–2020 period. We show that green energy indices follow different patterns than benchmark stock indices. Moreover, only a few firms simultaneously compose the green and benchmark indices. This could be an indication that the current leading financial indices might not be structured to finance a low-emissions economy. Journal: International Economics Pages:80-109 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000397 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q3-170-6 Template-Type: ReDIF-Article 1.0 Title: Understanding the transmission of COVID-19 news to French financial markets in early 2020 Author-Name: Willem Thorbecke Keywords: France;Coronavirus;European Central Bank Classification-JEL:G10;I10 Abstract: News of COVID-19 cases roiled the French stock market in 2020. Finance theory indicates that changes in returns across many assets are driven by economy-wide rather than firm-specific factors. To identify these factors, this paper investigates the time series exposure of 174 French assets to macroeconomic variables. It then uses these exposures to examine the cross-sectional pattern of asset price changes due to coronavirus news. The results indicate that investors responded to COVID-19 news by bidding down the prices of assets that do badly when oil prices fall and the euro appreciates and by bidding up the prices of assets that do well when the European Central Bank eases. Banking sector stocks were not harmed by COVID-19 news, indicating that fears of a sovereign-bank nexus were not driving the response. Journal: International Economics Pages:103-114 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000099 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-7 Template-Type: ReDIF-Article 1.0 Title: Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries Author-Name: Sy-Hoa Ho Author-Name: Jamel Saadaoui Keywords: Bank credit;Economic growth;Dynamic threshold estimation;ASEAN Classification-JEL:C23;G21;O41 Abstract: While it is widely recognized that the development of a sound financial system may contribute to foster economic growth, the relation between economic growth and financial activities is complex. In this perspective, our contribution investigates the existence of threshold effects in the relationship between economic growth and bank credit. Our sample of ASEAN countries is examined over the period spanning from 1993 to 2019. We use the approach of Kremer et al. (2013) to estimate threshold effects in a dynamic panel where a group of explanatory variables can be endogenous. Our results confirm the vanishing effect of finance on economic growth. We found a threshold of 96.5% (significant at the 5% level) for the credit-to-GDP ratio, the threshold variable. In the short run, for observations inferior or equal to the threshold, the positive effect of bank credit expansion on economic growth is around 0.08 (significant at the 1% level). Whereas, for observations superior to the threshold, the positive effect of bank credit expansion on economic growth is around 0.01, but not significant. The role of exporting firms is essential in ASEAN countries as they are more export-oriented than other regions in the world economy. Our results may indicate that the beneficiary of the credit (firms versus households), the structural features (export-led growth), and the regional heterogeneity have to be considered in empirical investigations of threshold effects in the relation between economic growth and bank credit. This empirical evidence may help to formulate sound policy recommendations. Journal: International Economics Pages:115-128 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000191 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-8 Template-Type: ReDIF-Article 1.0 Title: Revealed Comparative Advantage and Contribution-to-the-Trade-Balance indexes Author-Name: Rémi Stellian Author-Name: Jenny P. Danna-Buitrago Keywords: Comparative advantage;RCA index;Trade balance;Contribution to the trade balance Classification-JEL:F10;F14;F15 Abstract: This paper examines the conceptualization of Revealed Comparative Advantage (RCA) indexes as Contribution-to-the-Trade-Balance (CTB) indexes based on a comparison between the actual and expected trade balances. We first present existing CTB indexes and explain their theoretical robustness. We next discuss alternative normalization processes of CTB indexes centered around total GDP or GDP per capita. In addition, as CTB indexes are additive applications of the Kunimoto-Vollrath principle, we examine the conceptualization of CTB indexes as multiplicative applications of this principle. Lastly, the option of computing CTB indexes using adjusted trade flows is considered. Ultimately, sixteen CTB indexes are evaluated using a sample of thirty-six trade areas according to time stationarity, symmetric distribution, extreme value frequency and ordinal ranking bias. An additive CTB index computed with or without adjusted trade flows and with normalization by total trade and GDP per capita provides the best measures. Journal: International Economics Pages:129-155 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000154 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-9 Template-Type: ReDIF-Article 1.0 Title: The impact of de facto globalization on carbon emissions: Evidence from Ghana Author-Name: Alex O. Acheampong Keywords: Ghana;Globalization;Carbon emissions;NARDL;Pollution-haven Classification-JEL:C14;F64;O13 Abstract: In developing countries, the environmental externalities associated with globalization have become quite contentious among researchers and policymakers. To inform environmental policymakers and contribute to the debate on the globalization-environment nexus, this paper examines the effect of de facto economic, political and social globalization on Ghana’s CO2 emissions within the Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) model. The nonlinear autoregressive distributed lag model was used to estimate the effect of de facto economic, political and social globalization on Ghana’s carbon emissions. The results suggest that a positive and negative change in political globalization increases CO2 emissions in the long run, while a positive and negative change in social globalization reduces CO2 emissions. The asymmetric results further revealed that both positive and negative changes to economic globalization have a neutral effect on CO2 emissions. The long-run results from the symmetric autoregressive distributed lag model also showed that political, social, and economic globalization increased Ghana’s CO2 emissions by 0.600%, 0.239% and 0.293%, respectively. These findings suggest that globalization has been triggering an environmental “race to the bottom” in Ghana. Journal: International Economics Pages:156-173 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000282 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-10 Template-Type: ReDIF-Article 1.0 Title: Outward FDI and exports relation: A heterogeneous panel approach dealing with cross-sectional dependence Author-Name: Adolfo Maza Author-Name: Paula Gutiérrez-Portilla Keywords: Outward foreign direct investment;Exports;Heterogeneous panel;Cross-sectional dependence;Spatial dependence Classification-JEL:F10;F21;F40 Abstract: This paper explores the link between outward foreign direct investment (OFDI) and exports using Spain's flows to the top-50 recipient countries over the period 1995–2019. Methodologically, it addresses two often forgotten features of spatial data (heterogeneity and cross-sectional dependence) by combining a heterogeneous panel approach with the treatment of cross-sectional dependence. Indeed, when addressing cross-sectional dependence, it removes one of its two components (spatial dependence) so that comparing raw and spatially filtered data yields relevant conclusions. Findings show that OFDI has a significant positive effect on exports in the long term, but it is exclusively due to spatial dependence. Journal: International Economics Pages:174-189 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000300 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-11 Template-Type: ReDIF-Article 1.0 Title: Trade and business cycle synchronization: The role of common trade partners Author-Name: Nestor Azcona Keywords: Bilateral trade;Business cycle synchronization;Common export destinations;Specialization Classification-JEL:E32;F44 Abstract: The effect of international trade on business cycle co-movement has traditionally been tested by focusing on bilateral trade relationships. This article studies whether trade also helps synchronize business cycles through a different channel: common export destinations. A simultaneous equations approach is used to disentangle the relationships between business cycle co-movement, bilateral trade, common export destinations and specialization. The results indicate that the business cycles of countries that export to the same third countries are more synchronized, even after controlling for their bilateral trade relationship and specialization patterns. Bilateral trade intensity increases co-movement directly, by facilitating the transmission of shocks, and indirectly, by making production structures more similar. Differences in specialization have a direct negative effect on co-movement due to industry-specific shocks and an indirect one due to lower intra-industry trade. This article also examines and compares the effect that exogenous determinants of trade, such as close geographical distance and common language, have on co-movement via the two trade channels. Journal: International Economics Pages:190-201 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000348 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-12 Template-Type: ReDIF-Article 1.0 Title: Measuring exchange rate risks during periods of uncertainty Author-Name: Laurent Ferrara Author-Name: Joseph Yapi Keywords: Exchange rate;Risk measures;Fama regression;Uncertainty;Covid-19 crisis;Brexit Classification-JEL:c22;c53;f31 Abstract: In this paper, we empirically look at the effects of uncertainty on risk measures for exchange rates, by focusing on two recent specific periods: the Brexit and the outbreak of the Covid-19. Based on a Fama regression extended with uncertainty measures, we forecast exchange rates in the short run through a quantile regression approach. By fitting a Skewed-Student distribution to the quantile forecasts, we put forward measures of risks for appreciation and depreciation of the expected exchange rates. We point out two interesting results. First, we show that the increase in Brexit-related uncertainty is strongly associated with higher future depreciation risks of the British Pound vs. the Euro, as a mistrust towards the British economy. Second, we find that the Covid-related uncertainty is perceived as a global risk, leading to a flight-to-safety move toward the US Dollar and associated high depreciation risks for emerging currencies. Journal: International Economics Pages:202-212 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000294 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-13 Template-Type: ReDIF-Article 1.0 Title: Non-fundamental home bias in international equity markets Author-Name: Gyu Hyun Kim Author-Name: Hoffmann Kim Keywords: Equity home bias;Unfamiliarity;Return correlation across the equity markets Classification-JEL:F3;F6;G1;G4 Abstract: This paper examines the home bias in the international equity market using 1) the country-level behavioral factor and 2) the home-foreign return correlation. Specifically, we use responses to the question regarding the level of trust toward strangers as a measure for the behavioral factor that we call country-specific unfamiliarity. The empirical results based on the data from eleven developed countries suggest that country-specific unfamiliarity has a significant and positive correlation with the equity home bias. On the other hand, we find that the home-foreign return correlation is negatively correlated with the equity home bias, which goes against our hypothesis. We check for the robustness of our empirical analysis by fitting alternative specifications and using a log-transformed measure of the equity home bias. Journal: International Economics Pages:213-234 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000324 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-14 Template-Type: ReDIF-Article 1.0 Title: A consolidated-by-nationality approach to Irish foreign exposure Author-Name: André Sanchez Pacheco Keywords: International financial integration;Financial globalisation;Consolidated-by-nationality statistics Classification-JEL:F36;F21;F23 Abstract: How exposed is Ireland to foreign shocks? Relying on residence-based measures of foreign holdings to answer this question can be challenging. These statistics are obscured by the vast presence of Special Purpose Entities in the country. Alternatively, I construct an estimate of the Irish consolidated-by-nationality foreign balance sheet for the period between 2011 and 2019 based on a novel methodology that builds on firm-level data. I find that Ireland's consolidated foreign balance sheet is on average 46.7% smaller relative to its residence-based analogue. I interpret this result as an indication that Ireland is significantly less exposed to foreign shocks than what is suggested by residence-based statistics. Journal: International Economics Pages:235-247 Issue: 170 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000361 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-170-15 Template-Type: ReDIF-Article 1.0 Title: A proposal of a suspicion of tax fraud indicator based on Google trends to foresee Spanish tax revenues Author-Name: Manuel Monge Author-Name: Carlos Poza Author-Name: Sofía Borgia Keywords: Fiscal fraud;Composite indicator;Google trends;Fractional integration;FCVAR model;Wavelets Classification-JEL:C22;E60;E37;H26 Abstract: This article contributes to the relationship between fiscal fraud and tax collection in the Spanish economy, creating a composite suspicion tax fraud indicator (STFI) based on Google Trends searches to study the dynamics and foresee tax revenues evolution in Spain. Also, we expand knowledge in the field of fraud tax indicators, following the UNODC (2020) and OECD (2016) recommendations. To this purpose, we apply factor analysis to create the composite indicator and, next, we utilize techniques centered on fractional integration (ARFIMA) and fractional cointegration VAR (FCVAR) to assess the STFI behavior against tax collection and GDP. The outcomes indicate that the differencing parameter d is less than 1 in all the time series analyzed. The tax collection and the leading indicator have similar statistical behavior (d ?= ?0.49 and d ?= ?0.40, respectively), which implies mean reversion. On the other hand, GDP will behave similarly to the other two time series, with d ?= ?0.05, which means that the shocks will have a temporary effect on the GDP behavior, and these effects will disappear by themselves in the short term and in less time than the other two time series. FCVAR results indicate a short-lived shock duration due to the error correction term and their short-run stationary behavior. In the end, applying wavelet analysis, we determine that the composite suspicion tax fraud indicator maintains a negative association with tax collection, except in 2017 and 2018, when the high economic growth offsets the fiscal fraud. Journal: International Economics Pages:1-12 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000792 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-1 Template-Type: ReDIF-Article 1.0 Title: The financial development impact of financial globalization revisited: A focus on OECD countries Author-Name: Olufemi Adewale Aluko Author-Name: Eric Evans Osei Opoku Keywords: Financial globalization;Financial development;Panel quantile estimation;OECD Classification-JEL:F36;G10;G20;O50 Abstract: In this empirical paper, we revisit the financial development impact of financial globalization using a panel dataset comprising the OECD countries for the period 1996–2017. We rely on a multidimensional financial development index and the KOF financial globalization index. We find that financial globalization has a positive impact on financial development. Considering the heterogeneity in the conditional distributions of financial development, we also discover that financial globalization favourably impacts financial development across all the conditional distributions (quantiles) albeit with varying magnitude. These findings are robust to the KOF de facto and de jure measures of financial globalization as well as an alternative measure of financial globalization–financial openness index. Journal: International Economics Pages:13-29 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000780 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-2 Template-Type: ReDIF-Article 1.0 Title: Financial and economic development in the context of the global 2008-09 financial crisis Author-Name: António Afonso Author-Name: M. Carmen Blanco-Arana Keywords: Financial development;Economic growth;Panel data;Random effects model;GMM;OECD;EU countries Classification-JEL:C23;E51;F34;G01;O47 Abstract: We revisit the relationship between economic growth and financial development in OECD/EU countries in the period 1990–2016, encompassing the 2008-09 Global Financial Crisis. We consider several variables of financial development to evaluate their influence on economic growth when they collectively interact in advanced economies. Thus, using a random effects model and the generalized method of moments (GMM), we find that an increase in domestic credit and market capitalisation, as well as the market turnover ratio of domestic shares, lead to a significant positive effect on GDP per capita. Furthermore, we find linear and non-linear impacts of financial development on economic growth. Other determinants are also highly significant for economic growth, such as expenditure on education, inflation, and unemployment rates. Journal: International Economics Pages:30-42 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000834 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-3 Template-Type: ReDIF-Article 1.0 Title: Measuring the economic efficiency performance in Latin American and Caribbean countries: An empirical evidence from stochastic production frontier and data envelopment analysis Author-Name: Matheus Koengkan Author-Name: José Alberto Fuinhas Author-Name: Emad Kazemzadeh Author-Name: Fariba Osmani Author-Name: Nooshin Karimi Alavijeh Keywords: Stochastic frontier analysis;Economic performance;Latin American and Caribbean countries Classification-JEL:C50;E60;E00 Abstract: The development of the global economy has raised concerns about economic efficiency and productivity. In this context, understanding the concepts of economic efficiency and productivity and the knowledge of the techniques available for their measurement are also of fundamental importance. Thus, the objective of the present study is to measure the economic efficiency performance of 14 countries from the Latin America and the Caribbean (LAC) region in the period from 1990 to 2017. Analysing the economic performance of these countries with linear Cobb-Douglas production function, two methods were used: the parametric stochastic frontier analysis (SFA) and non-parametric data envelopment analysis (DEA). Both approaches (SFA and DEA) show that Panama is the most economically efficient country in the LAC region, followed by Chile. Concerning other countries, the choice between the SFA and DEA models affects the ratings. Results indicate that Brazil (SFA) and Nicaragua (DAE) are the least economically efficient LAC countries. Journal: International Economics Pages:43-54 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000810 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-4 Template-Type: ReDIF-Article 1.0 Title: The determinants and cyclicality of fiscal policy: Empirical evidence from East Africa Author-Name: Joseph Mawejje Author-Name: Nicholas M. Odhiambo Keywords: Fiscal policy;Tax revenue;Government expenditure;Cyclicality;East Africa Classification-JEL:E62;E63;H61;H62 Abstract: As part of the regional integration process, East African Community (EAC) member countries agreed upon macroeconomic convergence criteria that include, among others, harmonizing and restricting the level of fiscal deficits. However, achieving these targets has been faced with heightened vulnerabilities, including those related to the global financial crisis, the COVID-19 pandemic, and domestic policy slippages. Consequently, high fiscal deficits are fast leading to accumulation of debt. This paper investigates the macroeconomic determinants and cyclicality of fiscal policy in a panel of five EAC countries for the period 1980–2020. Using a combination of linear and nonlinear panel ARDL methods, long-run results show that the fiscal deficit is positively associated with current account balance, real per capita GDP, and interest rate; and negatively associated with the GDP deflator, grants, and debt service. Disaggregating fiscal balances into their revenue and expenditure components shows that government spending is procyclical, while tax effort is countercyclical. Specifically, both government expenditures and tax-to-GDP ratios are positively associated with real per capita GDP regardless of whether this relationship is observed during growth accelerations or decelerations. The size and statistical significance of short-run asymmetric effects of real per capita GDP on fiscal policy vary between countries. Journal: International Economics Pages:50-70 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000846 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-5 Template-Type: ReDIF-Article 1.0 Title: Does foreign aid impede economic complexity in developing countries? Author-Name: Brice Kamguia Author-Name: Sosson Tadadjeu Author-Name: Clovis Miamo Author-Name: Henri Njangang Keywords: Foreign aid;Economic complexity;Panel data;Developing countries Classification-JEL:O23;F21;C23 Abstract: Foreign aid is one of the most important policy tools that developed countries use to help poor countries improve population well-being and facilitate economic and institutional development. However, the effectiveness of aid as an instrument of development has been questioned several times, especially for its deleterious effects on governance. This study examines the effect of foreign aid on economic complexity in 78 developing countries over the period 1990–2017. We combine different identification strategies and the following results are established. First, we find evidence that foreign aid reduces economic complexity. Second, we show that the effect of foreign aid on economic complexity is heterogeneous to the level of economic complexity and to the nature of aid received. More specifically, we show that while foreign aid reduces economic complexity in countries with lower levels of economic complexity, the effect is positive in countries with higher levels of economic complexity. Additionally, we show that while foreign aid in the energy and education sectors increases economic complexity, the effect is negative for agricultural and humanitarian aid. Three, we further find a U-shaped relationship between foreign aid and economic complexity. Finally, the empirical results of this paper show that democracy mitigates the negative effect of foreign aid on economic complexity. Thus, in order to benefit from the effects of foreign aid for better economic complexity, the governments of developing countries would benefit from putting more effort into improving democracy. Journal: International Economics Pages:71-88 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000718 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-6 Template-Type: ReDIF-Article 1.0 Title: The impact of economic policy uncertainty on banks' non-interest income activities Author-Name: Whelsy Boungou Author-Name: Charles Mawusi Keywords: Economic policy uncertainty;Bank diversification;Negative interest rate environment Classification-JEL:G21;G28;D81;E65 Abstract: This paper investigates how banks adjust their business model amid rising global economic uncertainty. Specifically, we analyze the effect of economic policy uncertainty (EPU) on banks' non-interest income activities, using a large panel dataset of 3913 banks operating in 9 countries over the period 2009–2018. We find no statistically significant effect of EPU on banks’ net non-interest income (NNII). Further analysis shows that the lack of impact on NNII is due to a reduction in gross non-interest income which was offset by a decrease in gross non-interest expenses. Our results also suggest that the likelihood of banks to diversify income amid high EPU is conditional on the negative interest rate environment. Journal: International Economics Pages:89-97 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172100086X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-7 Template-Type: ReDIF-Article 1.0 Title: Does domestic investment respond to inflation targeting? A synthetic control investigation Author-Name: Nadine McCloud Keywords: Domestic investment;Inflation targeting;Treatment effect;Synthetic control method;Rational inattention Classification-JEL:C21;E22;F31;E52;O57 Abstract: Some countries have adopted an Inflation Targeting (IT) regime to reduce inflation and inflation uncertainty: two factors the literature suggests firms put positive weight on when making outlay decisions that may affect aggregate domestic investment. This observation naturally leads to the question of whether domestic investment responds to IT. We apply the synthetic control method to developed and developing IT and non-IT countries to estimate the IT regime's causal effect on the domestic investment over time while addressing country heterogeneity. Adopting an IT regime had no short or long-run effect, at conventional levels of significance, on domestic investment in 21 out of 29 treated countries; this dominant pattern appears consistent with recent works on rational inattentive behaviour of firms. However, IT induced mainly long-run heterogeneous changes in domestic investment prices in 9 targeters, suggesting that supply constraints external to firms can also weaken the link between IT and domestic investment. Journal: International Economics Pages:98-134 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000858 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-8 Template-Type: ReDIF-Article 1.0 Title: Mapping the emergence and diffusion of climate-related financial policies: Evidence from a cluster analysis on G20 countries Author-Name: Paola D'Orazio Keywords: Climate policy;Climate-related financial policy;Climate risks;Green finance Policy adoption;Cluster analysis Classification-JEL:C38;E44;E50;E58;Q58 Abstract: Although the awareness about the climate-related financial risks and the need to scale up green finance is widespread globally, engagement in “active” climate-related financial policymaking varies across countries. Despite the progress in understanding the types of policies available at the country level, our knowledge of which factors influence the decision to adopt climate-related financial policies remains limited. This paper proposes an empirical analysis of the climate-related financial policy experiences of G20 countries as they are responsible for roughly 80 percent of global energy use and CO2 emissions. The cluster analysis considering the period from 2000 to 2018 shows some interesting results. First, the economy's carbon intensity and exposure to climate change matter, but the policy response to these factors is heterogeneous across clusters. Second, climate strategies and fiscal instruments are relevant only for first-wave adopters in high-income countries. Third, political characteristics, particularly the presence of an autocratic regime, are relevant for the Chinese case, calling to mind the “authoritarian environmentalism”. Fourth, the bandwagon, or geographical learning effect, plays a relevant role in all clusters. Journal: International Economics Pages:135-147 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000822 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-9 Template-Type: ReDIF-Article 1.0 Title: Has the Global Financial Crisis increased wealth inequality? Author-Name: Maria Shchepeleva Author-Name: Mikhail Stolbov Author-Name: Laurent Weill Keywords: Banking;Banking crisis;Wealth inequality;Global financial crisis Classification-JEL:G21;O16 Abstract: This paper examines the impact of the Global Financial Crisis (GFC) on wealth inequality. We investigate this question, using data for 143 countries for the period 2010–2018. We find no significant impact of the occurrence of the crisis on wealth inequality. We show limited evidence that the severity of the banking crisis affects the change in wealth inequality. Furthermore, the impact of the GFC on the change in wealth inequality is influenced by the country characteristics: the GFC has more enhanced wealth inequality in countries with higher levels of economic and financial development as well as lower initial levels of wealth inequality. We therefore contribute to a better understanding of the real effects of banking crises by providing evidence of the distributional effects of the GFC. Journal: International Economics Pages:148-160 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000871 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-10 Template-Type: ReDIF-Article 1.0 Title: Trade shocks and labour market resilience in Sub-Saharan Africa: Does the franc zone response differently? Author-Name: Tii N. Nchofoung Keywords: Commodity terms of trade;Resilience Franc zone;PVAR;PSTR Classification-JEL:F16;F14;C23 Abstract: This paper aims to evaluate the impact of commodity terms of trade (CTOT) shocks on the labour market resilience of Sub-Saharan Africa (SSA) countries, comparing the franc zone countries on the one hand, from the non-franc zone countries on the other hand. The results from the PVAR estimation indicate a positive impact of commodity terms of trade shocks on labour market resilience in SSA countries. This finding holds in both the franc zone and the non-franc zone countries. When robustness is checked through the PSTR, this positive relationship is established to be non-linear. The policy implications of the study invite the policy makers to diversify their economies to limit their heavy reliance on commodities. Journal: International Economics Pages:161-174 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000014 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-11 Template-Type: ReDIF-Article 1.0 Title: Mexico needs a fiscal twist: Response to Covid-19 and beyond Author-Name: Swarnali Ahmed Hannan Author-Name: Keiko Honjo Author-Name: Mehdi Raiss Keywords: Covid-19;Fiscal response;Tax;Social safety nets;General equilibrium model Classification-JEL:H2;H5;H6;E2;E6 Abstract: Mexico's fiscal response to the pandemic has been modest compared to its peers, reflecting the authorities' desire to not issue new debt for spending. This approach, however, resulted in a more severe recession in 2020 and a weaker economic recovery, notwithstanding spillovers from the United States. Balancing the need for stronger near-term fiscal support for the people and the recovery against medium-term discipline, this paper lays out an alternative strategy. We show that credibly announcing a pro-growth and inclusive medium-term fiscal reform upfront—including increased tax capacity, higher public investment and strengthened social safety nets—would open space for larger short-term support and close medium-term fiscal gaps. Model simulations suggest that this package would boost output, limit lasting economic damage from the pandemic, and put debt trajectory on a declining path in the medium term as tax reforms pay off and risk premia decline. O54 Journal: International Economics Pages:175-190 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172200004X File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-12 Template-Type: ReDIF-Article 1.0 Title: Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU Author-Name: Angella Faith Montfaucon Keywords: Euro area;Invoicing currency;Tariff pass-through;Exchange rates;Vehicle pricing Classification-JEL:F31;F40;F41;E31;F45 Abstract: The response of import prices to exchange rates can be used to predict the effect of changes in trade policy, as the symmetric hypothesis asserts that the effect of tariffs and exchange rates on prices are identical. This paper examines whether the hypothesis holds in the context of various invoicing currencies, using transaction-level data of Malawian imports from the European Union (EU). The findings show that the U.S. dollar has the highest invoicing share, and the pass-through of exchange rate and tariff shocks on importers is high, but not necessarily equal, when the currency of invoicing is considered. Crucially, the tariff pass-through to prices is higher than the exchange rate pass-through, with important differences across countries, currencies and sectors. Thus, in order to predict the effects of trade policy, bilateral exchange rates may not be suitable for capturing exchange rate pass-through for small developing countries, especially import-dependent ones such as Malawi. Journal: International Economics Pages:191-207 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000883 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-13 Template-Type: ReDIF-Article 1.0 Title: Economic sentiments and international risk sharing Author-Name: Daragh Clancy Author-Name: Lorenzo Ricci Keywords: Confidence;Loss aversion;Risk sharing;Uncertainty Classification-JEL:E21;E71;F41;F44 Abstract: We examine an unexplored connection between economic sentiments and the degree of international risk sharing. As sentiments provide a sense of the expected direction of future income changes, if risk sharing is imperfect, countries experiencing weak sentiments should take actions to enable the smoothing of their consumption in the event this fall in income materialises. However, we find the opposite holds: weak sentiments are associated with reduced risk sharing. This finding is robust to the inclusion of alternative determinants of international risk sharing, the state of the business cycle as well as undiversifiable and persistent output fluctuations. We provide evidence that our results are consistent with loss aversion. Our findings have important implications for private initiatives and public institutions that aim to improve international risk sharing, which are usually designed on the basis of risk-averse or risk-neutral behaviour. Journal: International Economics Pages:208-229 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000051 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-14 Template-Type: ReDIF-Article 1.0 Title: Foreign investors and target firms’ financial structure Author-Name: Lorenzo Bencivelli Author-Name: Beniamino Pisicoli Keywords: FDIs;Firms' financial structure;Non-bank financing;Investment Classification-JEL:F15;F21;F23;F61 Abstract: We study how FDIs affect the financial structure of targeted firms, by looking at a sample of foreign acquisitions occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector. Journal: International Economics Pages:230-251 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000063 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-15 Template-Type: ReDIF-Article 1.0 Title: Does something change in the oil market with the COVID-19 crisis? Author-Name: Dan Zhang Author-Name: Arash Farnoosh Author-Name: Frédéric Lantz Keywords: Oil market;Price discovery;Structural break Classification-JEL:C32;C53;Q41 Abstract: This paper examines the price discovery of three international crude oil futures markets (WTI, Brent, INE) before and after the outbreak of the COVID-19 with the application of the information share and component share model. Our study shows that there is a structural break of the date of March 6, 2020, in each price series with Zivot and Andrew's unit root tests. Using Gregory and Hansen cointegration tests, cointegration relationships with the structural break in May 2020 are detected. According to results of Information Share (IS) and Component Share (CS) measures Brent futures price mainly plays a leading role in WTI and INE futures prices and occupies an absolutely dominant position all the time in the three crude oil futures markets systems. In the post-covid period, the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets. After the outbreak of COVID-19, the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI. These findings offer practical implications for regulators and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic. Journal: International Economics Pages:252-268 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000087 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-16 Template-Type: ReDIF-Article 1.0 Title: The impact of global value chain participation on income inequality Author-Name: Nur Carpa Author-Name: Inmaculada Martínez-Zarzoso Keywords: Global Value Chain;Offshoring;Inequality;Gini;Correlated random effects;Eora Classification-JEL:C33;D63;F12;F14 Abstract: There is a considerable amount of discussion over the effect of global value chain (GVC) participation on the increasing levels of income inequality in developed and developing countries. This paper aims to contribute to a better understanding of the interlink between income inequality and GVC participation. For this purpose, a panel data analysis is conducted with recent GVC data from the UNCTAD-Eora database. The results from panel data estimations for a sample of 39 countries over the period 1995–2016 suggest that offshoring has a significant inequality reducing effect for developing economies in the long run. Although the estimation results also indicate that some negative distributional effects of GVC related trade emerge in the short run, these seem to be mainly short run reactions of the economy, which might be offset in the long run through the adjustment of the labor market towards a new long run equilibrium. Journal: International Economics Pages:269-290 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000105 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-17 Template-Type: ReDIF-Article 1.0 Title: A highway across the Atlantic? Trade and welfare effects of the EU-Mercosur agreement Author-Name: Jacopo Timini Author-Name: Francesca Viani Keywords: EU;Mercosur;Trade agreement;Structural gravity;General equilibrium Classification-JEL:F13;F14;F15;F17 Abstract: In this paper we analyze the EU-Mercosur agreement and predict its effects on trade and welfare using a general equilibrium structural gravity model. First, we exploit the detailed provision-level information available for the EU-Mercosur agreement to identify partial equilibrium trade effects of existing treaties with similar set of provisions. In a second step, the estimated increase in trade is mapped into reductions in bilateral trade costs and imputed to EU-Mercosur country pairs to compute the general equilibrium effects of the agreement in terms of trade creation, trade diversion, and welfare effects. Our results indicate that the positive effects on trade and welfare stemming from the EU-Mercosur agreement are likely to be economically important, especially for Mercosur countries, and substantially heterogeneous both between and within the two blocs. Journal: International Economics Pages:291-308 Issue: 169 Year: 2022 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701722000117 File-Format: text/html Handle: RePEc:cii:cepiie:2022-Q2-169-18 Template-Type: ReDIF-Article 1.0 Title: Short and long run environmental tax buoyancy in EU-28: a panel study Author-Name: Gianluigi De Pascale Author-Name: Mariantonietta Fiore Author-Name: Francesco Contò Keywords: Environmental tax system;EU countries;Tax buoyancy;Error correction model Classification-JEL:E32;E60;H23;Q58 Abstract: Since the beginning of the global 2020 economic crisis, the need to turn to sustainable economies has been arising in order to cope with the risks that derive from climate change which might undermine global financial stability. Therefore, there is a renewed interest in analysing the relation between the growth cycle and green taxes. This article attempts to evaluate the responsiveness of the European environmental taxation system to the economic cycle. Using yearly data collected in 28 European countries from 2000 to 2018, we run the dynamic common correlated effects estimator to compute the short- and long-run environmental tax buoyancy. Findings provide evidence of short-run rigidity for the energy tax revenues, whilst being buoyant in the long run for the total tax revenues, drawn mainly by taxation on transport. This suggests that the environmental tax system works as a good stabiliser for the economy. Journal: International Economics Pages:1-9 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000512 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-1 Template-Type: ReDIF-Article 1.0 Title: Nowcasting Russian GDP using forecast combination approach Author-Name: Michael Zhemkov Keywords: Nowcast;Forecast combination;GDP;DFM;Bank of Russia Classification-JEL:E27;E52;E58 Abstract: This paper presents a forecast combination approach for short-term assessment of economic growth in Russia. Our method significantly expands the existing domestic academic literature and embraces most advanced nowcasting techniques. The key feature of our approach is forecasting the growth rates of components GDP by expenditure using scenario indicators and a huge set of high-frequency predictors. The total number of combined models is nearly 500. Comparing our approach with popular benchmark models over the period from January 2003 to December 2020, we conclude that our method has the highest accuracy of short-term GDP forecasting. The findings of this research may be useful for the development of monetary and communication policy in Russia. Journal: International Economics Pages:10-24 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000524 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-2 Template-Type: ReDIF-Article 1.0 Title: How to simulate international economic sanctions: A multipurpose index modelling illustrated with EU sanctions against Russia Author-Name: Morad Bali Author-Name: Nady Rapelanoro Keywords: Ukrainian crisis;Economic sanctions;Sanction index;Structural vector autoregressive models;Russia;European Union Classification-JEL:F;C1;C51 Abstract: One of the main challenges economists must face while studying economic sanctions is to simulate them in their models faithfully. It seems extremely hard to achieve without a dedicated variable that precisely imitates coercive economic measures. Thence, this short paper aims to offer a framework for the construction of economic sanction indexes. Researchers can use our multipurpose index modelling to simulate economic punishment in their econometric models. If our work is framed within the Ukrainian crisis case and European economic sanctions against Russia, the method we provide can be used in any other case study. It is a great alternative to the standard use of dummy variables that witness sanctions' implementation and withdrawal. Additionally, our proposal allows calibrating the weight attributed to each sanction depending on its type, the sanction sender's ability to apply economic pressure, and the effect of time on sanctions' effectiveness. The first part of this paper details the methodology and the mathematical formalisation of our framework. It is used to build a sanction index that simulates sanctions against Russia during the Ukrainian crisis. The second part is an empirical study that compares our index to another one from the literature. Results reveal that our new sanction index witnesses the behaviour of sanctions more precisely, which leads to a stronger explanatory power. Moreover, it enhances the statistical significance of impulse-response functions generated by our SVAR models. Consequently, the framework for sanction index construction that is proposed in this paper successfully produced a reliable index that simulates the European Union's sanction against Russia in the Ukrainian crisis case. Journal: International Economics Pages:25-39 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172100041X File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-3 Template-Type: ReDIF-Article 1.0 Title: New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach Author-Name: Yacouba Kassouri Author-Name: Halil Altintas Author-Name: Erdal Alancioglu Author-Name: Kacou Yves Thierry Kacou Keywords: Debt;Economic growth;Time-varying heterogeneity;Dynamic panel data analysis;Emerging and developing countries Classification-JEL:C23;F34;F43;H68 Abstract: This study revisits the nexus between debt and growth in the following distinct ways. First, the interactive fixed effects and dynamic panel threshold methods are employed to estimate the threshold effect of public debt on economic growth. Secondly, we account for cross-section dependence, time-varying unobserved heterogeneity, and feedback effects. Thirdly, we provide a more complete picture of the debt-growth nexus at different income levels by decomposing our sample into upper-middle-income and low-income subsamples. The empirical application based on a sample of 62 emerging and developing countries from 2000 to 2018 suggests that inverted U-shaped nexus exists between debt and growth in emerging and developing countries. However, the dynamic panel threshold results indicate that public debt harms growth when the indebtedness level exceeds the estimated threshold of 50.19% and 25.09% of GDP for the upper-middle-income and low-income subsamples, respectively. Furthermore, the negative effect of debt seems to be stronger in low than in upper-middle-income countries. By comparison, evidence of a positive effect of public debt on economic growth is weak and insignificant in low-income countries. Journal: International Economics Pages:40-55 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000615 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-4 Template-Type: ReDIF-Article 1.0 Title: Economic sentiment indicators and foreign direct investment: Empirical evidence from European Union countries Author-Name: Andrzej Cieslik Author-Name: Mahdi Ghodsi Keywords: Economic sentiment;Factor endowments;Foreign direct investment;Multinational enterprise;Market size;EU Member states Classification-JEL:F21;F23 Abstract: This paper studies the role of business sentiment in the decisions of multinational enterprises (MNEs) to undertake foreign direct investment (FDI) across European Union (EU) member states. Based on the knowledge-capital model, the study employs the Pseudo Poisson Maximum Likelihood (PPML) estimator and panel data to examine empirically the determinants of FDI across EU member states during the period 2003–2017. The empirical evidence suggests that better economic sentiment in an EU Member State induces MNEs to undertake FDI in that country, while worse economic sentiment in an EU member state motivates an MNE in that country to invest abroad. Journal: International Economics Pages:56-75 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000469 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-5 Template-Type: ReDIF-Article 1.0 Title: Dependence structure between oil price volatility and sovereign credit risk of oil exporters: Evidence using a copula approach Author-Name: Yao Axel Ehouman Keywords: Copula;Dependence;Oil price;Sovereign credit risk;Uncertainty Classification-JEL:C1;F3;G1;Q4 Abstract: This paper re-examines the dependence structure between uncertainty in oil prices and sovereign credit risk of oil exporters. To address this issue, we employ a copula approach that allows us to capture asymmetric and nonlinear dependence structures. Empirical analyses involve daily data of the 5-year sovereign credit default swaps spreads and the crude oil implied volatility from January 2010 to May 2019, covering a sample of ten oil-exporting countries. Except for Brazil and Venezuela, our results provide evidence of significant positive and upper tail dependence in the relationship between oil market uncertainty and oil exporters' sovereign risk. Overall, our findings highlight that high uncertainty in oil prices coincides with large-scale increases in the sovereign credit risk of oil-exporting countries, supporting the hypothesis that investors, exposed to economic losses from risk events in oil exporters, are all the more pessimistic that prevails high uncertainty about future oil prices. Our findings have implications for oil exporter’ policymakers as well as investors. Journal: International Economics Pages:76-97 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000639 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-6 Template-Type: ReDIF-Article 1.0 Title: Service characteristics and the choice between exports and FDI: Evidence from Belgian firms Author-Name: Leo Sleuwaegen Author-Name: Peter M. Smith Keywords: Services;International trade;Exports;Foreign direct investment;Service characteristics Classification-JEL:F14;F15;F23;L15;L80 Abstract: The decision to serve foreign markets through exports or foreign direct investment (FDI) has been studied within proximity-concentration models of location, mainly in the context of trade in goods. This paper goes beyond this approach to account for the specific nature of services that are traded across borders in relation to market transaction costs. We show how services can be characterized by a bundle of attributes that collectively describe the service. These attributes are then tested to show how they affect the choice between exports and FDI using service-level data for firms in Belgium selling services abroad. Three different types of characteristic are shown to affect the export versus FDI decision: intangibility, the search-experience-credence framework and the requirement for either the supplier or the client to physically move to the point of production. Among other determinants, we find general and hard to evaluate complex services to be exported more than locally produced in foreign markets. The opposite holds for specialized (customized) and ‘experience’ services, or services that need close interaction with the buyer in their delivery. Journal: International Economics Pages:115-131 Issue: 168 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000627 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q4-168-7 Template-Type: ReDIF-Article 1.0 Title: U.S. historical initial jobless claims. Is it different with the coronavirus crisis? A fractional integration analysis Author-Name: Manuel Monge Keywords: Unemployment;Unit roots;ARFIMA (p,d,q) models Classification-JEL:C22;E24;J20 Abstract: This paper investigates the historical behavior of initial unemployment claims (ICSA) in the United States (U.S.) during all the recession periods and epidemic diseases such as Severe Acute Respiratory Syndrome (SARS), Middle East Respiratory Syndrome (MERS) and COVID-19 since 1967 by applying statistical methods based on long range dependence and fractional differentiation. Using unit root tests (ADF, PP and KPSS) we discover that the original time series is stationary I(0) and the subsamples are non-stationary I(1). Finally, to analyze the original time series as well as the several periods corresponding to the recessions that occurred in U.S. and the three epidemic diseases, we use AIC and BIC criterion to fit the best ARFIMA model. We conclude that the results display long memory with a degree of integration strictly below 1 (d ?< ?1) for the COVID-19 episode and for the rest of the subsamples, except for the original time series and the 2nd subsample. Thus we can conclude that the impacts will be transient and with long lasting effects of shocks and expecting to disappear on their own in long term. Finally, we use a methodology proposed by Bai and Perron to estimate structural breaks not being necessary to know the time of the breaks in advance. The results are similar to those obtained previously. Journal: International Economics Pages:88-95 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000184 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-1 Template-Type: ReDIF-Article 1.0 Title: What moves housing markets: A state-space approach of the price-income ratio Author-Name: Majid Haghani Rizi Keywords: Housing returns;Income growth;Present-value model;State-space model Classification-JEL:C32;E31;G10;G12;R31 Abstract: In this paper, we adopt the present-value model for the housing market to explain the relationship between expected future housing returns and expected future income growth in 21 OECD countries by using quarterly data over the period 1975–2019. By conducting the state-space approach, we use historical information of price-income ratios to predict unobserved components of the future income growth and housing returns. The evidence suggests that both expected income growth and expected housing returns are significant in explaining movements in the price-income ratio, while there is a heterogeneity among all countries. Further, we find a positive correlation between expected income growth and expected housing returns among all countries. The results of the variance decomposition of the present-value of price-income ratios also show that the most variation in the present-value components is explained in the housing return. Journal: International Economics Pages:96-107 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000408 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-2 Template-Type: ReDIF-Article 1.0 Title: Robots are not always bad for employment and wages Author-Name: Tiago Neves Sequeira Author-Name: Susana Garrido Author-Name: Marcelo Santos Keywords: Robots;Employment;Fourth industrial revolution;Nonlinear effects of robots Classification-JEL:J23;J24;O33 Abstract: We reassess the impact that robotization has on wages and employment, using a database on US commuting zones from 1990 to 2007. Using an argument based on the transitional dynamics we show that the negative displacement effects of robotization can be surpassed by productivity and reallocation effects, leading to positive effects on employment after a certain level of penetration in industry. In fact, we confirm this effect through regressions that are subject to different robustness checks. Previous evidence according to which robotization always decreases employment and wages are thus not confirmed. Journal: International Economics Pages:108-119 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172100038X File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-3 Template-Type: ReDIF-Article 1.0 Title: Uncovering the implicit short-term inflation target of the Bank of England Author-Name: Sheng Zhu Author-Name: Ella Kavanagh Author-Name: Niall O'Sullivan Keywords: Inflation target;New Keynesian Classification-JEL:C12;E31;E52 Abstract: We re-investigate the traditional thinking of a fixed inflation target within an inflation-targeting central bank, the Bank of England (BOE). Drawing on extensive readings of the BOE's publications, we investigate whether, in addition to setting the officially announced inflation target based on its medium to long-term considerations, the BOE has short-term inflation targets that periodically differ from its medium-term objective. By estimating a New Keynesian model, we uncover that the Monetary Policy Committee of the BOE set short-term targets while gradually bringing inflation to the announced medium-term inflation objective. We also find that the Bank of England's short-term inflation target helps to explain the inflation path in the UK and the periodic and sustained movements in inflation away from its official target. This implicit short-term inflation target was time-varying in response to exogenous shocks, cost-push shocks and technology shocks. Journal: International Economics Pages:120-135 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000433 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-4 Template-Type: ReDIF-Article 1.0 Title: Economic policy uncertainty and the volatility connectedness between oil shocks and metal market: An extension Author-Name: Johnson A. Oliyide Author-Name: Oluwasegun B. Adekoya Author-Name: Muhammad A. Khan Keywords: Oil price shocks;Metals;Volatility spillovers;Economic policy uncertainty Classification-JEL: Abstract: While the literature is obviously flooded with studies on the nexus between oil and metal market, the volatility connectedness dynamics that measures the forward and backward spillover linkage between different classes of oil price shocks and the metal market remains understudied. Thus, little is known about the feedback risk transmissions between individual components of oil shocks and globally traded metals. Extending the recent work of Mokni et al. (2020) which partly addresses this concern, we find strong connectedness between the four different types of oil shocks considered and five precious and industrial metals. Besides, all the oil shocks serve as net pairwise receivers of volatility spillovers, showcasing the increased financialization of oil, but its inability to hedge investors in all the metals. In entirety, gold is a net shock receiver in the system, indicating its inappropriateness to provide diversification benefits for other assets. Another important discovery is that the strong connectedness is found to be driven by economic policy uncertainty both for causality-in-conditional mean and causality-in-conditional variance. Appropriate policy suggestions are drawn accordingly. Journal: International Economics Pages:136-150 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000445 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-5 Template-Type: ReDIF-Article 1.0 Title: Dynamic effects of trade barriers with speculation on foreign currency: The case of Iran Author-Name: Mohammad Hossein Rahmati Author-Name: Mehran Ebrahimian Author-Name: Seyed Ali Madanizadeh Keywords: Trade barriers;Welfare gains;Cash-in advance;Oil shock;Foreign exchange speculative attack;Stagflation Classification-JEL:E13;E3;E5;F1;F4 Abstract: This paper presents a small open economy, dynamic general equilibrium model with cash-in advance constraint and a currency attack to explain the dynamic effects of changes in trade barriers in the short and long run. The model is calibrated using data on macroeconomic variables in Iran's economy from 1990 to 2013 to identify and analyze the effects of barriers imposed on trade. We analyze the effects of counterfactual fiscal, monetary and exchange rate policies in response to trade barriers and show how the economy would respond in different time horizons. We also evaluate the effects of eliminating each of the factors causing this stagflation. Our findings show that the short-term drop in non-oil production is mostly due to the decline in total productivity and not trade barriers. On the other hand, barriers imposed on the trade of oil and non-oil goods had a considerable impact on the decline in non-oil production in the medium and long run, as well as the fall in total income. Finally, we show that the news of trade barrier imposition has a considerable impact on the impulse to speculate, giving rise to a likely currency crisis and devaluation that have a substantial effect on inflation and real output. Journal: International Economics Pages:151-173 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000421 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-6 Template-Type: ReDIF-Article 1.0 Title: Twin trade shocks: Spillovers from US-China trade tensions Author-Name: Alexei Kireyev Author-Name: Andrei Leonidov Keywords: Shocks;Spillover;Trade;Network;China;China Classification-JEL:C45;F14;F41;F42;F47 Abstract: The paper assesses international spillovers from a twin demand shock, originating sequentially in two large economies. Using a network-based spillover model, the paper concludes that while the initial shock may be modest, the network effects in shock spillovers can be substantial, comparable, and often exceed the initial shock. Individual countries may amplify, absorb, or block spillovers. To illustrate the model, the paper quantifies the macroeconomic impact of a hypothetical reduction of bilateral trade between the United States and China as a result of mutual trade restriction. Journal: International Economics Pages:174-188 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000470 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-7 Template-Type: ReDIF-Article 1.0 Title: Measuring size distortions of location quotients Author-Name: Matias Nehuen Iglesias Keywords: Location quotients;Patents;International trade;Business counts;Balassa index;Size effects Classification-JEL:C6;C65;F14 Abstract: Location quotients (LQ) are a transformation of raw data stored in contingency tables. This transformation has been used frequently in studies involving international trade (under the name ‘revealed comparative advantage’) and in multiple other settings where a total can be disaggregated under at least two independent criteria and thus arranged in a cross sectional table: eg. employment by industry and city, etc. The spread of LQ values is influenced by row, column and table totals, which prevents us from comparing LQ levels safely across entities, over time or between datasets. This issue dramatically undermines the usefulness of the location quotient transformation. In this paper I offer viable paths for characterizing these so-called size distortions in location quotients. Journal: International Economics Pages:189-205 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000263 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-8 Template-Type: ReDIF-Article 1.0 Title: External and internal exchange rates and the Dutch disease: Evidence from a panel of oil-exporting African countries Author-Name: Edouard Mien Keywords: Dutch disease;Oil revenues;Pooled-Mean-Group estimator;Equilibrium real exchange rate;Africa Classification-JEL:F31;O13;Q32 Abstract: Despite an increasing number of empirical studies on the Dutch disease in developing countries and the evidence that oil revenues tend to appreciate the real exchange rate, there are very few existing discussions about the definition of real exchange rates. This article intends to fill this gap by using different proxies of the real exchange rate and differentiating the internal and external real exchange rates for the agricultural and manufacturing sectors. Using Pooled-Mean-Group and Mean-Group estimates on a panel of nine African net oil-exporting countries, results show a clear appreciation of the exchange rates generated by an increase in oil revenues or international oil prices, except for the internal real exchange rate for manufacturing goods. This could imply that, in these African countries, oil revenues affect the competitiveness of agricultural sectors more clearly than the manufacturing ones. This article also tests potential cross-section dependence by implementing a Cross-sectionally augmented version of the Pooled-Mean-Group, which overall supports the previous results. Journal: International Economics Pages:206-228 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000500 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-9 Template-Type: ReDIF-Article 1.0 Title: Effects of governance quality on exports in Sub-Saharan Africa Author-Name: Mamadou Bah Author-Name: Henri Atangana Ondoa Author-Name: Koffi Délali Kpognon Keywords: Exports;Governance quality;Sub-Saharan Africa;GMM Classification-JEL:F10;O43;C23 Abstract: This paper investigates the effects of governance quality on exports in sub-Saharan African countries. We include the six worldwide governance indicators (i.e., voice and accountability, political stability, regulatory quality, rule of law, control of corruption, and government effectiveness) as explanatory factors for exports and its components in a sample of 45 countries over the period 1996–2019. System GMM approach is privileged for estimations. We find that total exports and exports of services are positively affected by the six governance indicators, while manufactured goods are positively associated with those indicators except government effectiveness. While political stability, voice and accountability, rule of law, and control of corruption have positive effects on exports of goods, only voice and accountability impact positively primary commodities. This indicates that sub-Saharan African countries should focus on strengthening political governance and improving business environment to boost exports. Journal: International Economics Pages:1-14 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172100024X File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-10 Template-Type: ReDIF-Article 1.0 Title: Financial inclusion, income inequality, and institutions in sub-Saharan Africa: Identifying cross-country inequality regimes Author-Name: Relwendé Sawadogo Author-Name: Gervasio Semedo Keywords: Sub-Saharan Africa;Financial inclusion;Inequality;Institutions;Finite mixture model Classification-JEL:G21;O15;O55 Abstract: This paper applies a finite mixture model to a sample of 28 sub-Saharan African countries to analyse the impact of financial inclusion on income inequality between 2004 and 2016. We hypothesise that the effect of financial inclusion on income inequality differs across groups of countries with similar but unobserved characteristics. We find that the impact of financial inclusion on income inequality varies across two distinct classes of countries. Furthermore, we prove that countries with high institutional quality are more likely to be in the class where financial inclusion reduces income inequality. The results pass a battery of robustness checks. These findings highlight the need for sub-Saharan African countries to develop better democratic environments and institutions if they expect to reap the benefits of financial inclusion. Journal: International Economics Pages:15-28 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000238 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-11 Template-Type: ReDIF-Article 1.0 Title: Inflation-targeting and inflation volatility: International evidence from the cosine-squared cepstrum Author-Name: Nikolaos Antonakakis Author-Name: Christina Christou Author-Name: Luis A. Gil-Alana Author-Name: Rangan Gupta Keywords: Cosine-squared cepstrum;Inflation-targeting;Inflation volatility Classification-JEL:C22;C65;E42;E45;E64 Abstract: Existing empirical evidence on the effect of inflation-targeting on inflation volatility is, at best, mixed. However, comparing inflation volatility across alternative monetary policy regimes, i.e., pre- and post-inflation-targeting, begs the question. The question is not whether the volatility of inflation has changed, but instead whether the volatility is different than it otherwise would have been. Given this, our paper uses the cosine-squared cepstrum to provide overwhelming international evidence that inflation targeting has indeed reduced inflation volatility in 22 out of the 24 countries considered in our sample of established inflation-targeters, than it would have been the case if the central banks in these countries did not decide to set a target for inflation. Journal: International Economics Pages:29-38 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000251 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-12 Template-Type: ReDIF-Article 1.0 Title: Oil price volatility in the context of Covid-19 Author-Name: David Bourghelle Author-Name: Fredj Jawadi Author-Name: Philippe Rozin Keywords: Coronavirus;Oil price volatility;Uncertainty;VAR modelling;Impulse-response functions Classification-JEL:C32;C50;Q41;Q43 Abstract: The recent coronavirus pandemic (COVID-19) has negatively impacted the whole economy, especially the oil industry, in at least two ways. First, it created a demand shock as COVID-19 reduced global demand for crude oil, increased uncertainty, and triggered a serious economic recession in most developed and emerging countries. Second, it led to a supply shock as the pandemic resulted in an oil trade war between the major oil-producing nations (Saudi Arabia and Russia). Both shocks led to very high levels of oil price volatility. Our paper explores the dynamics of this volatility and explains the effects of these two shocks (induced by an adjustment of oil demand and supply) on West Texas Intermediate (WTI) crude oil price volatility. Accordingly, we show that oil price volatility reacted substantially to the pandemic-induced oil shocks. In particular, we document the impact of uncertainty caused by these shocks and investor anxiety on oil price volatility. We show that greater uncertainty leads to more oil price volatility. Our findings remained unchanged even after controlling for modeling robustness. Journal: International Economics Pages:39-49 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000226 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-13 Template-Type: ReDIF-Article 1.0 Title: FX markets’ reactions to COVID-19: Are they different? Author-Name: Walter Bazán-Palomino Author-Name: Diego Winkelried Keywords: Currency portfolios;Volatility;Diversification;COVID-19 Classification-JEL:F31;G15;G18 Abstract: In this paper, we empirically investigate the impact of the COVID-19 pandemic on FX markets. We find important differences between COVID-19 and previous high-risk episodes: the Global Financial Crisis, the Swiss National Bank's removal of the Swiss franc/euro floor, and Brexit. Contrary to these episodes, the USD did not show any safe haven characteristics during the pandemic. Furthermore, the estimated volatility and non-parametric value-at-risk of three currency portfolios indicate that COVID-19 was not as risky as previous stressful events. We provide evidence that investors could minimize COVID-19 risk by investing in the Canadian dollar and the Japanese yen, and by reducing their exposure to European currencies. Journal: International Economics Pages:50-58 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000378 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-14 Template-Type: ReDIF-Article 1.0 Title: The US shale gas revolution: An opportunity for the US manufacturing sector? Author-Name: Yassine Kirat Keywords: Manufacturing;Shale gas;Energy prices;Growth;Dynamic panel data Classification-JEL:C23;Q43 Abstract: This paper provides new empirical evidence on the impact of the shale gas revolution on manufacturing output and trade in the United States. The shale gas boom has led to significant and persistent regional price differences in natural gas between the United States and the rest of the world. The results show that lower natural gas prices in the United States compared to Europe have led to industrial activity and investment increasing by nearly 3% and 2%, respectively. We also provide empirical evidence of structural breaks in the relationship between natural gas prices and both imports and exports. Finally, we suggest that while the shale gas revolution has helped some industries to expand, its impact on the manufacturing sector as a whole has been relatively weak. Journal: International Economics Pages:59-77 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000214 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-15 Template-Type: ReDIF-Article 1.0 Title: Is there any information content of traded stocks in an emerging market? Evidence from Vietnam Author-Name: Bao Doan Author-Name: Duc Hong Vo Keywords: Information content;Trading activity;Foreign ownership;VAR model;VN30 index Classification-JEL: Abstract: The presence of foreign ownership is very limited in stocks traded in Vietnam due to the existing regulations. Significant premiums have been observed in stock trading, reflecting a result of direct negotiations between foreign institutional investors and current owners of the stocks. However, the information content of traded stocks in Vietnam has largely been ignored in the current literature. We examine the information content of listed stocks in different trade sizes of the large-capitalization stocks included in the VN30 Index. This paper uses the intraday data for constituents of the national market index, the VN30 Index, from 1st January 2017 to 14th November 2019. Our findings confirm that the ultimate impact of trade innovation size on a quote is positive, increasing and concave. The quote revision in Vietnam's stock market causing trades is found in this paper. In addition, stock trades at times of the wide spread have a more significant price impact than the narrow spread. Interestingly, findings from this paper indicate that market participants are highly unlikely to infer an information event following a large trade occurring in the market. Journal: International Economics Pages:78-87 Issue: 167 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000391 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q3-167-16 Template-Type: ReDIF-Article 1.0 Title: Dynamic optimal portfolio choice under time-varying risk aversion Author-Name: Antonio Díaz Author-Name: Carlos Esparcia Keywords: Optimal portfolio choice;Time-varying risk aversion;RRA;Market risk premium;GARCH models Classification-JEL:C58;G01;G011;G41 Abstract: In this paper, we empirically analyze the possible advantages of modelling a time-varying risk aversion that best fits investors’ behavior in the context of the optimal portfolio choice. We build optimal dynamic portfolios by focusing on the estimation of a time-varying relative risk aversion parameter (RRA). Conditional univariate and multivariate models, such as GARCH, GARCH-M and DCC-GARCH, for modelling the optimal portfolio choice and the RRA parameter are implemented. As a model validation tool, the realized performance and downside risk exposure of these portfolios one month ahead is compared to that resulting from implementing a constant risk aversion parameter. The Ledoit and Wolf (2008) test provides robustness to our results and reveals the average outperformance of the dynamic risk aversion strategy over others as the constant risk aversion or the passive management strategies. Journal: International Economics Pages:1-22 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000135 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-1 Template-Type: ReDIF-Article 1.0 Title: Understanding China's role in recent debt relief operations: A case study analysis Author-Name: Gatien Bon Author-Name: Gong Cheng Keywords: China;Development;Paris Club;Sovereign debt restructuring Classification-JEL:F33;F34;H63 Abstract: China has been increasingly involved in debt restructurings for low- and middle-income countries. This paper presents case studies of China's debt relief actions overseas: Iraq (2003), Cuba (2010), Seychelles (2011), Chad (2017), Zambia (2018), Mozambique (2018), Cameroon (2019), Republic of Congo (2019) and Venezuela (in progress). These cases shed light on the commonalities and particularities of China's actions, and underline the evolution of its restructuring terms. We highlight the lack of formal coordination between China and other creditors. China almost exclusively made its own decision on providing restructurings and restructuring terms. The magnitude of China's debt relief actions remains generally limited and varies across countries, depending on whether other creditors have also provided debt restructurings. China seems to have a growing preference for cancellation of accumulated arrears to nominal debt principal reduction. The debt rescheduling cases have significantly increased in recent years as well. This evolution brings China closer to the flow treatment that the Paris Club privileged in its early years of operations and the prevailing practices among private creditors. Journal: International Economics Pages:23-41 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000172 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-2 Template-Type: ReDIF-Article 1.0 Title: Frequency domain analysis and filtering of business and consumer survey expectations Author-Name: Oscar Claveria Author-Name: Enric Monte Author-Name: Salvador Torra Keywords: Business and consumer surveys;Spectral analysis;Seasonality;Signal processing;Low-pass filter Classification-JEL:C65;C82 Abstract: The main objective of this study is two-fold. First, we aim to detect the underlying existing periodicities in business and consumer survey expectations through spectral analysis. We use the Welch method to extract the harmonic components that correspond to the cyclic and seasonal patterns in all response options of monthly survey indicators. We find that business survey indicators show a common cyclical component of low frequency that corresponds to about four years, while for most consumer survey indicators, we do not detect any relevant cyclic components, and the obtained lower frequency periodicities show a very irregular pattern across questions and reply options. Second, we aim to provide researchers with a filter specially designed for business and consumer survey expectations that circumvents other filtering methods’ assumptions. Most seasonal adjustment methods are based on a priori assumptions about the structure of the components and do not depend on the features of the specific series. To overcome this limitation, we design a low-pass filter that allows extracting the components with periodicities similar to those that can be found in the dynamics of economic activity. We opt for a Butterworth filter and apply a zero-phase filtering process to preserve the time series’ time alignment. We find that the balances computed with the filtered series are highly correlated with the seasonally-adjusted balances published by the European Commission, albeit the former tend to be smoother for the consumer survey indicators. Journal: International Economics Pages:42-57 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000160 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-3 Template-Type: ReDIF-Article 1.0 Title: Economic growth and corruption in emerging markets: Does economic freedom matter? Author-Name: Leonardo Köppe Malanski Author-Name: Angela Cristiane Santos Póvoa Keywords: Corruption;Growth;Economic freedom;Emerging countries Classification-JEL:E02;O10;O40;O43;P51 Abstract: This study analyzes the effects of corruption on economic growth for different levels of economic freedom. The effects of corruption on the economy, which can increase or decrease growth, were tested in emerging countries in Latin America and Pacific Asia, between 2000 and 2017, through one-step System-GMM estimation panel data regressions. The results showed that economic freedom works as a moderator in the relationship between corruption and economic growth. On both continents, greater economic freedom, on average, supports the growth of GDP per capita. In Latin America, it was possible to corroborate the hypothesis that corruption damages countries with greater economic freedom but favors economic growth in countries with lower economic freedom levels. Regarding the Asian countries studied, there was only a negative effect of corruption on economic growth in countries with less economic freedom. When comparing this reality with the one in Latin America, it was observed that in terms of development, the countries in this continent are in earlier stages compared to the Asian countries, even though both country groups are called “emerging.” Journal: International Economics Pages:58-70 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000123 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-4 Template-Type: ReDIF-Article 1.0 Title: The impact of services trade restrictiveness on food trade Author-Name: Amara Zongo Keywords: Food trade;Service sector;Restrictions in services;Gravity model Classification-JEL:F13;F14;K23;Q17 Abstract: This paper examines the effects of restrictions in logistics, transportation, distribution, finance and other business sectors on food trade. We use a gravity model with panel data from 2014 to 2018 across 36 OECD countries, OECD indices of individual country restrictions and regulatory differences by country pair to capture the level of restrictions in these sectors. The results suggest that higher restrictions in the logistics and transport sector lead to lower exports of food commodities. Also, restrictions in the financial and other business sectors are associated with lower imports. Interestingly, restrictions in the distribution sector have positive and significant effects on both exports and imports of food products. The sectors most affected are food, live animals and perishable products (milk, eggs and meat). The regulatory disparity has a significant negative impact on food trade. This impact decreases when the exporter country is closed to service providers. The deregulation or harmonization of these measures would be highly beneficial to food trade. Journal: International Economics Pages:71-94 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000147 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-5 Template-Type: ReDIF-Article 1.0 Title: The impact of regulatory distance from global standards on a country’s centrality in global value chains Author-Name: Tomohiko Inui Author-Name: Kenta Ikeuchi Author-Name: Ayako Obashi Author-Name: Qizhong Yang Keywords: Non-tariff measure;Regulatory distance;Centrality in global value chains Classification-JEL:F13;F14 Abstract: We examine whether and how a country’s centrality in global value chains (GVCs) is dependent upon the extent to which its regulatory regime differs from the global norm, using country and sector-level data from OECD and UNCTAD. We find that the more similar a country’s regulatory regime is to global standards the more likely the country is to play a dominant role in GVCs. Our findings suggest that a country could enhance its centrality in GVCs by harmonising a set of technical regulations to the global standards. Journal: International Economics Pages:95-115 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000159 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-6 Template-Type: ReDIF-Article 1.0 Title: Examining the impact of ICT, human capital and carbon emissions: Evidence from the ASEAN economies Author-Name: Hazwan Haini Keywords: CO2 emissions;ICT;Economic development;ASEAN;Human capital Classification-JEL:C10;C33;O38;O53 Abstract: This study examines the effect of ICT and human capital on carbon emissions in the ASEAN economies from 1996 to 2019 using panel estimators. The region has implemented several joint-policies on climate change and ICT sector development. On the one hand, ICT can help reduce carbon emissions through innovative clean technology; however, there are concerns about the production and disposal of ICT. Meanwhile, human capital formation can increase carbon emissions as it indirectly affects growth; yet human capital can enhance the absorptive capacity of an economy and enhance the effectiveness of ICT technologies to reduce potentially emissions. Results show that ICT reduce carbon emissions while human capital formation increases it. However, the results vary when examining the impact of ICT and human capital on carbon emissions from manufacturing, residential, transport and other industries: ICT consistently reduces carbon emissions; meanwhile, human capital decreases carbon emissions for manufacturing and other industries. Subsequently, ASEAN policymakers should develop the ICT infrastructure in order to support the reduction of carbon emissions. Journal: International Economics Pages:116-125 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000196 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-7 Template-Type: ReDIF-Article 1.0 Title: Diversification potential in real estate portfolios Author-Name: Bertrand Candelon Author-Name: Franz Fuerst Author-Name: Jean-Baptiste Hasse Pages 126-139 Download PDF Data, Tools and Replication Section Keywords: Portfolio diversification;Real estate markets Classification-JEL:C23;F21;G11;R33 Abstract: In this paper, we study the international and sectoral diversification potential in real estate portfolios. Building on a unique dataset of direct real estate markets covering 16 OECD countries over the period 1999–2018, we introduce a statistical test to compare country-level and sector-level diversification potential. This new diversification test provides investors and analysts with a valuable tool as it delivers both estimates and robust significance levels. The empirical findings for real estate investments broadly reveal that international diversification dominates sectoral diversification. Journal: International Economics Pages:126-139 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000202 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-8 Template-Type: ReDIF-Article 1.0 Title: The International Trade and Production Database for Estimation (ITPD-E) Author-Name: Ingo Borchert Author-Name: Mario Larch Author-Name: Serge Shikher Author-Name: Yoto V. Yotov Keywords: Domestic trade;Internal trade;Domestic national trade;Gravity models of trade;Gravity estimation Classification-JEL:F10;F14 Abstract: This paper introduces and describes the new International Trade and Production Database that can be used for statistical estimation (ITPD-E). The ITPD-E contains consistent data on international and domestic trade for 243 countries, 170 industries, and 17 years. The data are constructed at the industry level covering agriculture, mining, energy, manufacturing, and services, so that the ITPD-E describes nearly completely the traded sectors of each economy. The time period covered commences in 2000 and extends to 2016. The ITPD-E is constructed using reported administrative data and intentionally does not include information estimated by statistical techniques. This feature and the unprecedented coverage of industries and countries with consistent international and domestic trade data renders the ITPD-E well suited for estimation of economic models, e.g., the gravity model of trade. We demonstrate the usefulness of the ITPD-E by running standard gravity regressions. Journal: International Economics Pages:140-166 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302602 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-9 Template-Type: ReDIF-Article 1.0 Title: The discount factor for expected fundamentals: Evidence from a panel of 25 exchange rates Author-Name: Phornchanok Cumperayot Author-Name: Roy Kouwenberg Keywords: Exchange rates;Fundamentals;Discount factor Classification-JEL:E31;E44;F49 Abstract: In asset pricing models the exchange rate is the discounted present value of expected economic fundamentals. Engel and West (2005) demonstrate that the well-known weak link between exchange rates and fundamentals, such as money supply, output, inflation and interest rates, is an implication of the model if the discount factor is close to one. Empirical evidence so far is limited. In this paper we estimate the discount factor in the money income model and the Taylor rule model for a large cross-section of 25 currencies, in the period 2001–2018. The results confirm that, on average, the discount factor is indeed close to one, while the estimate is lower for currencies of developing economies and at longer forecast horizons. Journal: International Economics Pages:167-176 Issue: 166 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302900 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q2-166-10 Template-Type: ReDIF-Article 1.0 Title: MULTIPRIL, a New Database on Multilateral Price Levels and Currency Misalignments Author-Name: Cécile Couharde Author-Name: Carl Grekou Author-Name: Valérie Mignon Keywords: Multilateral price levels;Equilibrium exchange rates;Currency misalignments;Bayesian model averaging Classification-JEL:F31;C32;C82 Abstract: This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990–2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991–2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures. Journal: International Economics Pages:94-117 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302882 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-1 Template-Type: ReDIF-Article 1.0 Title: Protectionism and international trade: A long-run view Author-Name: Tullio Gregori Keywords: Trade;Protectionism;Long-run elasticities;Panel distributed lags Classification-JEL:F13;F14;F41;F69 Abstract: This paper investigates the long-run relationship between international trade and protectionism, which is measured by a sub-component of the KOF globalization index using a standard import model with a heterogeneous balanced panel of 34 countries from 1970 to 2017. The model is tested using GDP and the Import Intensity-Adjusted Demand (IAD) as an activity variable for a performance comparison. Both specifications are estimated using recent advances in the panel autoregressive distributed lag model literature with cross-sectional dependence. The cross-sectional autoregressive distributed lag (CS-ARDL) and the cross-sectional distributed lag (CS-DL) models provide similar results. Mean group estimates show a proportional impact of IAD on international trade whilst the GDP effect is larger. The long-run protectionism elasticity is always negative and significant but less than half of the import price elasticity. Journal: International Economics Pages:1-13 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302729 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-2 Template-Type: ReDIF-Article 1.0 Title: Too much finance or too many weak instruments? Author-Name: Maxime Fajeau Keywords: Finance;Growth;Non-linearity;System GMM;Panel data Classification-JEL:C52;E44;G1;O11;O16 Abstract: Since the global financial crisis of 2008, a strand of the literature has documented a threshold beyond which financial development tends to affect growth adversely. However, the The evidence rests heavily on internal instrument identification strategies, whose reliability has received surprisingly little attention so far in the finance-growth literature. Therefore, the present paper conducts a reappraisal of the non-linear conclusion twofold. First, in light of new data, second, by a thorough assessment of the identification strategy. Evidence points out that a series of unaddressed issues affecting the system-gmm setup results in spurious threshold regressions and overfitting of outliers. Journal: International Economics Pages:14-36 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302717 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-3 Template-Type: ReDIF-Article 1.0 Title: Dynamic relations between oil and stock markets: Volatility spillovers, networks and causality Author-Name: Jose E. Gomez-Gonzalez Author-Name: Jorge Hirs-Garzón Author-Name: Sebastián Sanín-Restrepo Keywords: Time-varying causality;Oil price;Stock market returns;Emerging market economies Classification-JEL:G01;G12;C22 Abstract: We study the relation between oil and stock market returns for a set of seven countries that are important participants in commodity markets. Observed oil prices are decomposed into a supply related factor, a demand related factor and a risk factor. Total and directional spillover indicators are computed using forecast error variance decomposition from vector autoregressions, and their dynamic nature is explored. Studying time-varying spillovers between commodity and traditional financial markets is crucial for the design of effective portfolio composition and risk diversification strategies in global financial markets. Our findings suggest that oil markets are net volatility receptors. While some recent studies suggest that results may depend on whether supply or demand factors are considered, this study finds major stock markets are net volatility transmitters to oil markets. Transmission intensities and net positions present, however, considerable time variation being substantially larger in moments of financial distress with respect to normal times. Furthermore, results from dynamic predictive causality tests show the existence of bidirectional relations, which are stronger from stock to oil markets. Our findings provide empirical evidence supporting the oil markets financialization hypothesis. Journal: International Economics Pages:37-50 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302833 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-4 Template-Type: ReDIF-Article 1.0 Title: Economic activity, and financial and commodity markets’ shocks: An analysis of implied volatility indexes Author-Name: Christian Urom Author-Name: Gideon Ndubuisi Author-Name: Jude Ozor Keywords: Economic activity;Energy market;Stock market;Asymmetric shocks;NARDL;Connectedness Classification-JEL:G12;G15;G17;C53 Abstract: This paper examines the dynamic short- and long-run asymmetric interactions and causality between real economic activity and stock and gold markets volatility shocks using both the cointegration Nonlinear Autoregressive Distributed Lag and Granger causality tests. In a further analysis, we used both the original and the partial sums decomposition of these variables to examine the level of market integration under different market conditions using the spillover index of Diebold and Yilmaz (2009; 2012; 2014). Our results indicate asymmetries in the short- and long-term relationships among these variables. In the long run, both positive and negative shocks from the energy market increase stock market volatility. However, only positive shocks on the gold market increase stock market volatility, while positive (negative) shocks on economic activity reduce (increase) stock market volatility. Also, an increase in both stock and energy markets volatility shocks are detrimental to real economic activity. We find a feedback effect between real economic activity shocks and these market volatility indexes, except for the gold market which has a unidirectional causality with the real economic activity shocks. Finally, the spillover analysis suggests a stronger integration among the partial sums, with the energy market as the dominant net-transmitter of both positive and negative shocks while the gold market is a net-receiver of shocks. Our results hold crucial implications for both investors and policymakers. Journal: International Economics Pages:51-66 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302845 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-5 Template-Type: ReDIF-Article 1.0 Title: Exchange rates and fundamentals: Further evidence based on asymmetric causality test Author-Name: Siew-Voon Soon Author-Name: Ahmad Zubaidi Baharumshah Keywords: Bilateral exchange rate;Interest rate differential;Asian countries;Asymmetry Granger causality Classification-JEL:F41;F31;C51 Abstract: This article uses an approach developed by Hatemi-J (2012) which is based on country-specific bootstrap critical values to disclose the nexus between the US dollar-based real exchange rates and observed macroeconomic fundamentals—relative price and interest rate differential. The Granger non-causality test reveals that fundamentals drive the US dollar exchange rates before the Asian financial crisis (AFC) in some cases. The exchange rate–fundamentals nexus is unstable and has reversed in the aftermath of the crisis. Exchange rates help to predict fundamentals in the post-AFC period, as suggested by the present value model. The result holds even after the Federal Reserve announces the termination of quantitative easing programs. Asian currency movements are expected to trigger adjustments in fundamentals in an asymmetric fashion. It tells us that the success of fundamental-based models in predicting the future path of Asian currencies against the US dollar may not be robust after all. Journal: International Economics Pages:67-84 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302857 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-6 Template-Type: ReDIF-Article 1.0 Title: Twin balances, public governance and private investment: Quantile estimation for OECD countries Author-Name: Thanh Dinh Su Author-Name: Canh Phuc Nguyen Keywords: Fiscal balance;Trade balance;Public governance;Private investment;Quantile regression Classification-JEL:C32;F32;E02;E22;H62 Abstract: This paper examines the twin influences of fiscal balance and trade balance on the dynamics of private investment at times of institutional change. Applying quantile regression for panel data of 31 OECD countries in the period 2002–2017, the study contributes in three ways: 1) degradations of fiscal balances and trade balances have clear negative impacts on private investment; 2) improvements in public governance appear as a strong incentive for private investment; notably, better public governance constrains the negative impacts of the twin balances on private investment; 3) countries with higher institutional quality enjoy a positive net effect of the fiscal balance, while the negative net effect of the trade balance is reduced. This study has significant implications, advocating institutional improvement to stabilize private investment in OECD countries. Journal: International Economics Pages:85-93 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302894 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-7 Template-Type: ReDIF-Article 1.0 Title: New evidence on international risk-sharing in the Economic Community of West African States (ECOWAS) Author-Name: Stéphane Zouri Keywords: Monetary union;Asymmetric shocks;Risk-sharing;ECOWAS Classification-JEL:E21;E62;F24;F35;F45 Abstract: This paper explores income and consumption smoothing patterns among ECOWAS countries during the period 1980–2016. It is relevant given the willingness of heads of state in the region to create a single currency. Indeed, in a monetary union, asymmetric shocks are not problematic if risk-sharing mechanisms, other than the exchange rate, are in place to allow countries to adjust to specific shocks. The paper provides more information on the accounting decomposition of national aggregates allowing a better understanding of risk-sharing channels. Unlike previous studies in this area, we show that official development assistance and gross saving smooth out asymmetric shocks between ECOWAS countries. Besides, net taxes on products and production, respectively, social contributions and social benefits limit net primary incomes’ effectiveness, respectively, net secondary incomes to smooth asymmetric shocks. Moreover, we show that even if the degree of risk-sharing increases over time, it has remained limited. Also, market- based risk-sharing mechanisms are ineffective when they are most needed. That’s why ECOWAS countries need a supranational fiscal that could provide an additional tool to smooth asymmetric shocks in the region. Journal: International Economics Pages:121-139 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302821 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-8 Template-Type: ReDIF-Article 1.0 Title: The energy transition, Trump energy agenda and COVID-19 Author-Name: Refk Selmi Author-Name: Jamal Bouoiyour Author-Name: Shawkat Hammoudeh Author-Name: Youssef Errami Author-Name: Mark E. Wohar Keywords: COVID-19;Trump energy agenda;Fossil fuels;Renewable energies Classification-JEL:C32;C51;E31 Abstract: Market participants and public policy makers around the world are working hard, attempting to move the world away from the use of carbon-intensive fossil fuels and towards the adoption of viable renewable energy sources. The Trump energy plan supports the production of fossil fuels by reversing this progress. The COVID-19 and the resulting lockdown measures come to worsen the situation by causing a noticeable disruption across the fossil fuel and renewable energy industries. Given these developments, this study seeks to address how and to what extent the Trump energy agenda is rolling back the plans for advancing renewable energy, and how the pandemic is changing the pace of energy transition. For this purpose, we compare the performances of renewable energy and fossil fuels in terms of volatility, efficiency and diversifications benefits for three different periods with varying-uncertainty levels, namely the pre- and the post- Trump’s inauguration periods and the period of rising anxiety over COVID-19. Our results reveal that in the period after the Trump inauguration, coal and oil (renewable energy) have become less (more) volatile but are relatively more (less) responsive to good news. The conditions however became worse with the onslaught of the coronavirus pandemic. COVID-19 adversely affects investment in oil, coal and renewable energy stock markets, though with varying levels. This virus persists to strongly hit fossil fuels demand because of the stringent containment measures. It also poses a huge threat to the timely deployment of renewables and their contributions to the renewable energy progress. These findings have relevant implications for risk management and policy designs. Journal: International Economics Pages:140-153 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172030295X File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-9 Template-Type: ReDIF-Article 1.0 Title: Regional and global patterns of participation in value chains: Evidence from Brazil Author-Name: Inácio Fernandes de Araújo Author-Name: Fernando Salgueiro Perobelli Author-Name: Weslem Rodrigues Faria Keywords: International fragmentation;Global value chains;Global and regional fragmentation;Input-output;Brazil Classification-JEL:F15;C67;D57 Abstract: This paper focuses on the role played by the Brazilian economy in global value chains with reference to global and regional contexts. To this end, we calculate downstream and upstream indicators of global and regional integration and fragmentation of global value chains. We use the full Eora Multiregional Input-Output Table for the period from 1990 to 2015. The main results indicate that Brazilian participation in global value chains increased during this period and became more fragmented internationally, mainly in global terms, but its regional insertion has increased more than its global insertion. Although South America has a small share in value-added trade, Brazil operates as a regional hub, as it is a reference for international trade in this region. In the global context, Brazil plays the role of supplier of intermediate inputs, while in the regional context, it serves as the main production center. Journal: International Economics Pages:154-171 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302948 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-10 Template-Type: ReDIF-Article 1.0 Title: Bilateral investment treaties and backward linkages in Sub-Saharan Africa Author-Name: Vito Amendolagine Author-Name: Francesco Prota Keywords: Bilateral investment treaties;Foreign direct investments;Backward linkages;Sub-Saharan Africa Classification-JEL:F23;O10;O55 Abstract: This article is an original contribution to the understanding of the impact of bilateral investment treaties in developing countries. By exploiting a unique sample of foreign affiliates in nineteen Sub-Saharan Africa countries, we show that the presence of a bilateral investment treaty between FDI origin and destination countries is positively related to the propensity of foreign investors to generate linkages to local suppliers. In addition, we find evidence that such relationship is stronger for countries with lower institutional quality and that bilateral investment treaties become more effective the larger the difference in levels of development between source and host. The estimation technique we use is a two-limit Tobit model. Our results are of high importance from a political point of view. They support the argument that bilateral investment treaties can help countries with low levels of governance quality, as several Sub-Saharan African countries, to credibly remedy local institutional inefficiencies and, therefore, the participation in an international treaty make the opportunities for local sourcing more likely. These potential gains can justify the decision of policymakers in developing countries to sign BITs, despite such agreements impinging on their national sovereignty. Journal: International Economics Pages:172-185 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000019 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-11 Template-Type: ReDIF-Article 1.0 Title: Global imbalances, external adjustment and propagated shocks: An African perspective from a global VAR model Author-Name: Oyeyinka S. Omoshoro-Jones Author-Name: Lumengo Bonga-Bonga Keywords: Africa;External adjustment channels;Global imbalances;Global VAR Classification-JEL:F31;F32;F41;G15 Abstract: This paper examines the impacts of external adjustment related to global imbalances on the external accounts (trade balance, current account and net foreign asset position) and real output in oil-exporting and frontier markets in Africa via the trade and financial (valuation) channels. To this end, we estimate two global vector autoregression (GVAR) models for 47 countries across different regions, over the period 1979Q2–2016Q4. We also consider the relative importance of global oil price shock and financial market volatility (proxied by the VIX index) as potential drivers of global imbalances. Our results show that the exchange rate policies in the US and China are equally important for economic activity and external accounts of African countries, with changes in China’s real effective exchange rate (REER) exerting greater influence on the external accounts of these developing countries. The effects of a positive oil shock and heightened financial market volatility are transmitted into African countries via both the trade and the financial channels, but the differentiated impacts of the oil price shock deepen the external imbalances between oil-exporters and frontier markets in Africa. The trade channel emerged as the main transmission mechanism for these external shocks, while the role of valuation effect working through changes in REER is limited, and negligible with respect to the oil price shock. Journal: International Economics Pages:186-203 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000044 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-12 Template-Type: ReDIF-Article 1.0 Title: Export performance and capacity pressures in Central and Eastern Europe Author-Name: Karsten Staehr Keywords: Exports;Competitiveness;Capacity utilisation;Output gap;Unemployment;Central and Eastern Europe Classification-JEL:F14;F17;E32 Abstract: This paper investigates whether various measures of capacity pressure or available production capacity may help predict the dynamics of exports from the EU countries in Central and Eastern Europe. The analysis uses annual panel data for the 11 countries from 2001 to 2019. Reduced-form estimations reveal that measures of cost competitiveness have little or no predictive power. The measures of capacity pressure are capacity utilisation in industry, the unemployment rate and the output gap, and they are all robust predictors of the dynamics of exports. The results are robust to various changes in the time and country sample, control variables and specification, and they also hold in structural panel vector autoregressive models. Journal: International Economics Pages:204-217 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302936 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-13 Template-Type: ReDIF-Article 1.0 Title: Income inequality, human capital and terrorism in Africa: Beyond exploratory analytics Author-Name: Kazeem B. Ajide Author-Name: Olorunfemi Y. Alimi Keywords: Income inequality;Terrorism Human capital;Negative binomial regression;Africa Classification-JEL:D31;E22;O15;Z00;N97 Abstract: This study uncovers the effect of income inequality on terrorism, delineated with four distinct markers: domestic, transnational, uncertain, and total, respectively, intermediated with the role of human capital, on a panel of 34 African countries, over the period 1980–2012. Thus, rather than presenting correlation analyses implied by exploratory analytics among these key variables of interest, this study further employs a zero-inflated negative binomial regression estimator due to the preponderance of zero values of the terrorism data. The following findings are consistently established. First, income inequality remains a substantive predictor of terrorism across the model specifications, with the exception of transnational terrorism. Second, human capital variables exert a positive first-order effect on both domestic and total terrorism. Third, the marginal impacts of interactions between human capital measures and income inequality indicators are negative at the higher levels of educational attainment. These findings remain robust in the presence of endogeneity concerns, time and country-specific effects, alternative estimators, and regional effects, respectively. On the policy front, eliminating the gaps in income inequality remains an effective policy antidote to quell the ember of angers and frustration that may aggravate into arm taking by the aggrieved. Journal: International Economics Pages:218-240 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000032 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-14 Template-Type: ReDIF-Article 1.0 Title: Impact of the ECB Quantitative Easing on the International Investment Position Author-Name: Rafael Cezar Author-Name: Maéva Silvestrini Keywords: Monetary policy;Quantitative Easing;Balance of payments;International investment position Classification-JEL:E52;F32;G15 Abstract: This paper aims at estimating the impact of Quantitative Easing (QE) implemented by the ECB on external assets and liabilities recorded in the International Investment Position (IIP). Indeed, monetary policy affects the prices of securities and exchange rates, as well as international capital flows. These movements affect the IIP and can trigger important global imbalances and financial stability issues. Our analysis focuses on France. We find that QE affected all the items composing its IIP. Announcements played a stronger role compared to amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter was the most reactive to the programme. Finally, we quantify the overall effect by establishing counterfactual scenarios in the absence of QE. The strong impact observed initially was rapidly counterbalanced; suggesting an over-adjustment phenomenon at the beginning of the programme. Journal: International Economics Pages:241-263 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302912 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-15 Template-Type: ReDIF-Article 1.0 Title: Environmental regulation and productivity growth: Main policy challenges Author-Name: R. De Santis Author-Name: P. Esposito Author-Name: C. Jona Lasinio Keywords: Environmental regulation;Productivity Innovation;Porter hypothesis Classification-JEL:D24;Q50;Q55;O47;O31 Abstract: In this paper, we investigate the environmental regulation-productivity nexus for 18 OECD countries over the years 1990–2015 and discuss its main policy challenges. Our findings support the hypothesis that environmental policies generate positive productivity returns through innovation as suggested by Porter and Van Der Linde (1995). We find that environmental policies have a productivity growth-promoting effect. Both market and non-market based policies exert a positive but differentiated impact both on labour and multifactor productivity growth. As for specific policies, green taxes display the largest effect on multifactor productivity although with potentially negative redistributive effects. We also find that environmental regulation exerts an indirect positive impact on productivity growth fostering capital accumulation especially in high ICT intensive countries. Journal: International Economics Pages:264-277 Issue: 165 Year: 2021 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701721000020 File-Format: text/html Handle: RePEc:cii:cepiie:2021-Q1-165-16 Template-Type: ReDIF-Article 1.0 Title: Exports to China and economic growth in Latin America, unequal effects within the region Author-Name: Julio César Arteaga Author-Name: Mónica Liseth Cardozo Author-Name: Márcia Jucá T. Diniz Keywords: Export-led growth;Latin America;China;Productivity effect Classification-JEL:C23;F14;F43 Abstract: Most Latin American countries have intensified their economic relationships with China since 1990, and even more as a result of the admission of China to the World Trade Organization (WTO). Therefore, this article has two purposes: (1) to explore if exports to China have a different effect on Latin American economic growth than the effect of worldwide exports and (2) to analyze whether exports to China have a different impact on economic growth between South America and a group of countries comprising Mexico and Central American and Caribbean countries since their sources of comparative advantages are diverse. An export-led growth model that focuses on the effects on economic growth via productivity is estimated using panel data techniques and information from 1990 to 2017. Results show that exports to China have a different effect than worldwide exports on Latin American economic growth via productivity. Furthermore, this study provides a new contribution to the literature by showing that exports to China have a positive impact on South America but a negative impact on the group of Mexico, Central America, and the Caribbean for the period after China enters WTO. This result means that growth in exports to China intensifies the primary exporting character of South American countries. Journal: International Economics Pages:1-17 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302481 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-1 Template-Type: ReDIF-Article 1.0 Title: Oil price jumps and the uncertainty of oil supplies in a geopolitical perspective: The role of OPEC’s spare capacity Author-Name: Refk Selmi Author-Name: Jamal Bouoiyour Author-Name: Amal Miftah Keywords: Oil price jumps;Geopolitical risks;OPEC’s spare production capacity Classification-JEL:G11;G15;C58 Abstract: The contribution of this paper is threefold: first, it introduces a new geopolitical risk index that incorporates recent geopolitical events ignored in Caldara and Iacoviello (2018)’s index. In addition to war threats and acts, terrorist threats and acts and nuclear threats, the new indicator accounts for global trade tensions, the changing fundamentals of U.S.-China relations, the escalated U.S.-Iran conflict, Saudi Arabia’s uncertainty, Venezuela’s crisis, and OPEC news that rise in response to important OPEC meetings and events connected with OPEC production levels. Second, it addresses how the volatility of six oil prices (the Nigerian Bonny Light, Brent, Dubai, OPEC, Tapis, and WTI) behave when the developed geopolitical risk index unexpectedly changes. Third, it examines whether OPEC maintains a buffer of spare capacity that it uses to respond to potential crises that reduce oil supplies. We show that an increase in the geopolitical risk index is significantly associated with unanticipated oil price changes, though with varying sensitivities. Our findings also reveal that OPEC’s use of spare capacity reduces the reaction of oil price to geopolitical risks but moderately, thus suggesting a limited stabilizing influence on the oil market. The limited amount of spare production capacity leaves the oil market on a knife’s edge as it deals with a host of potential supply disruptions stemming from geopolitical issues. Journal: International Economics Pages:18-35 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302493 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-2 Template-Type: ReDIF-Article 1.0 Title: Rediscovering the EKC hypothesis for the 20 highest CO2 emitters among OECD countries by level of globalization Author-Name: Patrícia Hipólito Leal Author-Name: António Cardoso Marques Keywords: Globalization de jure and de facto;Environmental Kuznets curve;Energy efficiency;OECD countries;CO2 emissions Classification-JEL:F6;Q5;Q44 Abstract: In an era of globalization, climate change is considered a huge threat to humanity. With this in mind, and while countries continue to seek economic growth, the question arises: what are the repercussions of globalization on the environment? Through an analysis of the relationship between economic development and environmental degradation, assessing the Environmental Kuznets Curve using the economic, social, and political dimensions, and the de jure and de facto measures of globalization, this study provides evidence for the influence of expanding globalization on environmental performance for 20 of the highest carbon-dioxide-emitting countries within the Organisation for Economic Co-operation and Development. The countries were divided into high-globalized countries and low-globalized countries, according to their ranking of overall globalization. In order to provide robust results, the Driscoll-Kraay estimator was performed from 1990 to 2016. The results reveal evidence of the Environmental Kuznets Curve for the high-globalized group, but not for the low-globalized group. Political globalization is shown to be a tool for mitigating environmental degradation, while economic globalization is harmful for it. Furthermore, there is evidence of different effects of de jure and de facto globalization. Journal: International Economics Pages:36-47 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172030250X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-3 Template-Type: ReDIF-Article 1.0 Title: Understanding how foreign direct investment inflows impact urbanization in Africa Author-Name: Carl Grekou Author-Name: Ferdinand Owoundi Keywords: Classification-JEL:C33;F21;J11;O18;P25 Abstract: This paper investigates the relationship between FDIs inflows and urbanization in Africa. To improve on the existing literature, we look beyond the conventional definition of urbanization based only on the number of people living in urban areas. Our broader approach includes both the amount of CO2 emissions in urban areas and the value addition of services. Relying on a large sample of African countries, we find FDIs inflows to have significantly influenced the momentum of urbanization on the continent, irrespective of the proxy for urbanization. Resource-seeking FDIs seems to be more responsible for this phenomenon than the market-seeking ones, implying that FDIs are detrimental to the environment, especially when the quality of institutions is low. These results suggest that African governments should enhance smart, sustainable policies to attract more market-seeking FDI while mitigating detrimental effects on the environment. Journal: International Economics Pages:48-68 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302511 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-4 Template-Type: ReDIF-Article 1.0 Title: Better the devil you know: Home and sectoral biases in bank lending Author-Name: A. Burietz Author-Name: L. Ureche-Rangau Keywords: Credit supply;Biases;Syndicated loan market Classification-JEL:F34;G01;G21 Abstract: This paper empirically investigates banks’ lending and the extent to which they are influenced by specific preferences in terms of geographical location and industry. We study whether banks develop a field of expertise and focus on it, or whether they prefer to grant loans quite evenly among countries and industries. We manually built an original database of syndicated loans for banks in the four major banking systems in the eurozone, to estimate the determinants of loans’ amounts between 2005 and 2013. Our findings highlight a domestic bias and a sectoral bias with banks lending larger amounts to their domestic borrowers and to industries they are more familiar with. Journal: International Economics Pages:69-85 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302638 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-5 Template-Type: ReDIF-Article 1.0 Title: A case for leaning against the wind in a commodity-exporting economy Author-Name: FrIrina Kozlovtceva Author-Name: Alexey Ponomarenko Author-Name: Andrey Sinyakov Author-Name: Stas Tatarintsev Keywords: Monetary policy;Credit cycle;Leaning against the wind;Commodity prices;Emerging markets Classification-JEL:E31;E52;E58;F41;F47 Abstract: We report the empirical evidence of procyclicality (regarding the credit developments) of interest rate setting in a group of inflation targeting emerging market economies: monetary policy eases in response to a higher price of an exported commodity while real credit grows. Counterfactual exercises show that in some countries endogenous monetary policy responses to commodity shocks explain a substantial portion of the real credit growth. We also conduct a theoretical analysis and compare stabilisation properties (while accounting for financial stability risks) of the inflation-targeting policy rule and the” leaning against the wind” policy rules. For this purpose, we use the DSGE model with financial frictions and a banking sector calibrated to the Russian economy and measure the efficiency of policy results with different sensitivity to credit developments (“leaning against the wind” rules) under different variances of oil price shocks. The results show that when commodity price volatility is relatively high, leaning against the wind outperforms pure inflation targeting. Journal: International Economics Pages:86-114 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302626 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-6 Template-Type: ReDIF-Article 1.0 Title: Extension of the Fama and French model: A study of the largest European financial institutions Author-Name: Francisco Jareño Author-Name: María de la O González Author-Name: Alba M. Escolástico Keywords: Financial institutions;Europe;Risk factors;Interest rates;Stock returns;Quantile regression Classification-JEL:E31;G12;G3;L2 Abstract: This paper analyses the sensitivity of the most relevant European financial institutions’ returns to changes in selected risk factors between October 2003 and December 2018. In concrete, this research estimates, using the quantile regression approach, extensions of the Fama and French five-factor model (2015), adding nominal interest rates, the Carhart (1997) risk factor for momentum and momentum reversal and the Pastor and Stambaugh (2003) traded liquidity factor. To consider the economic cycle, a robustness check splits the whole sample period into three sub-sample periods (pre-crisis, crisis and post-crisis). As expected, this extension of the Fama and French model has the highest explanatory power in the highest and the lowest quantiles, showing a U-shaped pattern. In addition, our proposed model reaches a better explanation of the changes in European companies’ returns in extreme stages of the economy. Therefore, in general, the sensitivity of stock returns of the largest European financial institutions to movements in risk factors tends to be more marked in bullish and bearish scenarios, that is, in extreme market conditions. These results are partially replicated for a number of selected small and mid-cap European banks. Journal: International Economics Pages:115-139 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302651 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-7 Template-Type: ReDIF-Article 1.0 Title: The drivers of economic complexity: International evidence from financial development and patents Author-Name: Canh Phuc Nguyen Author-Name: Christophe Schinckus Author-Name: Thanh Dinh Su Keywords: Economic complexity;Innovation;Sophistication;Financial institutions;Financial markets Classification-JEL:D24;E23;G21;G23;O31 Abstract: This study investigates the impacts of patents and financial development on economic complexity in a sample of 52 economies (including 32 high-income economies (HIEs) and 20 middle-income economies (MIEs)). Specifically, nine indices of financial development and three variables related to patents are mobilized to identify the major determinants of the economic complexity index captured through two indicators ECI and ECI+. Several econometric techniques are applied for our panel data estimations. Our study firstly documents the existence of a bi-directional causality but also a long-run co-integration between patents, financial development and ECI/ECI+. Our estimations show that the patents have a significant positive impact on the economic complexity of a country but for the financial development, the results are more diversified. Beyond these dissimilarities, our study emphasize some common conclusions: Patents (especially resident patents) directly contribute to the complexity of a country; a too large financial sector does not contribute to the diversification and sophistication of a national economy but the efficiency of financial markets appear to have a positive influence of such processes probably because financial markets offers alternative way of funding patents and knowledge. Journal: International Economics Pages:140-150 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302687 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-8 Template-Type: ReDIF-Article 1.0 Title: Classification of transfer pricing systems across countries Author-Name: Alex A.T. Rathke Author-Name: Amaury J. Rezende Author-Name: Christoph Watrin Keywords: Profit shifting;Transfer pricing systems;BEPS;OECD;Global tax reset Classification-JEL:F23;H26;K34 Abstract: This paper analyses the characteristics of transfer pricing (TP) rules across countries to create a classification of TP systems based on regulatory similarities. We apply hierarchical clustering method for the analysis of 57 qualitative and quantitative TP characteristics. Our sample comprises 44 countries for the period of 2010–2016. Our results indicate the existence of four distinct TP systems. The largest group is composed of countries with TP rules that are consistent with the OECD TP guidelines, while the other three groups include countries with domestic provisions that are substantially different from the baseline OECD standards. Overall, characteristics related to the priority of TP methods, to advanced pricing agreements and to the efficiency of competent authority procedures are the most relevant differences among groups. Simple applications of our TP classification indicate a systematic association between TP systems and income tax rates, suggesting a trade-off with respect to governments’ policy preferences between TP rules vs. tax rates. Our analysis contributes to the current literature as it provides a non-ordered classification of TP systems that is significative and consistent for the complete period, and has the advantage of being more robust methodologically and not depending on assumptions about the enforcement of specific tax provisions. Our results provide relevant information about the key differences on TP rules across countries and thus support the review of existing anti-shifting mechanisms as proposed by the OECD. Journal: International Economics Pages:151-167 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302614 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-9 Template-Type: ReDIF-Article 1.0 Title: Economic complexity, human capital, and FDI attraction: A cross country analysis Author-Name: Pegah Sadeghi Author-Name: Hamid Shahrestani Author-Name: Kambiz Hojabr Kiani Author-Name: Taghi Torabi Keywords: Economic complexity;Economic sophistication;FDI;Human capital Classification-JEL:F16;F21;F40;C23 Abstract: Foreign direct investment (FDI) inflows dynamics indicate that its new wave is efficiency-seeking and, thus, the recent literature emphasizes the host countries knowledge role and productive capabilities. This paper holds forth the new factor of economic complexity, which is an indicator of national productive capabilities and knowledge. Two proxies are used to measure the countries economic complexity, including economic complexity index (ECI) and economic sophistication (EXPY). The results indicate that economic complexity is one of the main determinants of FDI inflows with statistically and economically robust positive effects on FDI inflows to host countries. Furthermore, our findings explain why countries with equal human capital endowment have different performances in FDI attraction. Journal: International Economics Pages:168-182 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172030264X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-10 Template-Type: ReDIF-Article 1.0 Title: Do structural shocks in the crude oil market affect biofuel prices? Author-Name: Aktham I. Maghyereh Author-Name: Osama D. Sweidan Keywords: Oil market shocks;Biofuels;SVAR models Classification-JEL:Q2;Q4;C32 Abstract: Literature shows that the crude oil market has a vital link with subcomponents products, i.e., gasoline and diesel, and alternative energy markets, i.e., natural gas and biofuels. The biofuel industry is a promising solution for many problems such as global warming and high oil prices. Therefore, our paper explores the effect of structural crude oil market shocks on the real price of biofuel. We use structural vector autoregression (SVAR) model as proposed by Kilian (2009) over the period from March 1995 to June 2019. Our main finding reveals that long-run fluctuations in the real prices of biofuel are attributed mainly to global demand shocks and oil-market specific shocks, whereas oil supply shocks have an insignificant role. Our results also indicate that the three shocks combined can justify 68 percent of the variation in the real prices of biofuel, whereas the aggregate demand shocks are the most significant contributor because it justifies 35 percent, and oil-specific demand shocks explain 28 percent. The policy implication of our paper is that the stability of the biofuel market comes from the demand side, not the supply side. Thus, energy demand management is a critical tool to stabilize the biofuel market. Journal: International Economics Pages:183-193 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302663 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-11 Template-Type: ReDIF-Article 1.0 Title: Global value chains and the missing link between exchange rates and export diversification Author-Name: Thi Anh-Dao Tran Author-Name: Minh Hong Phi Author-Name: Long Thai Keywords: Global value chains;Export diversification;Real exchange rate;Emerging Asia and Latin America;Financial crises Classification-JEL:F14;F41;011;O24;O53 Abstract: Conceptually, the present paper links export diversification and the real exchange rate (RER) by investigating the direction of causation. On one hand, a stable and competitive exchange rate is a key instrument in promoting export diversification through the tradable sectors’ profitability. But on the other hand, export diversification can help to reduce macroeconomic volatility, which in turn helps to consolidate a stable and competitive exchange rate. We propose a Granger causality test using panel data of the relationship in the middle-income countries of Asia and Latin America over the period from 1995 to 2015. We augment our baseline specification by examining how FDI (a key vehicle of GVC participation) and financial crises (which expose GVCs to disruptions) affect the causal relationship. Intuitively, the benefits of participation in GVCs may differ across countries, depending on external factors that might influence economic outcomes. Looking at the whole sample, our study finds a unidirectional positive causality running from export diversification to RER changes when we consider financial crises. However, we observe no causality for the regional sub-samples, meaning that it is global interactions that are the issue here. To go further, we rule out small islands from the Granger causality test. Again, our empirical findings show that the financial crises affect the causation but in contrast to the previous result, we observe the same unidirectional positive causality in the Asian sub-set. Overall, there is clear evidence that during financial crises, export diversification helps to reduce RER fluctuations, corroborating recent development studies that make a case for diversification to build macro resilience. Journal: International Economics Pages:194-205 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302699 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-12 Template-Type: ReDIF-Article 1.0 Title: Fettered cross-border capital flows, external finance dependence, and international trade Author-Name: Gideon Ndubuisi Keywords: Capital control;International trade;Trade margins;External finance dependence Classification-JEL:F14;F21;F32;F38 Abstract: The effects of capital controls on international trade have not been thoroughly examined empirically. Using bilateral industry-level export data across a large number of countries, this paper evaluates how capital controls affect exports. We identify the effect of capital controls on export activities by exploiting the variation in capital controls across countries and variation in external finance dependence across industries. While we find that capital controls adversely affect total exports, analyses of the export margins indicate that the export distorting effect of capital controls works by deterring single and multiple export market entries by exporters, reducing export intensities of exporters, and the range of goods exporters can ship to each market destination. Further analysis in the paper reveals that the export distorting effects of capital controls is invariant of whether the restriction is on inward or outward capital controls, although the relative impact of inward capital control is higher. We also find that capital controls distort exports in OECD and non-OECD countries, although the effect is higher for non-OECD countries. We discuss the policy implications of the findings. Journal: International Economics Pages:206-2016 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302705 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-13 Template-Type: ReDIF-Article 1.0 Title: Three-player sovereign debt negotiations Author-Name: Ilaf Elard Keywords: Sovereign debt negotiations;Default;Debt crises;Financial crises;Behavioural finance;Regret;Refinancing agreements Classification-JEL:F3;F4;F5;C7 Abstract: This paper models sovereign debt negotiations between a debtor country (player 1) and its international official-sector (player 2) and private-sector (player 3) creditors. The presence of a third player allows for the formation of coalitions between two players. If there are key players that are part of all credible coalitions, such as creditors jointly imposing a partial refinancing agreement on a small debtor country, restructuring negotiations can be impaired and may result in partial default resolutions. These suboptimal bargaining outcomes are triggered when creditors stop extending a full refinancing agreement upon experiencing regret when learning that a partial agreement would have offered a higher return in the past. The introduction of regret allows the model to capture the extend-and-pretend approach that creditors frequently adopt in sovereign debt negotiations. Bounded rationality in the form of concerns for past outcomes, however, is insufficient to create bargaining inefficiencies. Suboptimal refinancing agreements are instead due to the existence of bargaining strength asymmetries, which implies that limiting the dominating presence of key players may help to restore efficiency to sovereign debt negotiations. Journal: International Economics Pages:217-240 Issue: 164 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701720302675 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q4-164-14 Template-Type: ReDIF-Article 1.0 Title: Real exchange rate misalignments in developing countries: The role of exchange rate flexibility and capital account openness Author-Name: Wishnu Mahraddika Keywords: Real exchange rate;Exchange rate regime;Capital account openness Classification-JEL:F31;F38;F41;O24 Abstract: This paper examines the association between real exchange rate (RER) misalignments, exchange rate flexibility, and capital account openness using a panel dataset for 60 developing countries over the period 1980–2014. The analysis is based on an alternative measure of RER that is more consistent with the theoretical concept of RER than the commonly used index, and misalignment estimates that account for country-specific underlying factors. The results suggest that the exchange rate regime and capital account policy are significantly related to the degree of persistence and the magnitude of RER misalignments. Journal: International Economics Pages:1-24 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303270 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-1 Template-Type: ReDIF-Article 1.0 Title: Business cycles, bilateral trade and financial integration: Evidence from Economic Community of West African States (ECOWAS) Author-Name: Stéphane Zouri Keywords: Business cycles;Trade intensity;Financial integration;ECOWAS Classification-JEL:E32;F15;F36;O55 Abstract: This paper identifies the determinants of synchronization of business cycles in ECOWAS, which is a key issue from the perspective of creating a single currency in 2020. Indeed, conducting actions in the direction of synchronization of business cycles is important because the asymmetries of cycles observed within a monetary union determine its sustainability. We go further than previous studies in this area, as we (i) take into account financial linkages, (ii) propose new measures to improve the quality of results, and (iii) pay attention to the structure of trade by analyzing inter-regional links. Moreover, to highlight the role of adopting a single currency in ECOWAS, we compare the West African Economic and Monetary Union and the non-monetary zone within the ECOWAS zone. We find that bilateral trade and financial integration are determinants of the synchronization of business cycles in the region, with the regional financial integration channel dominating the international one. Finally, we show that the weakness of intracommunity trade does not constitute a barrier to the monetary union, and that the launch of the single currency is a means to increase business cycles synchronization through bilateral trade. Journal: International Economics Pages:25-43 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302203 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-2 Template-Type: ReDIF-Article 1.0 Title: The threshold of absorptive capacity: The case of Vietnamese manufacturing firms Author-Name: Vu Hoang Duong Keywords: Absorptive capacity;FDI spillovers;Threshold Classification-JEL:D24;F21 Abstract: The paper empirically examines the impact of foreign direct investment spillovers on the performance of Vietnamese manufacturing firms from 2007 to 2015, and the role exerted by absorptive capacity on this relationship. Importantly, it is expected that the thresholds of absorptive capacity of the domestic firms exist, and the benefits which local firms enjoy can vary subject to the thresholds. This paper applies a threshold fixed effect model with panel data in Vietnam to show several findings. Firstly, the domestic firms can benefit from spillovers via the horizontal channel and backward linkage. Secondly, absorptive capacity is a vital factor in linking horizontal spillovers to local firms. Finally, the paper finds that there are thresholds of absorptive capacity in the case of Vietnam. Journal: International Economics Pages:44-57 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719300769 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-3 Template-Type: ReDIF-Article 1.0 Title: On the effect of credit rating announcements on sovereign bonds: International evidence Author-Name: Dimitrios Kenourgios Author-Name: Zaghum Umar Author-Name: Paraskevi Lemonidi Keywords: Sovereign credit ratings;Credit rating agencies;Bond yields;Emerging markets;Panel analysis Classification-JEL:C23;F30;G15;G24 Abstract: This paper examines the effect of credit rating announcements on ten-year sovereign bond yields for a selected sample of “traditional” and “new” global emerging countries as well as for developed countries that were hit mostly by the global financial crisis. By performing a panel regression analysis and several robustness tests, we highlight heterogeneous effects across different types of credit events, country groups, and rating agencies. The downgrades and negative outlooks by all agencies are more informative, increasing the bond yields of the group of all countries not only during the week of the announcement, but also one week after. On the contrary, the markets seem to discount imminent upgrade announcements one week earlier. On a credit rating agency level, an asymmetric pattern is observed since the informative role of each agency depends on the type and the horizon of the announcement. Only the positive outlooks by all agencies do not offer any effect across all markets and country groups. Finally, only the bond markets of BRICS and GIIPS react strongly to downgrades and negative outlooks. Journal: International Economics Pages:58-71 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930191X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-4 Template-Type: ReDIF-Article 1.0 Title: Expectations anchoring indexes for Brazil using Kalman filter: Exploring signals of inflation anchoring in the long term Author-Name: Fernando Nascimento de Oliveira Author-Name: Wagner Piazza Gaglianone Keywords: Inflation;Expectation;Anchoring;Kalman filter;Brazil Classification-JEL:E50;E52;E58 Abstract: Our objective in this paper is to build expectations anchoring indexes for inflation in Brazil that are fundamentally driven by the monetary authority’s capacity to anchor long-term inflation expectations. The expectations anchoring indexes are generated from a Kalman filter, based on a state-space model that also takes into account fiscal policy dynamics. The model’s signals are constructed using inflation expectations from the Focus survey of professional forecasters, conducted by the Central Bank of Brazil, and from the swap and federal government bond markets, which convey daily information of long-term inflation expectations. Although varying across specifications, the expectations anchoring indexes that we propose tend to display a downward trajectory, more clearly in 2009, and show a recovery starting in 2016 until the end of the sample (mid-2017). Journal: International Economics Pages:72-91 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303440 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-5 Template-Type: ReDIF-Article 1.0 Title: Investment confidence and regional trade agreements with the United States Author-Name: Alberto Chong Author-Name: Carla Srebot Keywords: Regional trade agreements;Investment;Causality;Cross-country Classification-JEL:F14;F63;O10 Abstract: Using a fixed-effects approach as well synthetic control methods we provide evidence on a causal link between regional trade agreements and investment confidence. Interestingly, we find that this causal impact is not observed immediately after the agreement is enacted but takes time, as observed in corresponding event studies. Our results hold to a broad array of robustness tests. Journal: International Economics Pages:92-100 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172030086X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-6 Template-Type: ReDIF-Article 1.0 Title: Policy uncertainty and consumption in G7 countries: An asymmetry analysis Author-Name: Mohsen Bahmani-Oskooee Author-Name: Majid Maki Nayeri Keywords: Policy uncertainty;Asymmetry;Consumption;G7 Classification-JEL:F40 Abstract: In this study, we aim at assessing the effects of policy uncertainty on consumption in G7 countries. Unlike previous research, we take an additional step and show that the impacts are asymmetric, which helps us to have a better understanding of the effects of increased versus decreased uncertainty in the G7 economies. Our results suggest that policy uncertainty has indeed asymmetric effects on consumer expenditure in all G7 countries. These findings imply that the positive and the negative shocks could not offset each other’s impact on consumption, which leads to a different path of consumption before and after a period with a high level of uncertainty. Journal: International Economics Pages:101-113 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930304X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-7 Template-Type: ReDIF-Article 1.0 Title: The impact of future power generation on cement demand: An international and regional assessment based on climate scenarios Author-Name: Emmanuel Hache Author-Name: Marine Simoën Author-Name: Gondia Sokhna Seck Author-Name: Clément Bonnet Author-Name: Aymen Jabberi Keywords: Energy transition;Concrete;Cement;Power sector;Construction materials Classification-JEL:Q42;Q51;Q53 Abstract: Concrete is the most widely used manmade material in the world with an annual production of about 10 billion tons globally. Its use outpaces that of historically important materials such as wood or stone in modern urbanism. Concrete is closely tied to the energy transition. As a structural material, concrete is used in multiple sectors, including energy. Because the concrete content of a power plant varies depending on the technology, the energy transition is expected to impact future demand for concrete. At the same time, concrete production is known to be highly polluting as one of its major components is cement, produced by an industry that is one of the main emitters of carbon dioxide worldwide. This dual aspect explains the aim of this study: understanding concrete (and therefore cement) demand under the energy transition policies described in the IEA’s 2017 Energy Transition Policy (ETP) report and quantifying CO2 emissions from cement production for the energy sector. Based on a simple model, the study is looks at global and regional levels to take into account potential local disparities. The results demonstrate that the decarbonization of the power sector will have a limited impact on global cement demand, but that it could be more challenging for some regions where the new power production mix would require large concrete structures. This model could be a useful decision-making tool in assessing the relative impact of any public energy transition scenarios on raw materials such as cement at the highest level of disaggregation, as well as enabling better sub-sectorial screening. Journal: International Economics Pages:114-133 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303439 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-8 Template-Type: ReDIF-Article 1.0 Title: Cross-country convergence in global value chains: Evidence from club convergence analysis Author-Name: Bhushan Praveen Jangam Author-Name: Badri Narayan Rath Keywords: Global value chains;Forward linkage;Backward linkage;Club convergence Classification-JEL:F1;F12;F15 Abstract: We investigate the evidence of convergence/divergence in global value chain (GVC) participation across 61 countries from 2005 to 2015, employing the panel club convergence technique. The findings do not support evidence of absolute convergence, but evidence of club convergence. Seven clubs and a non-convergent group are identified, signifying that the types of activities are not uniform across countries, each club following a unique transition path. Further, we examine convergence in the forward and backward participation of GVCs. The findings reveal similar evidence of club convergence. Policies targeting GVCs need to consider the transition path of each club for better outcomes. Journal: International Economics Pages:134-146 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070172030247X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-9 Template-Type: ReDIF-Article 1.0 Title: Tracking fiscal discipline. Looking for a PIIGS on the wing Author-Name: David Neto Keywords: Fiscal policy;Smooth time-varying multicointegration;Stock-flow analysis;Sustainability;Chebyshev time-polynomial Classification-JEL:E62;C12;C13;C51;C54 Abstract: This paper revisits fiscal sustainability conditions by relaxing the long-run time-invariance restriction on the parameters commonly imposed in the existing literature. For this purpose, we propose to extend the stock-flow econometric analysis, which bridge the use of government's intertemporal budget constraint as well as a government's fiscal manoeuvre, by allowing time-varying multicointegration. We applied the procedure to the Portuguese case. We found that fiscal practice has taken various directions in this country since the end of the 90s, involving different situations regarding fiscal sustainability. Journal: International Economics Pages:147-154 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301994 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-10 Template-Type: ReDIF-Article 1.0 Title: Loan growth, capitalization, and credit risk in Islamic banking Author-Name: Muhammad Sobarsyah Author-Name: Wahyoe Soedarmono Author-Name: Wahdi Salasi Apri Yudhi Author-Name: Irwan Trinugroho Author-Name: Ari Warokka Keywords: Loan growth;Capitalization;Credit risk;Financial crisis;Islamic banks Classification-JEL:G21;G28 Abstract: We assess the effect of loan growth and capitalization on credit risk in Islamic banking. Using a sample of Islamic banks from 29 countries, our empirical results reveal that higher loan growth exacerbates credit risk one year ahead, particularly for Islamic banks with higher capitalization. However, a deeper investigation highlights that such evidence is more pronounced after the 2008 global financial crisis (GFC). Hence, strengthening prudential tools and supervision for Islamic banks with higher capitalization is necessary to mitiate moral hazard and ensure prudent lending behavior in the aftermath of the GFC. Likewise, strengthening capital requirements is not enough to ensure prudent lending behavior in Islamic banking. Journal: International Economics Pages:155-162 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718303317 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-11 Template-Type: ReDIF-Article 1.0 Title: A real time leading economic indicator based on text mining for the Spanish economy. Fractional cointegration VAR and Continuous Wavelet Transform analysis Author-Name: Carlos Poza Author-Name: Manuel Monge Keywords: Leading economic indicators;Business cycle;Google trends;Fractional cointegration VAR;Wavelet analysis Classification-JEL:E32;E37 Abstract: The main aim of this paper is to build a Real Time Leading Economic Indicator (RT-LEI) that improves Composite Leading Indicators (CLI)’s performance to anticipate GDP trends and turning points for the Spanish economy. The indicator has been constructed using a Factor Analysis and is composed of 21 variables concerning motor vehicle activity, financial activity, real estate activity, economic sentiment, and industrial sector. The data sources used are Google Trends and Thomson Reuters Eikon-Datastream. This work contributes to the literature, studying the dynamics of GDP, CLI and RT-LEI using Fractional Cointegration VAR (FCVAR model) and Continuous Wavelet Transform (CWT) for its resolution. The results show that the model does not present mean reversion and it is expected the RT-LEI reveals a bear trend in the next two years, alike IMF and Consensus FUNCAS' forecasts. The reasons are mostly associated with escalating global protectionism, uncertainty related to Catalonia and faster monetary policy normalization. Journal: International Economics Pages:163-175 Issue: 163 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302008 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q3-163-12 Template-Type: ReDIF-Article 1.0 Title: Manufacturing firms’ export activity: Business and financial cycles overlaps! Author-Name: Juan Laborda Author-Name: Vicente Salas Author-Name: Cristina Suárez Keywords: Exports;Industrial and manufacturing;Macroeconomics;Competitive advantage Internal demand;Credit cycle Classification-JEL:C23;C24;D22;F14;F41 Abstract: This paper models how the business and financial cycles interact in firms’ export activity. Specifically, we study the influence of macroeconomic variables on the decision to export and on the volume of exports, being controlled by firms’ characteristics. A distinction is made between the firms’ export activity in reaction to increases in external demand after improvements in national competitiveness, and firms’ exporting in response to a reduction in aggregate internal demand. The decision to export depends positively on the countries’ competitiveness variables, and the volume of exports also depends positively on national competitiveness and negatively on growth of internal demand. We also find a positive influence of the leverage of the economy on extensive and intensive export activity. Our results suggest that the financial cycle overlaps with the business cycle in influencing firm export activity decisions. Journal: International Economics Pages:1-14 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301933 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-1 Template-Type: ReDIF-Article 1.0 Title: Role of capital flight as a driver of sovereign bond spreads in Latin American countries Author-Name: Hajer Dachraoui Author-Name: Mounir Smida Author-Name: Maamar Sebri Keywords: Capital flight;Emerging market;Latin America;Panel-ARDL;Pooled mean group (PMG);Sovereign bond spreads Classification-JEL:F34;G12;G15;O11 Abstract: The Latin American region has experienced many interdependent issues such as financial crises, unsustainable sovereign spreads, sudden stops in capital flows, capital flight and growth rate collapse. This study focuses on identifying the drivers of sovereign bond spreads by focusing on the role of capital flight. It is worthy to note that no prior study has explicitly examined this relationship. Using data on eight Latin American countries during the period 1993–2015 and based on dynamic heterogeneous panel regression as a panel-ARDL model and the Pooled Mean Group (PMG) estimator, important outcomes are found out. First, in the long-run, sovereign bond spreads are influenced by the countries’ local fundamentals as well as global factors, whereas in the short-run it is mainly the global factors that can be identified as drivers. Second, the capital flight, which is the variable of interest, shows a positive effect on sovereign bond spreads. Indeed, in order to strengthen their debt repayment ability, Latin American countries are presumably called upon to curb and prevent the capital flight. This requires implementing various strategies which range from establishing efficient judicial and political institutions to growth-boosting through controlling the macroeconomic factors. Journal: International Economics Pages:15-33 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303014 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-2 Template-Type: ReDIF-Article 1.0 Title: Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries Author-Name: Marek A. Dabrowski Author-Name: Justyna Wróblewska Keywords: Open economy macroeconomics;Exchange rate regimes;Real and nominal shocks;Bayesian structural VAR;Common serial correlation Classification-JEL:F33;C11;F41;E44 Abstract: We examine the insulating property of flexible exchange rates in CEE economies considering thatthey have adopted different regimes. We estimate a set of Bayesian structural VAR models withcommon serial correlations using data spanning 1998q1-2015q4. We derive the long-term iden-tifying restrictions from a macroeconomic model. We find that irrespective of the exchange rateregime, real shocks primarily drive output. However, its reactions to these shocks are substan-tially stronger under less flexible regimes, whereas the responses to nominal shocks are similar.Hence, the insulating property of flexible regimes can reduce the costs from economic shocks. Journal: International Economics Pages:34-49 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301970 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-3 Template-Type: ReDIF-Article 1.0 Title: Natural resource rents, political regimes and terrorism in Africa Author-Name: Kazeem B. Ajide Author-Name: Juliet I. Adenuga Author-Name: Ibrahim D. Raheem Keywords: Natural resource rents;Political regimes;Terrorism;Negative binomial regression Classification-JEL:C25;O55;P51;Q34 Abstract: The study adds to the stock of existing literature on the supposed crises-inducing role of natural resource rents, by specifically linking same to political regime and growth of terrorist attacks for a panel of forty-nine (49) African economies for the period, 1980–2012. To avail room for more policy implications, four terrorism indicators, namely: domestic, international, uncertain, and total, are used on a negative binomial regression estimator due to the count nature of terrorism data. Our findings reveal the following: first, natural resource rents have unconditional effects on transnational and total terrorism. Second, political regimes equally exert unconditional impacts on domestic and total terrorism, with both democracy and autocracy mitigating the terror-inducing effects on the one hand, with anocracy acting as a magnifying apparatus on the other hand. Third, the interaction between natural resource rents and anocracy has negative marginal effects on both domestic and total terrorism measures. Fourth, the corresponding effects of interaction, however, turned positive for both domestic and total terrorism. Lastly, the considered conditioning variables equally received extensive empirical backings but not on an equal basis. Thus, understanding the terror context of natural resource rents and the dynamics of political regimes represent formidable counterterrorist measures. Journal: International Economics Pages:50-66 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719300198 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-4 Template-Type: ReDIF-Article 1.0 Title: Growth accounting and regressions: New approach and results Author-Name: Tiago Sequeira Author-Name: Hugo Morão Keywords: Economic growth;Growth accounting;Growth regressions;Time-varying shares;Government expenditure;Robust estimation;Bootstrap Classification-JEL:O47;O50 Abstract: We seek for determinants of the sources of growth. Using a growth accounting method that accounts for time variations in factor shares, we run growth regressions for a panel of 101 countries between 1950 and 2015. Our methodology takes into account the specific features of the data (namely outliers, heterogeneity, and cross panel correlations) and overcomes most criticisms previously raised on growth regressions. The most important evidence reveals that government current expenditure decreases the factor shares and has no effect on total factor productivity (TFP). Trade affects the TFP and the Biased Technical Change (BTC) components, decreasing the factor shares. Moreover, human capital decreases TFP and increases the BTC contribution to growth. This unveils the channels through which determinants of growth act in influencing economic growth. Journal: International Economics Pages:67-79 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303117 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-5 Template-Type: ReDIF-Article 1.0 Title: Mexican peso-USD exchange rate: A switching linear dynamical model application Author-Name: Dayna P. Saldaña-Zepeda Author-Name: Ciro Velasco-Cruz Author-Name: Víctor H. Torres-Preciado Keywords: Switching linear dynamical model;Hidden Markov models;Exchange rate volatility;Exchange rate regime Classification-JEL:C14;F31 Abstract: We present an application of the switching linear dynamical model (SLDM) to model the nominal Mexican peso-USD exchange rate time series from January 01, 1970 to January 09, 2019. Two main features exhibited by the time series are observed: dynamical behavior with upward and downward movements after moving to the floating exchange rate regime, and most recently a persistent increasing trend. The SLDM is a flexible method for learning about dynamic models for time series with complex and uncertain behavior patterns, such as those exhibited by the exchange rate. The SLDM allows us to account for four novel results not obtained before: (1) we are able to identify four regimes; (2) we cluster the observations into regimes; (3) we provide the estimated probability of a change point at each time instead of estimating a regime constant persistence; and (4) we find that the change points match with some internal and external events associated with crisis periods. Journal: International Economics Pages:80-91 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301362 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-6 Template-Type: ReDIF-Article 1.0 Title: Collateral damage: The Western sanctions on Russia and the evaluation of implications for Russia’s post-communist neighbourhood Author-Name: Vugar Bayramov Author-Name: Nabi Rustamli Author-Name: Gulnara Abbas Keywords: Western sanctions;Russia;CIS;CEE countries;Baltic states;Spillover channels Classification-JEL:C22;C23;F15;F24;F44 Abstract: This paper reviews the Western sanctions on Russia and endeavours to evaluate the medium-term implications of these sanctions for post-communist neighbours of Russia. Growth spillovers are examined via VAR model. This model reveals that the Western sanctions against Russia have significant impact on Russia’s post-communist neighbours: the accumulated response of CIS GDP to a 1% shock to Russian GDP is -0.72, while the accumulated response of CEE GDP is -0.22. Export, remittance and FDI links of these countries with Russia are examined using panel regressions. Almost all CEE countries are less integrated with Russia compared to CIS countries. Oil and gas exporting CIS countries are not directly dependent on Russia. The remaining CIS countries are the most vulnerable group, and the remittance channel retains its importance for their economies. Costs of Western sanctions for the CIS countries can be minimised by integrating these implications to the design and implementation process of sanctions. Journal: International Economics Pages:92-109 Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171830297X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-7 Template-Type: ReDIF-Article 1.0 Title: The effects of investor emotions sentiments on crude oil returns: A time and frequency dynamics analysis Author-Name: Keywords: Co-movement;Crude oil;Emotions sentiments;Wavelet analysis Classification-JEL:C58;G41 Abstract: In this paper, we use wavelet coherence analysis to find that sentiment has a significant effect on crude oil returns that lasts over various investment horizons. While oil returns are positively associated with the sentiments of optimism and trust, they are negatively linked to fear and anger. These relations are more pronounced over the medium and the long term. Additionally, we find that short-term oil returns are relatively more sentiment-sensitive during turbulent periods than in normal conditions. These results highlight the importance of sentiment and investor psychology in the crude oil market. Journal: International Economics Pages: Issue: 162 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302458 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q2-162-8 Template-Type: ReDIF-Article 1.0 Title: Measuring the Balassa-Samuelson effect: A guidance note on the RPROD database Author-Name: Cécile Couharde Author-Name: Anne-Laure Delatte Author-Name: Carl Grekou Author-Name: Valérie Mignon Author-Name: Florian Morvillier Keywords: Balassa-Samuelson;Relative productivity;Tradables;Non-tradables Classification-JEL:F31;F41 Abstract: This guidance note outlines the construction and contents of RPROD. This new database developed by CEPII complements the EQCHANGE database, by providing additional measures of the Balassa-Samuelson effect. RPROD delivers the following indicators computed for each country included in the database, and relative to its main trading partners: (i) GDP per capita, (ii) labor productivity, (iii) consumer-price-to-producer-price ratio, (iv) three-sectors’ value-added deflator, and (v) six-sectors' value-added deflator. These different measures are publicly available (http://www.cepii.fr/CEPII/fr/bdd_modele/presentation.asp?id=34), with the aim to contribute to the investigation of the Balassa-Samuelson hypothesis, and to the comparison of estimated equilibrium real exchange rates and currency misalignments across alternative proxies of this effect. Journal: International Economics Pages:237-247 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303002 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161- Template-Type: ReDIF-Article 1.0 Title: NAFTA and the convergence of CO2 emissions intensity and its determinants Author-Name: Nicholas Apergis Author-Name: James E. Payne Keywords: CO2 emissions intensity;Energy intensity;Carbonization index;Stochastic convergence;s-convergence;Club convergence Classification-JEL:F18;Q56 Abstract: This empirical study examines the extent to which the introduction of NAFTA influenced the convergence behavior of CO2 emissions intensity and its determinants (energy intensity and carbonization index) associated with the countries of Canada, Mexico, and the U.S. Our results from tests of stochastic convergence, s-convergence, and club convergence reveal convergence in both the pre- and post-NAFTA periods. This finding suggests the convergence behavior of CO2 emissions intensity and its determinants has not substantially changed with the introduction of NAFTA. Journal: International Economics Pages:1-9 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302185 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-1 Template-Type: ReDIF-Article 1.0 Title: Regime dependent effects and cyclical volatility spillover between crude oil price movements and stock returns Author-Name: Christian Urom Author-Name: Kevin O. Onwuka Author-Name: Kalu E. Uma Author-Name: Denis N. Yuni Keywords: Classification-JEL: Abstract: This paper has two aims. First, we measure the asymmetric effect of crude oil prices on stock returns under a regime switching framework in the context of major oil exporting countries namely: the United Arab Emirates (UAE), Qatar, Saudi Arabia, Russia, Venezuela and Kuwait. The key results from our baseline model suggest that stock returns in all the markets exhibit regime switching behaviour with the bull market regime dominating most of the period except for Russia. Also, we found strong linkages among the bear market periods with Qatar and Saudi Arabia exhibiting the strongest negative linkage. The UAE and Saudi Arabia are more likely to experience bearish market conditions at same period whereas Russia is segmented from other markets except Saudi Arabia. Results from our augmented model suggest that the effect of crude oil price varies across regimes, impacting more strongly on stock returns during recession than during periods of expansion especially in Venezuela and Saudi Arabia. Secondly, we examine volatility spillover from crude oil prices to stock returns and found a substantial cyclical volatility spillover from crude oil to returns especially in the UAE, Russia and Qatar and that the evolution of spillover follows key developments in the market for crude oil, geopolitical risks and then, global economic conditions. Our results hold profound implications for risk management and portfolio diversification strategy in oil exporting region. Journal: International Economics Pages:10-29 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301040 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-2 Template-Type: ReDIF-Article 1.0 Title: The role of carry trades on the effectiveness of Japan's quantitative easing Author-Name: Thomas Chuffart Author-Name: Cyril Dell'Eva Keywords: Carry trades;Unconventional monetary policy;Data-driven structural ;VAR;Japan Classification-JEL:C32;C54;E5;E52;E58 Abstract: This paper investigates how carry trades altered the efficiency of the Japanese quantitative easing policy between March 1995 and September 2010. Monetary policy shocks are identified by means of a data-driven Structural VAR approach. Accordingly, our results rely exclusively on the statistical properties of the data through non-Gaussian identification. We show that carry trades, by altering the portfolio re-balancing channel, have attenuated the impact of the Japanese quantitative easing policy on growth. Journal: International Economics Pages:30-40 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719300095 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-3 Template-Type: ReDIF-Article 1.0 Title: Understanding the dynamics of foreign reserve management: The central bank intervention policy and the exchange rate fundamentals Author-Name: Idil Uz Akdogan Keywords: Foreign exchange intervention;Central bank policy;Foreign exchange reserves;Sterilised interventions;Propensity score matching Classification-JEL:F31;E58;G18 Abstract: The aim of this study is to examine the behaviour of central banks in managing their foreign exchange reserves. This includes measuring the effects of macroeconomic fundamentals on intervention and the effectiveness of intervention in managing exchange rates. First, the paper focuses on measuring central bank reaction functions to assess the response of central banks to exchange rate volatility in both emerging (EE) and advanced economies (AE). Then, it proposes an alternative approach for the closest obtainable approximation for official intervention. Finally, the Propensity Score Matching (PSM) technique is applied to test whether the proposed foreign exchange intervention has causal effects on exchange rates. Results show that central banks in both EE and AE respond more aggressively to an exchange rate appreciation. Data from official foreign reserves provide enough evidence for detecting policy changes and reveal central bank intervention. The intervention model is improved once we include other central bank incentives such as sterilisation, trade balance and the growth of reserves in relation to the growth of output. PSM results show that the central bank interventions are meaningful, and they provide evidence of causal inference for the behaviour of exchange rates in EE. Journal: International Economics Pages:41-55 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930160X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-4 Template-Type: ReDIF-Article 1.0 Title: How do human rights violations affect poverty and income distribution? Author-Name: Nicholas Apergis Author-Name: Arusha Cooray Keywords: Human rights;Income inequality;Poverty;Global panel of countries Classification-JEL:D63;I32;K38;O57;C33 Abstract: Employing data for 125 countries and spanning the 1990–2014 period, we empirically examine the impact of human rights on income distribution and poverty. We also investigate how aid and trade can influence poverty and income distribution through human rights. The results suggest that stronger human rights records contribute to greater income equality, as well as to poverty reduction. The interaction of human rights with both ODA and trade show that as aid and trade flows increase, or alternatively as human rights records increase, ODA and trade flows reduce poverty and lead to greater equality in income distribution. Journal: International Economics Pages:56-65 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301155 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-5 Template-Type: ReDIF-Article 1.0 Title: Are global value chains receding? The jury is still out. Key findings from the analysis of deflated world trade in parts and components Author-Name: Guillaume Gaulier Author-Name: Aude Sztulman Author-Name: Deniz Ünal Keywords: Global value chains;Parts and components;Trade in volume;Electronics Classification-JEL:F14;F15;L60 Abstract: The weakening of global value chain dynamics is considered as one of the causes of the slowdown in world trade since the 2008 crisis. To better understand the evolution of GVCs at the world level, we use very detailed trade data for 2000 to 2017, which distinguishes different production stages along the GVC. In particular, among intermediate goods, we focus on Parts and Components (P&C) rather than semi-finished products since the manufacture of P&C corresponds to activities more embedded in GVCs. We control for price effects using an original production stages deflator based on detailed bilateral trade unit-values, and take into account the evolution of the global business cycle. We show that the development of international value chains, measured as the share of trade in P&C in manufacturing world trade in volume, continued after the crisis. Moreover, such dynamics are not the result of sectoral composition effects. Journal: International Economics Pages:219-236 Issue: 161 Year: 2020 File-URL: http://www.cepii.fr/IE/collection.asp File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-5 Template-Type: ReDIF-Article 1.0 Title: Tail dependence structures between economic policy uncertainty and foreign exchange markets: Nonparametric quantiles methods Author-Name: Khamis Hamed Al-Yahyaee Author-Name: Syed Jawad Hussain Shahzad Author-Name: Walid Mensi Keywords: Economic policy uncertainty;Exchange rates;Nonparametric quantiles Classification-JEL:G11;G14 Abstract: This study examines the extreme dependence and nonlinear causality between economic policy uncertainty (EPU) and major real foreign exchange markets (FER) in Australia, Canada, China, the E.U., Japan, Mexico, the U.K., and the U.S. For a deepen analysis, we also explore the financial uncertainty (FU)-FER nexus. To do this, we used both the Quantile-on-Quantile (QQ) approach and the nonparametric causality-in-quantiles tests. Using the QQ method, the results show negative average and extreme dependence between EPU and FERs. Moreover, the structure of dependence between the considered variables is found to be asymmetric across the quantiles. By applying the nonparametric causality-in-quantile tests, we found a weak evidence of causality-in-mean (at middle quantiles) and a strong evidence of causality-in-variance (for almost all quantiles) from both local and U.S. financial and EPU to FERs. Finally, the linkages between EPU and FERs intensified during our analysis of the 2008–2009 global financial crisis (GFC). These results have important implications for currency traders and monetary policy. Journal: International Economics Pages:66-82 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718302774 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-6 Template-Type: ReDIF-Article 1.0 Title: Inequality, poverty and economic growth Author-Name: Robert Breunig Author-Name: Omer Majeed Keywords: Inequality;Economic growth;Poverty;Cross-country regressions Classification-JEL:O47;D63;I39 Abstract: Recent research has highlighted a negative impact of inequality on economic growth. We re-evaluate this hypothesis focusing on both inequality and poverty and their interaction. We replicate previous results showing that inequality has a negative impact on growth. However, we show that when we account for both inequality and poverty, the negative effect of inequality on growth appears to be concentrated amongst countries with high poverty. This would argue for policies targeted towards alleviating poverty even if they have no effect on inequality. Journal: International Economics Pages:83-99 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301052 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-7 Template-Type: ReDIF-Article 1.0 Title: Arab geopolitics in turmoil: Implications of Qatar-Gulf crisis for business Author-Name: Refk Selmi Author-Name: Jamal Bouoiyour Keywords: Geopolitical instability;Qatar-Gulf crisis;Stock markets;Volatility;Risk spillovers Classification-JEL:F30;F36;F65;G11;G15 Abstract: On June 5, 2017 Saudi Arabia, the United Arab Emirates, Egypt and Bahrain (known as the quartet) announced they were breaking diplomatic ties with Qatar, accusing it of destabilizing the region. The more than two-year-old rancorous dispute between Qatar and its neighbors is forging a new Gulf, transforming what was a stable region of the Arab world. This research examines the regional business costs of this blockade which cut off all diplomatic and commercial relations with Doha. We compare the stock market performances of Qatar and its Middle Eastern neighbors before and after the Saudi-led Qatar boycott. We focus our attention on the conditional volatility process of stock market returns and risks related to financial interconnectedness. Our results robustly reveal that this crisis had the most adverse impact on Qatar together with Saudi Arabia and the UAE. Although not to the same degree as these three countries, Bahrain and Egypt were also adversely affected. But the effects seem transitory. Overall, the quartet lobbying efforts did not achieve the intended result. Despite the vulnerability of its business, Qatar has demonstrated remarkable resilience post blockade. The availability of significant external and fiscal buffers and the strong financial sector allow Qatar to successfully withstand an escalation of the siege crisis. Interestingly, the diplomatic efforts of Qatar to circumvent the economic and political embargo on the country by a number of allies in the region seems to be working well, with the US government emphasizing its support for Doha. Journal: International Economics Pages:100-119 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302884 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-8 Template-Type: ReDIF-Article 1.0 Title: Investigating Asian regional income convergence using Fourier Unit Root test with Break Author-Name: OlaOluwa S. Yaya Author-Name: Fumitaka Furuoka Author-Name: Kiew Ling Pui Author-Name: Ray Ikechukwu Jacob Author-Name: Chinyere M. Ezeoke Keywords: Income convergence;Economic integration;Asia;Fourier approximation and unit root Classification-JEL:C19;C22;N17 Abstract: Income convergence among countries has become an important topic in international economics. This paper uses a new unit root test, namely the Fourier Unit Root test with Break, to examine income convergence in nine Asian countries. It has grouped the countries into three regions in Northeast Asia, Southeast Asia, and South Asia and has chosen three major economies in each of the three areas for empirical analysis. The empirical findings indicate that there is relatively greater income convergence in the South Asia and that there is a mixed trend of income convergence and income divergence in Northeast Asia and Southeast Asia. Journal: International Economics Pages:120-129 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302902 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-9 Template-Type: ReDIF-Article 1.0 Title: Halloween Effect in developed stock markets: A historical perspective Author-Name: Alex Plastun Author-Name: Xolani Sibande Author-Name: Rangan Gupta Author-Name: Mark E. Wohar Keywords: Calendar anomalies;Halloween effect;Stock market;Efficient market hypothesis Classification-JEL:G12;C63 Abstract: In this paper, we conduct a comprehensive investigation of the Halloween effect evolution in the US stock market over its entire history as well as in the other developed markets (UK, French, Canadian, German and Japanese). We employ various statistical techniques (average analysis, Student's t-test, ANOVA, and the Mann-Whitney test) and the trading simulation approach to analyse the evolution of the Halloween effect. The results suggest that in the US stock market and other developed markets, the Halloween effect only became detectable in the middle of the 20th century. Recently it is still present in the US stock market and most of the other developed markets, which provides opportunities to build a trading strategy which can beat the market. Therefore, it can be concluded that, in the main, the Halloween effect in the US market and other developed markets is consistent with the Adaptive Market Hypothesis. Journal: International Economics Pages:130-138 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301829 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-10 Template-Type: ReDIF-Article 1.0 Title: The post-crises output growth effects in a globalized economy Author-Name: Bertrand Candelon Author-Name: Alina Carare Author-Name: Jean-Baptiste Hasse Author-Name: Jing Lu Keywords: Globalization;Financial crises;Output growth Classification-JEL:f30;f43;f65 Abstract: This paper investigates the persistent impact of financial crises on economic growth in different regimes of globalization. Relying on a nonlinear dynamic panel representation, this paper explains why the effects of globalization on growth weave into a tale of two opposite narratives. On average, a country experiences higher growth, the more open and integrated it is into the world. However, countries can also experience persistently lower medium-term output growth after a financial crisis, once globalization reaches a certain threshold. The benefits, as well as vulnerabilities, accrue earlier in the globalization process for low-income countries. Journal: International Economics Pages:139-158 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302653 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-11 Template-Type: ReDIF-Article 1.0 Title: Determinants of foreign direct investment inflows: The role of economic policy uncertainty Author-Name: Nguyen Phuc Canh Author-Name: Nguyen Thanh Binh Author-Name: Su Dinh Thanh Author-Name: Christophe Schinckus Keywords: FDI inflows;Domestic and global economic policy uncertainty;Sequential (two-stage) estimation Classification-JEL:F21;D81;E02 Abstract: This article investigates the impacts of the domestic economic policy uncertainty (EPU) and the World Uncertainty (WUI) on net foreign direct investment inflows (FDI) for 21 economies over the period 2003–2013. By using the sequential (two-stage) technique of linear panel data models, this study provides two major results. First, the growth rate of domestic EPU adversely affects FDI inflows. Second, when combined with the domestic EPU level, the World Uncertainty (WUI) that includes the economic policy uncertainty measure of 143 countries has a positive impact on the FDI inflows into the host country. The findings suggest that although domestic economic policy uncertainty has an adverse effect on FDI inflows; an increase in the global (world) economic policy uncertainty could increase FDI inflows into the country. We explain this systematic aversion to global uncertainty through the existence of a behavioural bias (anchor and adjustment) illustrating the investors’ sensitivity to their ability to associate a frame to uncertainty. Journal: International Economics Pages:159-172 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930040X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-12 Template-Type: ReDIF-Article 1.0 Title: Growing external debt and declining export: The concurrent impediments in economic growth of Sub-Saharan African countries Author-Name: Samson Edo Author-Name: Nneka Esther Osadolor Author-Name: Isuwa Festus Dading Keywords: External debt;Export trend;Economic growth;Developing countries Classification-JEL:F34;F23;F43;O55 Abstract: This study investigates the impact of external debt and export on economic growth of Sub-Saharan African countries, using ARDL panel model and appropriate estimation techniques. The estimation results reveal insignificant positive impact of both external debt and export on economic growth, in the short run. The impact turns negative in the long run, with export exerting a more significant adverse impact than external debt. However, there is long-run convergence among the variables. Furthermore, the estimated model exhibits significant structural stability, hence the estimation results are reliable for purpose of policy making. In the light of these findings, some policy options may be considered. These policy options include the curtailing of external borrowing until current debt stocks are repaid, ensuring external loans are tied to specific projects to avoid inefficient allocation of the funds, exploring domestic capital market for funds as alternative to external borrowing, embarking on more export diversification in order to mitigate poor performance of primary commodity exports, and establishment of commodity exchanges that would attract more foreign buyers of export products. These policy options can help to stem growing external debt and declining export, and subsequently ameliorate the unfavorable effect on economic growth in the countries. Journal: International Economics Pages:173-187 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930215X File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-13 Template-Type: ReDIF-Article 1.0 Title: Constrained Poisson pseudo maximum likelihood estimation of structural gravity models Author-Name: Michael Pfaffermayr Keywords: Constrained Poisson pseudo maximum likelihood estimation;International trade gravity equation structural estimation Classification-JEL:F10;F15;C13;C50 Abstract: This paper reconsiders the estimation of structural gravity models. It introduces a constrained, projection-based Poisson pseudo maximum likelihood estimation procedure (constrained PPML) that exploits the equilibrium conditions introduced by Anderson and Van Wincoop (2003) for estimation and inference. The constrained PPML estimator avoids the estimation of the large number of exporter and importer fixed effects, and provides more reliable inference than the unconstrained PPML estimator. Moreover, based on the delta method the paper drives confidence intervals of counterfactual changes. Monte Carlo simulations yield encouraging results on the performance of the constrained PPML estimator. Journal: International Economics Pages:188-198 Issue: 161 Year: 2020 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301842 File-Format: text/html Handle: RePEc:cii:cepiie:2020-Q1-161-14 Template-Type: ReDIF-Article 1.0 Title: Editorial, International Economics Author-Name: Sébastien Jean Author-Name: Mario Larch Author-Name: Valérie Mignon Keywords: Classification-JEL: Abstract: Dear readers, We would like to thank you for your increased interest in International Economics and share with you some recent developments and changes. The scope of our journal is to publish top-quality, original research in applied and specifically empirical international economics. We aim for a quick turn-around. The time from submission to first decision is on average 8 days, while the time from submission to final decision decreased from around 25 weeks in 2015 to 22 weeks in 2018. Recent highly downloaded and cited papers cover topics as diverse as global value chains, the effects of natural resource on growth, the role of carbon emissions in a global economy, the effect of governance on economic growth, the volatility estimation of Bitcoins, and exchange rate predictability, to name just a few. Further, we have a “Data, Tools, and Replication” section that is devoted to the publication of short notes presenting new and innovative datasets in the area of international economics, new tools useful for research in international economics, and/or replications of existing empirical studies in the field of international economics. In this section, we are planning to have articles describing a database on the Belt and Road Initiative, a routine to harmonize product classifications over time, different economic sanction databases, a new trade elasticity database, and a novel trade and production database in the near future. We also offer a “Fast Track” option, with a “yes or no” decision given within six weeks, and a transfer option for papers that were rejected from top field or general-purpose journals. Keeping with these aforementioned scopes, according to many indicators, our journal is on the rise: (i) The number of submissions rose to over 250 per year, corresponding to an increase of about 40% from 2015; (ii) The citation trends increased. In 2018, International Economics is ranked 31 among the 202 indexed journals in economics and finance according to CiteScore, with a CiteScore Scopus value multiplied by nearly 6 from 2014 to 2018. The SJR (SCImago Journal Rank) value has more than quadrupled between 2014 and 2018. Full-text downloads also illustrate the evolution of the journal, exhibiting a strongly increasing trend: the number of full-text downloads has multiplied by around 2.6 since 2014. We are very happy about these developments and are fully aware that the improvements would not have been possible without the great work and engagement of the editorial board. We would like to take the opportunity to thank Bernhard Herz and Guido Porto for all their work for the journal over the last years. They decided to leave the editorial board, and we wish them all the best for their future endeavors. We are pleased to welcome Ansgar Belke, Holger Breinlich, and Lukas Vogel as new members of the editorial board. Ansgar is Jean-Monnet professor at the University of Duisburg-Essen, associate senior research fellow at the Centre for European Policy Studies (CEPS, Brussels), senior research fellow at the Centre for Data Analytics for Finance and Macroeconomics (DAFM, King's Business School, London), member of the Adjunct Faculty at the Ruhr Graduate School in Economics (RGS Econ), and a visiting professor at the Europa-Institute at Saarland University (Saarbrucken). His research focusses on international macroeconomics, monetary economics, European integration and applied econometrics. Holger is Professor of Economics at the University of Surrey, Research Affiliate/Fellow at the Centre for Economic Policy Research (CEPR), and associate of the Centre for Economic Performance of the London School of Economics. His research focusses on international trade, industrial organization, corporate finance, development economics, economic geography, and applied econometrics. Lukas is principal administrator at the Directorate General for Economic and Financial Affairs (ECFIN) of the European Commission. His research focusses on applied macroeconomic modelling and the macroeconomics of fiscal, monetary and structural policies. We very warmly welcome Ansgar, Holger, and Lukas at International Economics and look forward to working with them! The positive developments are based on the great work of the editorial board, the invaluable help of many referees, the great contributions of the authors, and the readers citing and supporting the journal. We are very grateful to all of you. We would also like to thank Véronique Le Rolland, our editorial assistant, for her continued outstanding work since so many years. We hope that our journal will develop further and establish itself as a valuable support for publication of top-quality research in international economics and a source for describing new databases. Journal: International Economics Pages:1-2 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719303208 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-0 Template-Type: ReDIF-Article 1.0 Title: The nonlinear relationship between economic growth and financial development: Evidence from developing, emerging and advanced economies Author-Name: Jaroslava Botev Author-Name: Balázs Égert Author-Name: Fredj Jawadi Keywords: Financial development;Economic growth;Nonlinearity;Threshold effects Classification-JEL:C2;G15 Abstract: This paper studies the relationship between financial development and economic growth in a large sample of developing, emerging and advanced economies over the recent period. Estimation results based on various nonlinear threshold regression models do not confirm the too-much-finance-is-bad hypothesis. We cannot indeed identify a tipping point beyond which financial development has a clear negative relation to economic development. Our results also show that banking and market finance are complementary. The positive effect of bank credit on growth is larger in stock markets that are deeper. But the thresholds above which complementarity kicks in are rather low level. Finally, the effects of bank and market finance do not seem to depend on economic development and trade openness. Journal: International Economics Pages:3-13 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303177 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-1 Template-Type: ReDIF-Article 1.0 Title: Political uncertainty and financial market reactions: A new test Author-Name: Huiqiang Wang Author-Name: Annie L. Boatwright Keywords: Causal inference;Financial markets;Risk premium;Uncertainty Classification-JEL:F37;G15 Abstract: Recent literature highlights the crucial role of understanding the mechanism between political uncertainty and financial market reactions. Along the lines of this topic, our study stresses a clear causal framework. Exploiting one unique natural experiment of the Taiwan Strait Crisis (1995-96), we provide a simple testing strategy which could precisely quantify the effects of political shocks on stock markets. This approach combines the features of one innovative panel estimator and new statistical learning methods for causal inference. Our results indicate, separating true signal from noise via the optimal benchmark, the political crisis had a substantial and significant negative impact on Taiwan's stock prices. This finding is consistent with the empirical evidence of risk premium in recent studies. Moreover, the optimal counterfactual could be an alternative option for the ceteris paribus assumption in non-lab controlled settings. Finally, this study shows predictor selection is needed for a convincing causal estimate in counterfactual studies. Journal: International Economics Pages:14-30 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301337 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-2 Template-Type: ReDIF-Article 1.0 Title: Who's winning the low-carbon innovation race? An assessment of countries' leadership in renewable energy technologies Author-Name: Clément Bonnet Author-Name: Emmanuel Hache Author-Name: Gondia Sokhna Seck Author-Name: Marine Simoën Author-Name: Samuel Carcanague Keywords: Patent data;Energy transition;Renewable energy technology;Innovation;International relations Classification-JEL:Q42;Q55;O31;O38 Abstract: Intellectual property is a central issue in climate negotiations. On the one hand, it shapes and encourages innovation in low-carbon technologies. On the other hand, it can reduce access to these technologies by giving patent holders market power. We analyse the interactions between climate negotiations and the acquisition of renewable energy technology patents. First, we present the history of climate negotiations, emphasizing the role of technologies. Second, we conduct an empirical analysis aimed at determining which countries could be considered leaders in renewable energy technologies (RETs). Major changes were observed in the geographical distribution of low-carbon innovation during the 2000s, foreshadowing a reorganization of the geopolitical balances of innovation in renewable energies. Journal: International Economics Pages:31-42 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719300332 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-4 Template-Type: ReDIF-Article 1.0 Title: The impact of public capital stock on energy consumption: Empirical evidence from Latin America and the Caribbean region Author-Name: Matheus Koengkan Author-Name: Renato Santiago Author-Name: José Alberto Fuinhas Keywords: Electricity consumption;Public capital stock;Globalisation;Latin America;Macro panel Classification-JEL:E50;F60;H54;Q43;O10 Abstract: The impact of the stock of public capital on electricity consumption per capita is analysed for eighteen Latin American and Caribbean countries over the period ranging from 1971 to 2014. We rely on the ARDL approach to capture the complexity of short- and long-run relationships between the variables. The results support that the stock of public capital influences electricity consumption only on the short run, revealing that its impact is exerted mainly by an income effect that stimulates electricity consumption momently. The stock of public capital has no long-run impact on per capita electricity consumption, rising doubts on the quality of that public stock of capital to promote development. The modelling of the drivers of electricity consumption also revealed valuable insights into how the Latin American and Caribbean region has evolved. The availability of electricity generation only stimulates moderately per capita electricity consumption, supporting that the integration of Latin American and Caribbean grids that was able to disrupt the link between local generation and consumption. This conclusion is enforced by the no statistical significance of short-run impacts of the availability of electricity generation on per capita electricity consumption. Journal: International Economics Pages:43-55 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301003 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-5 Template-Type: ReDIF-Article 1.0 Title: Who leads the inflation cycle in Europe? Inflation cycle and spillover influence among Eurozone and non-Eurozone economies Author-Name: Sang Hoon Kang Author-Name: Jose Arreola Hernandez Author-Name: Seong-Min Yoon Keywords: Inflation cycle synchronisation;Wavelet transformation;Directional spillover index;European countries Classification-JEL:C58;E31;F62 Abstract: This paper investigates co-influences between inflation cycles of the economies of four Eurozone countries (France, Germany, Spain, and Italy), the United Kingdom (U.K.), and four non-Eurozone countries (Sweden, Denmark, Norway, and Switzerland) by fitting a wavelet-based measure of synchronisation and a directional spillover index. We find evidence of short- and medium-term inflation cycle synchronicity and anticyclical inflation cycle co-movements among the U.K. and the Eurozone and non-Eurozone economies under consideration. The synchronicity of the inflation cycle is more accentuated than the joint anticyclical inflation effects. Inflation cycles of the U.K. and the largest selected Eurozone economies are observed to lead those of the selected non-Eurozone economies. The U.K.‘s inflation cycle, followed by that of Italy, most noticeably influences those of non-Eurozone economies. The inflation cycles of France, Sweden, and Germany are the largest spillover transmitters, while those of Italy and the U.K. are the largest spillover receivers across the Eurozone and non-Eurozone countries under consideration. Journal: International Economics Pages:56-71 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301192 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-6 Template-Type: ReDIF-Article 1.0 Title: The impact of biofuels on food security Author-Name: Yogeeswari Subramaniam Author-Name: Tajul Ariffin Masron Author-Name: Nik Hadiyan Nik Azman Keywords: Biofuels;Food security;Developing countries;Generalized method of moments Classification-JEL: Abstract: One of the most crucial problems in today’s world is food insecurity, with nearly 842 million people in the world are estimated to be suffering from not regularly getting enough and healthy food for their life. This issue is likely to be exacerbated by the rapid development of biofuel industry across the globe. Hence, this study investigates the implications of biofuels on food security in 51 developing countries from 2011 to 2016. Applying generalized method of moments (GMM), our results provide supportive evidence that biofuels worsen food security in developing countries. Although our undesirable result is in line with other few past studies, we believe that this result could be the short-term phenomenon and in the long-run, more win-win guidelines for the production of biofuels and food must be provided by the government. Journal: International Economics Pages:72-83 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719302410 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-7 Template-Type: ReDIF-Article 1.0 Title: A practical routine to harmonize product classifications over time Author-Name: Nicole Bellert Author-Name: Dario Fauceglia Keywords: Concordance;Product classification system;Export duration;Survival;Algorithm Classification-JEL:F14;C81 Abstract: The aim of this paper is to present a new routine that produces consistent industrial or product classifications over time. Our routine is useful for empirical researchers since many classification systems such as the Harmonized System (HS) are regularly subject to revisions. The application of our routine is likely to improve the reliability of studies about product survival, churning or scope in export markets and increase the efficiency of “within estimators”. The code that is implemented as a Stata command can be easily adapted to other programming (such as R) or data environments. Our routine based on an object-oriented Java program is less prone to coding errors than existing alternative algorithms that rely on long functional procedures instead. Journal: International Economics Pages:84-89 Issue: 160 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301696 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q4-160-8 Template-Type: ReDIF-Article 1.0 Title: Banking competition, financial dependence and productivity growth in Europe Author-Name: Aurélien Leroy Keywords: Bank competition;Total factor productivity;Economic growth;Industrial growth;Innovation Classification-JEL:D4;G21;L11 Abstract: This study empirically analyses the links between banking competition and manufacturing productivity growth for a sample of 10 European countries during the period 1999–2009. To test this relationship, which from a theoretical point of view is unclear, we use a difference-in-difference methodology similar to the one proposed by Rajan and Zingales (1998). We find that the total factor productivity of the most financially dependent industries grows more slowly in economies where banking competition is fiercer. We explain this result with the fact that bank market power, i.e., low competition, would promote relationship banking, as theoretically argued, for example, by Petersen and Rajan (1995). Relationship banking would allow banks to reduce information asymmetries, which would benefit small and/or young firms, improving the allocation of funds. Banks may select more of the best firms, which would increase total factor productivity of the industries that are more dependent on external finance. Journal: International Economics Pages:1-17 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716000020 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-1 Template-Type: ReDIF-Article 1.0 Title: Does inequality really matter in forecasting real housing returns of the United Kingdom? Author-Name: Hossein Hassani Author-Name: Mohammad Reza Yeganegi Author-Name: Rangan Gupta Keywords: Income and consumption inequalities;Real housing returns;Forecasting;United Kingdom Classification-JEL:C1;C4;C5 Abstract: In this paper, we analyze the potential role of growth in inequality for forecasting real housing returns of the United Kingdom. In our forecasting exercise, we use linear and nonlinear models, as well as measures of absolute and relative consumption and income inequalities at quarterly frequency over the period 1975–2016. Our results indicate that, while nonlinearity in the data generating process of real housing returns is important, growth in inequality does not necessarily carry important information in forecasting the future path of housing prices in the United Kingdom. Journal: International Economics Pages:18-25 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718302671 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-2 Template-Type: ReDIF-Article 1.0 Title: Frankel and Romer revisited Author-Name: Hildegunn Kyvik Nordås Keywords: Trade;Economic growth;Instrument variables Classification-JEL:F43 Abstract: Frankel and Romer (1999), hereafter FR, proposed an instrument variable for trade intensity to assess robustly the causal impact of international trade on income per person. They generated the instrument by estimating a gravity equation with only exogenous, geography-related explanatory variables on a cross-section from 1985 using ordinary least squares (OLS). This paper revisits the FR study using a new estimation strategy, the Poisson maximum likelihood estimator (PPML), for creating the instrument for 1985. Next, I repeat the IV regressions for 2005 using both OLS and PPML for estimating the instruments. I find that the IV regressions are sensitive to the period, the sample size and the estimation strategy on which the instrument is estimated. OLS based instruments are not significant in IV regressions for 2005, while PPML-based instruments are statistically and economically significant and robust to time, but do not convincingly pass tests for weak instruments. Journal: International Economics Pages:26-35 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718302294 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-3 Template-Type: ReDIF-Article 1.0 Title: Who is hurt by dollar-euro volatility in the euro zone? Author-Name: Mohsen Bahmani-Oskooee Author-Name: Hanafiah Harvey Keywords: Dollar-euro volatility;Asymmetry;The US;Euro zone;Nonlinear ARDL Classification-JEL:F14;F31 Abstract: Exchange rate volatility is said to have negative or positive effects on trade flows, depending on the degree of traders' risk aversion. However, due to changes in their expectations, the effects of exchange rate volatility on trade flows could be asymmetric. We add to this new asymmetry literature by investigating the impact of dollar-euro volatility on the U.S. trade flows with each of the 12 original members of the euro zone in order to identify members that are hurt by volatility. We find that trade flows of the U.S. with all members are affected by volatility asymmetrically in the short run. The short-run asymmetric effects last into long-run asymmetric effects in U.S. exports to nine of the 12 members and in U.S. imports from two members. Additional analysis revealed that increased exchange rate volatility will boost U.S. exports to Greece and U.S. imports from Austria and Portugal. On the other hand, decreased volatility will hurt U.S. exports to Greece and boost its exports to Italy, the Netherlands, and Portugal while having no long-run impact on U.S. imports from any partner. Journal: International Economics Pages:36-47 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171930023X File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-4 Template-Type: ReDIF-Article 1.0 Title: Unemployment effect of WTO ascension: Evidence from a natural experiment Author-Name: Chinedu Increase Onwachukwu Author-Name: Ekene Francis Okagbue Keywords: World Trade Organization;Ascension;Unemployment rate;Difference-in-difference Classification-JEL:E24;F00;F13 Abstract: Because international trade affects the rate of unemployment, ascending the World Trade Organization (WTO) established to improve the outcomes of trade will impact employment. By using a dataset covering 175 countries between 1991 and 2017 and exploiting the exogenous variation in the ascension years of countries, we estimate the causal effect of ascending WTO on the unemployment rate. Difference-in-difference estimates imply that unemployment rate reduced by 13.7 percent. Countries that ascended between 2011 and 2017 had the highest reduction in unemployment compared to those that joined between 1995 to 1999 and 2000 to 2010. Also, the effect of ascension is more for developing countries than developed countries. Our results are robust to the matching of countries by ascension period and are not influenced by any simultaneous shock or pre-existing political and economic conditions. These results point to the need for non-member countries to join the organization. Journal: International Economics Pages:48-55 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718303147 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-5 Template-Type: ReDIF-Article 1.0 Title: The technical decomposition of carbon emissions and the concerns about FDI and trade openness effects in the United States Author-Name: Muhammad Shahbaz Author-Name: Giray Gozgor Author-Name: Philip Kofi Adom Author-Name: Shawkat Hammoudeh Keywords: Carbon emissions;Scale effect;Composition effect;Technique effect;International trade;Foreign direct investment Classification-JEL:F18;Q56;C33 Abstract: This paper decomposes the environmental Kuznets curve into the scale, technique and composition effects while incorporating the roles of energy consumption, trade openness and foreign direct investments (FDI) effects in a carbon emissions function for the United States (U.S.). We have incorporated information about unknown structural breaks into this function while investigating the cointegration between the related variables. The empirical results confirm the existence of cointegration between the variables in the presence of structural breaks. Moreover, the scale effect increases carbon dioxide emissions, but the technique effect reduces it as expected. Energy consumption also adds to carbon emissions, while the composition effect improves environmental quality by lowering carbon dioxide emissions. Further, trade openness decreases carbon dioxide emissions. However, increases in FDI hamper environmental quality by increasing carbon emissions. To reduce the level of carbon emissions, the technical processes of production should be improved by investing in technological innovations and capital stock and upgrading environmental regulations to channel in environment-friendly FDIs. There should also be a transformation of the energy consumption structure towards cleaner energy sources. Journal: International Economics Pages:56-73 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718302221 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-6 Template-Type: ReDIF-Article 1.0 Title: Intelligent forecasting of economic growth for developing economies Author-Name: Chuku Chuku Author-Name: Anthony Simpasa Author-Name: Jacob Oduor Keywords: Forecasting;Artificial neural networks;ARIMA;Non-parametric regression;Backpropagation;Economic growth Classification-JEL:C45;E17;O47;O55 Abstract: It is challenging to accurately forecast economic and financial variables in developing economies mainly because they operate in economic environments that are characterized by sudden stops, external shocks, and chaotic behaviour of input variables. Models based on computational intelligence systems that mimic the biochemical processes of the human brain offer an advantage through their functional flexibility and inherent ability to adapt to changing conditions via training and learning processes. Nevertheless, these class of models have hardly been applied to forecast economic time series in these environments. This study investigates the forecasting performance of artificial neural networks and non-parametric regression models in relation to the more standard Box-Jenkins and structural econometric modelling approaches used in forecasting economic time series in developing economies. The results, using different forecast performance measures, show that artificial neural networks and non-parametric regression models perform better than structural econometric and ARIMA models in forecasting GDP growth in selected African frontier economies, especially when the relevant commodity prices, trade, inflation, and interest rates are used as input variables. The magnitude of the gains in forecast performance per unit of time rises up to 150 basis points in some cases. Thus, there is significant scope for practitioners to improve forecast accuracy in developing economies through the use of artificial neural network and non-parametric regression models. Journal: International Economics Pages:74-93 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718301185 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-7 Template-Type: ReDIF-Article 1.0 Title: Bank consolidation and financial stability in Indonesia Author-Name: Inka Yusgiantoro Author-Name: Wahyoe Soedarmono Author-Name: Amine Tarazi Keywords: Consolidation;Market power;Financial stability;Indonesian banking Classification-JEL:G21;G28 Abstract: This paper extends prior literature on the impact of bank market power as a proxy of bank consolidation on financial stability using a single country setting. From a sample of Indonesian commercial banks over the 2010–2015 time span, our empirical results show that higher bank market power is associated with lower insolvency risk and higher capital ratios, suggesting that bank consolidation is beneficial for financial system stability in general. A deeper analysis however reveals that higher market power is detrimental for financial stability in state-owned banks and small private-owned banks. This paper therefore suggests that strengthening market power in large private-owned banks, but encouraging competition in state-owned banks and small private-owned banks to reduce market power, could enhance financial stability. Journal: International Economics Pages:94-104 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302950#! File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-8 Template-Type: ReDIF-Article 1.0 Title: Product relatedness in the extensive margin of bilateral trade Author-Name: Paras Kharel Keywords: Product relatedness;Capabilities;Trade costs;Gravity model;Extensive margin Classification-JEL:F13;F14;O14 Abstract: I examine the role of product relatedness in the extensive margin of trade at the bilateral level. I adapt an established measure of pair-wise proximities among products to create a measure of product relatedness in bilateral trade. Using trade data for 148 countries and 745 products for the period 1990–2010 and employing a gravity-like specification with a careful set of fixed effects, I find that an exporter is significantly more likely to start exporting a specific new product to a destination the closer the product is to the set of products it already exports to that destination, even after controlling for the product's proximity to the aggregate export basket. The effect is increasing in competition at the destination-product level. The implication: it is not just enough for an exporter to acquire product-specific capabilities to be able to export a product to a destination; it must also acquire product-destination-specific capabilities. The results survive several robustness checks, including a placebo-like test. Journal: International Economics Pages:105-120 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718301835#! File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-9 Template-Type: ReDIF-Article 1.0 Title: China's “New normal”: Will China's growth slowdown derail the BRICS stock markets? Author-Name: Refk Selmi Author-Name: Jamal Bouoiyour Author-Name: Amal Miftah Keywords: China's growth slowdown;BRICS stock markets;Scale-on-scale analysis Classification-JEL:F36;G11;G15 Abstract: After four decades of impressive performance, China's economic expansion has begun to slow. Considering the growing China's integration in global financial markets, we examine the effect of heightened uncertainty surrounding the China's transition to the new growth model on the remaining BRICS (in particular, Brazil, Russia, India and South Africa) stock markets. This analysis is novel in its methodological approach, which is conducted to pinpoint the dynamic spillover effects as alternative to the time and frequency. The impact of China's growth slowdown is found to be heterogeneous across the BRICS stock markets, suggesting that this crisis does not affect return dynamics in these markets in a uniform way. More specifically, South Africa hasn't been rattled as badly as Brazil, Russia and India. The intensity of bilateral trade and investment relationships, the position of market in terms of regulation and securities exchanges, the financial system efficiency and the ability of counter-cyclical policies to cope with the severe downturn have been put forward to explain the heterogeneous responses of BRICS equities. Journal: International Economics Pages:121-139 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171830310X File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-11 Template-Type: ReDIF-Article 1.0 Title: Testing the Fisher hypothesis in the G-7 countries using I(d) techniques Author-Name: Guglielmo Maria Caporale Author-Name: Luis Gil-Alaña Keywords: Fisher effect;Fractional integration;Long memory;G7 countries Classification-JEL:C22;C32;E43 Abstract: This paper revisits the Fisher hypothesis concerning the determination of real rates by estimating fractional integration and cointegration models for nominal interest rates and expected inflation in the G7 countries. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests that the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis. Journal: International Economics Pages:140-150 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171830252X#! File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-12 Template-Type: ReDIF-Article 1.0 Title: How much will the Belt and Road Initiative reduce trade costs? Author-Name: François de Soyres Author-Name: Alen Mulabdic Author-Name: Siobhan Murray Author-Name: Nadia Rocha Author-Name: Michele Ruta Keywords: Transport infrastructure;GIS analysis;Shipment times;Trade costs Classification-JEL:F14;F15;R41 Abstract: This paper studies the impact of transport infrastructure projects of the Belt and Road Initiative on shipment times and trade costs. Based on a new data on completed and planned Belt and Road transport projects, Geographic Information System analysis is used to estimate shipment times before and after the Belt and Road Initiative. Two sets of data are computed to address different research questions: a global database based on an analysis of 1000 cities in 191 countries and 47 sectors and a regional database that focuses on more granular information (1818 cities) for Belt and Road economies only. The paper uses sectoral estimates of “value of time” to transform changes in shipment times into changes in ad valorem trade costs at the country-sector level. The findings show that the Belt and Road Initiative will significantly reduce shipment times and trade costs. For the world, the average reduction in shipment time will range between 1.2 and 2.5 percent, leading to reduction of aggregate trade costs between 1.1 and 2.2 percent. For Belt and Road economies, the change in shipment times and trade costs will range between 1.7 and 3.2 percent and 1.5 and 2.8 percent, respectively. Belt and Road economies located along the corridors where projects are built experience the largest gains. Shipment times along these corridors decline by up to 11.9 percent and trade costs by up to 10.2 percent. Journal: International Economics Pages:151-164 Issue: 159 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701719301799 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q3-159-13 Template-Type: ReDIF-Article 1.0 Title: Understanding the non-Gaussian distribution of revealed comparative advantage index and its alternatives Author-Name: Bin Liu Author-Name: Jianbo Gao Keywords: International Trade;Zipf-Mandelbrot’s Law;Balassa Index;Gaussian distribution;Export Specialization Classification-JEL:C14;C16;F12;F14 Abstract: The Balassa Index (BI) is a widely used index for evaluating a country's trade (dis) advantage or specialization. Unsatisfied with its unstable distribution and poor ordinal ranking property, which arise from its unstable mean, asymmetricdistributional shape, skewness and variable upper bound, many alternatives of BI, including Logarithm of RCA (LRCA), Revealed Symmetric Comparative Advantage(RSCA), Additive RCA (ARCA), Weighted RCA (WRCA), Normalized RCA (NRCA), B*, and RCAi,k based on a micro-founded Ricardian model, have been proposed in the past several decades. One guiding principle in constructing new indices is that the distribution follows as much as possible a Gaussian. However, this goal has never been satisfactorily realized. To understand the cause, we have systematically carried out empirical analysis of exports within and across countries. We find that the exports of all the goods of a country, as well as a fixed good exported by all the countries in the world follow exponentially truncated Zipf-Mandelbrot's law, after ranked in descending order. The BI amounts to be the ratio of two such distributions, one in the naturally descending order of the exponentially truncated Zipf-Mandelbrot’ law, the other being a permutation of the Zipf-Mandelbrot's law with truncation (possibly with different parameters). Only in very rare situations can these ratios follow a Gaussian distribution. We thus shed light on why BI and its alternatives may have unstable mean for different goods or countries, asymmetric distributional shape, skewness and variable upper bound. In particular, the last feature is a natural consequence of the log-normal distribution of BI, which we find to likely occur in certain situations. Journal: International Economics Pages:1-11 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718302130 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-1 Template-Type: ReDIF-Article 1.0 Title: Are “twin deficits” asymmetric? Evidence on government budget and current account balances, 1870–2013 Author-Name: Georgios Karras Keywords: Twin deficits;Budget deficit;Current account Classification-JEL:E62;F41 Abstract: Using data from seventeen countries over the period 1870–2013, we first find that there is robust empirical support for the “twin deficits” hypothesis: under the assumption of symmetry, a change in the budget deficit by 1% of GDP causes the current account balance to move in the opposite direction by a maximum of about 0.25% of GDP, an effect that is found to be persistent but temporary. To relax symmetry, the current account is next allowed to respond differently to positive and negative budget shocks. The findings suggest that the full time period is adequately described by symmetry: the current account effects of fiscal expansions are not statistically different from those of fiscal consolidations. The postwar period, however, appears to be decidedly asymmetric: negative shocks to the budget deficit are associated with sizable improvements in the current account, while positive shocks have no statistically significant effect. Policy implications outline a clear but limited role for fiscal policy in influencing the current account. Journal: International Economics Pages:12-24 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718302543 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-2 Template-Type: ReDIF-Article 1.0 Title: Testing the globalization-driven carbon emissions hypothesis: International evidence Author-Name: Muhammad Shahbaz Author-Name: Mantu Kumar Mahalik Author-Name: Syed Jawad Hussain Shahzad Author-Name: Shawkat Hammoudeh Keywords: Globalization;Carbon emissions;Cross-correlation;EKC Classification-JEL:F6;Q5;Q0 Abstract: We empirically investigate the dynamic relationship between globalization and CO2emissions for 87 (high, middle and low-income) countries. We utilize the cross-correlation approach to examine the well-known EKC hypothesis between globalization and environmental degradation. The results validate the inverted U-shaped EKC hypothesis for 16 (approximately 18%) from the high- and middle-income countries only, thereby highlighting that a rise in globalization will decrease carbon emissions for these countries in the future. On contrary, the results also confirm the U-shaped relationship between globalization and environmental degradation for 8% of the countries. The remaining countries do not have a U- or an inverted U-shaped relationship between globalization and CO2 emissions. Policy implications are also discussed. Journal: International Economics Pages:25-38 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718301902 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-3 Template-Type: ReDIF-Article 1.0 Title: Does international reserve accumulation crowd out domestic private investment? Author-Name: Wishnu Mahraddika Keywords: Classification-JEL:E2;E5;F30;F4;G15 Abstract: Foreign exchange reserve accumulation is one of the preferred strategies to protect against susceptibility to financial crises. At the same time, maintaining a healthy international reserve position has the potential to promote domestic investment by reducing the cost of foreign borrowing through improving international creditworthiness. However, contractionary monetary policy in the form of sterilization operations implemented as part of reserve accumulation strategy could crowd out financing for domestic investment. This study examines the relationship between foreign reserve accumulation and domestic private investment by undertaking a dynamic panel data econometric analysis covering 58 countries over the period 2000–2014. The findings suggest that reserve accumulation is positively associated with domestic private investment in the long-run. Journal: International Economics Pages:39-50 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718303172 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-4 Template-Type: ReDIF-Article 1.0 Title: Can West African countries catch up with Nigeria? Evidence from smooth nonlinearity method in fractional unit root framework Author-Name: OlaOluwa S.Yaya Author-Name: Pui Kiew Ling Author-Name: Fumitaka Furuoka Author-Name: Chinyere Mary Rose Ezeoke Author-Name: Ray Ikechukwu Jacob Keywords: Income convergence;Economic integration;West Africa;Nonlinear method Classification-JEL:C19;C22;N17 Abstract: West African countries have long promoted economic integration and income convergence. In recent trends, Nigeria has recorded the highest GDP per capita, and its neighbouring countries are yet to catch up with this economic growth. The paper examines the convergence of West African countries to catch up with Nigeria in terms of real per capita income. For the estimation, the paper employs fractional unit root approach to model simultaneously smooth breaks by means of flexible Fourier function in time. This approach is novel and has not been widely applied in the study of economic convergence across countries. The findings show that, while there is evidence of economic convergence and catching up in West Africa, only Ghana is likely to catch up with Nigeria in the region. As a policy recommendation, the West African countries should strengthen their human resource capacities through acquisition of relevant skills and technology transfers. This would promote income convergence and equitable economic growth. Journal: International Economics Pages:51-63 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718303299 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-5 Template-Type: ReDIF-Article 1.0 Title: An examination of trade-weighted real exchange rates based on fractional integration Author-Name: Luis Alberiko Gil-Alana Author-Name: Tommaso Trani Keywords: Mean reversion;Nonstationarity;Persistence;Fractional integration;Semiparametric methods Classification-JEL:F31;F41 Abstract: Since recent literature has quantified the persistence of changes in the real exchange rate (RER) using trade-weighted data, in this paper we ask whether the trade-weighted RER is mean reverting. We focus on post-Bretton Woods data for the G7 countries and, after revising the strong correlation between the RER and the nominal exchange rate over that period, we follow a fractional integration approach. We consider different assumptions for the residuals and allow for breaks at unknown dates. We conclude that the nonstationary behaviour of the RER is mean reverting (i.e., it is integrated of order dE0.5,1) for about half of the G7 countries and that allowing for structural breaks affects the test results obtained in absence of breaks but do not invalidate them. Journal: International Economics Pages:64-76 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701717302196 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-6 Template-Type: ReDIF-Article 1.0 Title: Vine copula-based dependence and portfolio value-at-risk analysis of the cryptocurrency market Author-Name: Gideon Boako Author-Name: Aviral Kumar Tiwari Author-Name: David Roubaud Keywords: Cryptocurrency;Vine copula;Dependence;Value-at-risk Classification-JEL:E31;E42;G12 Abstract: In this paper, we use vine copula approaches to model the co-dependence and portfolio value-at-risk (VaR) of six cryptocurrencies using data of daily periodicity from September 2015 to June 2018. We establish evidence of strong dependencies among the virtual currencies with a dynamic dependency structure. We find that among the class of cryptocurrencies examined, Ethereum offers the best optimal and economically risk-reward trade-off subject to a no-shorting constraint for portfolio investors using the efficient frontier. Given the paucity of empirical research on the cryptocurrency markets, this paper provides new insights, which could be useful in developing dependence and risk strategies for investment and hedging purposes, especially during more volatile periods in the markets. Journal: International Economics Pages:77-90 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718302750 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-7 Template-Type: ReDIF-Article 1.0 Title: The importance of the financial system for the current account in Sweden: A sectoral approach Author-Name: Erik Spanberg Author-Name: Hovick Shahnazarian Keywords: Current account;Net lending;Financial variables;Bayesian VAR Classification-JEL:E20;E44;F32 Abstract: This paper takes a sectoral approach to investigate the importance of financial variables for current account dynamics in Sweden. We use a Bayesian VAR modelwith priors on the steady states to analyse the determinants of net lending in different sectors and by extension the current account. The results suggest that: (i) the sectoral approach provides added value in analysing and understanding the drivers of the current account; (ii) demographic and financial shocks each account for 10–40 per cent of the forecast error variance of net lending in different sectors; (iii) negative development in the financial variables has a negative impact on the current account; and (iv) the importance and impact magnitudes of financial shocks depend on how economic policies are assumed to counteract these shocks. Journal: International Economics Pages:91-103 Issue: 158 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/abs/pii/S2110701718300465 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q2-158-8 Template-Type: ReDIF-Article 1.0 Title: Exchange rate predictability in emerging markets Author-Name: Elisa Baku Keywords: Exchange rates;Latin America emerging markets;Lasso;Error-correction;Factor model Classification-JEL:F31;C3;E44 Abstract: This paper uses financial and macroeconomic variables to predict currency returns, by using a two-step procedure. The first step consists of a cointegration equation that explains the exchange rate level as a function of global and domestic financial factors. The second step estimates an error-correction equation, for modeling the expected returns. This approach is a factor model analysis, where a Lasso derived technique is used for variable selection. This paper will focus on the five most frequently traded Latin American currencies, Brazilian Real (BRL), Chilean Peso (CLP), Colombian Peso (COL), Mexican Peso (MXN) and Peruvian Sol (PEN), during the time horizon from December 2001 until February 2016. The first finding is that the Global Exchange Rate Factor offers information about the exchange rate movements. In addition, this paper shows that commodity, equity prices and domestic risk premium are important variables for explaining exchange rates. Moreover, it confirms the existing results for the carry and slope variables. Journal: International Economics Pages:1-22 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300180 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-1 Template-Type: ReDIF-Article 1.0 Title: Volatility estimation for Bitcoin: Replication and robustness Author-Name: Amélie Charles Author-Name: Olivier Darné Keywords: Bitcoin;GARCH;Volatility;Jumps Classification-JEL:C22;C50;G10 Abstract: Katsiampa [Volatility estimation for Bitcoin: A comparison of GARCH models. Economics Letters, 158, 3–6, 2017] compares several GARCH-type models to estimate volatility for Bitcoin returns. First, we propose a replication study (i) by verification, using the same sample and period (July 2010 to October 2016), and (ii) by reproduction, extending the sample until March 2018. We obtain only partially different results from those of Kasiampa (2017) on both samples. Second, we propose a robustness analysis (i) by reanalysis, using the robust QML estimator for computing the standard errors of the parameters, and (ii) by extension, taking into account the presence of jumps in the Bitcoin returns. The results show that the six GARCH-type models studied, namely GARCH-type models characterized by short memory, asymmetric effects, or long-run and short-run movements, seem not to be appropriate for modelling the Bitcoin returns. Journal: International Economics Pages:23-32 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300088 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-2 Template-Type: ReDIF-Article 1.0 Title: Cross-border interbank contagion in the European banking sector Author-Name: Silvia Gabrieli Author-Name: Dilyara Salakhova Keywords: Contagion;Stress testing;Liquidity hoarding;Counterparty risk;European interbank network Classification-JEL:G01;G21;G28;F36 Abstract: This paper studies the scope for cross-border contagion in the European banking sector using true bilateral exposure data. Using a model of sequential solvency and liquidity cascades in networks, we analyze geographical patterns of loss propagation from 2008 to 2012. We study the distribution of contagion outcomes after a common shock and an exogenous bank default over simulated networks of actual long- and short-term claims. We exploit a novel and unique dataset of money market transactions estimated from TARGET2 payments data. Our results suggest the evidence for cross-border contagion with evolving over the years geographical patterns and decreasing potential for contagion. Losses due to defaults of domestic counterparties remain on average more important. Furthermore, our results underline an important effect of the underlying network structure on the propagation of losses. Notably, an econometric analysis shows that a denser network of long-term commitments with a shorter average path is more prone to contagion, while higher clustering (more triangles) in short-term networks reduces network fragility mostly due to better liquidity sharing. Journal: International Economics Pages:33-54 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300738 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-3 Template-Type: ReDIF-Article 1.0 Title: Iterative solutions for structural gravity models in panels Author-Name: Aurélien Poissonnier Keywords: Structural gravity model;Panel data;Multilateral resistance;Biproportional projection method Classification-JEL:C13;F14 Abstract: The estimation of structural gravity models for bilateral trade flows faces methodological difficulties. These difficulties are in particular due to the multilateral resistance terms (MRT) which account for the general equilibrium constraints of global trade. In the present paper, I show that the MRT are unique (to a harmless scale factor) and one can compute them iteratively. Based on a parallel between the MRT and the biproportional projection of matrices in the Input-Output literature, I give new insights on the econometric strategy to estimate structural gravity equations. I extend to panels the iterative method proposed by Head and Mayer (2014), Gravity equations: Workhorse, toolkit, and cookbook, in Handbook of International Economics. This double loop procedure nests the current standard in the literature (the Poisson Pseudo Maximum Likelihood –PPML-with dummies). I exemplify its possibilities on real data. PPML results appear not robust to a change of estimator. Journal: International Economics Pages:55-67 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300434 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-4 Template-Type: ReDIF-Article 1.0 Title: From nominal devaluations to real depreciations Author-Name: Carl Grekou Keywords: Currency misalignments;Emerging and developing countries;Macroeconomic policies;Nominal devaluations Classification-JEL:C1;E3;F3;F41 Abstract: In this article, we assess the factors that enable a nominal devaluation to lead to a real depreciation. To this end, we rely on panel data techniques in order to estimate the contribution over time of the key factors influencing devaluations' effectiveness —as well as their mutual interactions, for a sample of 57 devaluation episodes. The results of our econometric analysis suggest that several prerequisites —namely in terms of exchange rate misalignments and accompanying macroeconomic policies— must be met to ensure that devaluations will have the expected effect in terms of real depreciations. Furthermore, due to its inflationary impact, devaluation exerts a nonlinear effect on the dynamics of the real exchange rate, thus emphasizing the importance played by the size of the nominal adjustment. Journal: International Economics Pages:68-81 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300362 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-5 Template-Type: ReDIF-Article 1.0 Title: Multiple time-scales analysis of global stock markets spillovers effects in African stock markets Author-Name: Grakolet Arnold Z.Gourène Author-Name: Pierre Mendy Author-Name: Gilbert Marie N'gbo Ake Keywords: African stock markets;Spillovers;Time scales;MODWT;Generalized VAR Classification-JEL:F3;C1;G1 Abstract: This paper examines the spillovers in time and frequency from emerging (Brazil, Russia, India, China) and developed (US, UK, France, Germany and Japan) stock markets and oil prices toward seven African stock markets. The examined spillovers are from 2005 to 2018 and take into account, both, the recent financial crises and the oil price fall. We combine the generalized Vector AutoRegressive (VAR) framework and the Maximum Overlap Discrete Wavelet Transform (MODWT) to obtain the spillovers at different time scales. The results show that the spillovers toward African stock markets depend on time scales. We also found that the various measures taken to open the African stock markets to global finance have made some little improvements while the integration in African stock markets remains weak and located at large scales. African stock markets could therefore be a means of capital diversification for global stock markets and oil market, particularly at scale 1 (2–4 weeks). Journal: International Economics Pages:82-98 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301944 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-6 Template-Type: ReDIF-Article 1.0 Title: Is a more financially open world riskier? Author-Name: Mikhail Stolbov Keywords: Capital account liberalization;Causality;Financial crises;Financial openness;Wavelets Classification-JEL:C32;G01;F30;F65 Abstract: The paper studies co-movement and causality between global financial openness and nearly all known types of financial crises during 1970–2014. It builds on a composite measure of global financial openness, which synthesizes three well-established indicators (de-jure, de-facto capital account openness and the KOF economic globalization index). I use linear and nonparametric Granger (no) causality tests as well as wavelet-based techniques to characterize the dynamic dependence, which appears rather weak. Only in case of systemic and triple crises, this dependence is found more robust. I offer two explanations for the elusive openness-crisis nexus. First, the impact of global financial openness on the frequency of crises can be indirect, transmitted through global macro-fundamentals (world real GDP growth rates, global inflation and commodity prices). Second, capital account liberalization can be self-reinforcing. Despite an increased risk of crises, countries, which have partly implemented such reforms, are likely to proceed. In doing so, they are often guided by their peers in a regional integration agreement. Overall, the findings of the paper question the widespread assertion that increasing global financial openness undermines financial stability. Journal: International Economics Pages:99-116 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300970 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-7 Template-Type: ReDIF-Article 1.0 Title: Conditional quantiles and tail dependence in the volatilities of gold and silver Author-Name: Elie Bouri Author-Name: Naji Jalkh Keywords: Copula;Quantile regression;Tail dependence;ETF gold VIX;ETF silver VIX Classification-JEL:C50;G10 Abstract: We study the dependency structure between option-implied volatilities of gold and silver markets via the application of a copula-based quantile regression. First, we conduct a static analysis and show that the asymptotic lower tail dependence is only pronounced in the low volatility regime of both gold and silver markets. Second, given the existence of a bi-directional causality between the two option-implied volatilities, we consider the lead-lag relationship via non-parametric tail dependence estimators. Results indicate an extreme tail dependency in lower and upper quantiles, with evidence of an asymmetric behavior between/for low and high volatility regimes. Our findings have implications to investors and risk managers. Practically, findings imply evidence of predictability of the probability of gold implied volatility based on the lagged silver implied volatility across different quantiles. Another implication concerns a volatility-based trading strategy, especially during in tandem occurrence of high volatility regimes, which involves the simultaneous selling of an out-of-the money call and put with different strike prices on gold implied volatility. Journal: International Economics Pages:117-133 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718301513 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-8 Template-Type: ReDIF-Article 1.0 Title: Do economic openness and institutional quality influence patents? Evidence from GMM systems estimates Author-Name: Nguyen Phuc Canh Author-Name: Christophe Schinckus Author-Name: Su DinhThanh Keywords: Patents;Institutional quality;Economic openness;Economic development Classification-JEL:O3;O38;O4;F43 Abstract: By using GMM estimators for unbalanced panel data, we examine the effects of institutional quality, trade openness, and FDI flows on innovation in 84 countries for the period between 1996 and 2014. Our results show that, although institutional quality appears as a vital driver for patent applications, FDI flows and trade openness have different influences. Precisely, higher inward FDI flows have a positive effect on the number of patents whereas trade openness might have a negative one. We afterwards discuss the influence of institutional quality on these two effects by showing that the effects of economic openness are enhanced by the improvement of institutional quality. These results are important for policy makers in setting-up the short-run and long-run policies to sustain economic growth. Journal: International Economics Pages:134-169 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303104 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-9 Template-Type: ReDIF-Article 1.0 Title: The chain version of Heckscher-Ohlin theory correctly predicts U.S. trade flows! Author-Name: Nevin Cavusoglu Keywords: International trade;Chain Heckscher-Ohlin Classification-JEL:F11;F14 Abstract: The chain version of the Heckscher-Ohlin theorem has only been tested by Cavusoglu and Elmslie (2005), with findings that fail to provide empirical support to its predictions. The present paper expands on that study and presents different results. Using data on capital-labor intensities, and exports and imports for ten manufacturing and three service sectors for the U.S. from 1970 to 2009, the predictions of the theory are confirmed by the data. These results are robust to different price indices, labor measures, and weight measures used to construct net export data. The difference in results between the two studies can be explained by the use of different capital stock data, as well as the longer time frame of the current study. Journal: International Economics Pages:170-178 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300684 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-10 Template-Type: ReDIF-Article 1.0 Title: The accuracy of asymmetric GARCH model estimation Author-Name: Amélie Charles Author-Name: Olivier Darné Keywords: EGARCH;GJR-GARCH;TARCH;APARCH;Accuracy;Forecasting;Software Classification-JEL:C22 Abstract: This paper reviews eight software packages when estimating asymmetric GARCH models (from their default option). We consider the numerical consistency of GJR-GARCH, TGARCH, EGARCH and APARCH estimations with Normal and Student distributions as well as out-of-sample forecasting accuracy, using the model confidence set procedure. We show that results are clearly software-dependent for both asymmetric volatility models, especially for the t-ratios. The out-of-sample forecast results show that the differences in estimating symmetric and asymmetric GARCH models imply slight differences in terms of forecast accuracy, not statistically significant, except in few cases from the QLIKE loss function. Further, the results indicate that the different specifications of the asymmetric GARCH-type models used by the different packages appear to have no significant effect on their forecast accuracy. Journal: International Economics Pages:179-202 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300611 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-11 Template-Type: ReDIF-Article 1.0 Title: Foreign direct investment and wage dispersion: Evidence from French employer-employee data Author-Name: Catherine Laffineur Author-Name: Alexandre Gazaniol Keywords: Foreign direct investment;Tasks;Wages;Inequality Classification-JEL:J31;F66;F16 Abstract: This article investigates to what extent outward foreign direct investment (FDI) affects domestic wages. Results reveal that multinational companies pay a wage premium to their employees and the wage premium is increasing within the wage distribution. In a second step, we use a fixed effect and match effect model to analyze the effect of outward FDI within job spells. Results suggest that outward FDI raises manager wages by 0.077% and reduces wages for workers performing offshorable tasks by 0.34%. The positive effect of FDI on manager wages is mainly driven by the intensive margin of outward FDI. This result is observed even after controlling for endogenous worker mobility. Finally, we observe that the increase of outward foreign direct investment cause wages to be higher, and this effect is due to both multinational companies paying a wage premium and to changes in the market value of unobservable worker skills. Journal: International Economics Pages:203-226 Issue: 157 Year: 2019 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300507 File-Format: text/html Handle: RePEc:cii:cepiie:2019-Q1-157-12 Template-Type: ReDIF-Article 1.0 Title: Sovereign risk and the real exchange rate: A non-linear approach Author-Name: Jair N. Ojeda-Joya Author-Name: Gloria Sarmiento Keywords: Real exchange rate;Misalignment;Sovereign risk;International parities;Latin America;Smooth transition regression Classification-JEL:C32;F31;E43 Abstract: We estimate a model of real exchange rate determination which is based on interest rate, term structure and purchasing power parities. This model takes into account sovereign risk as a key determinant with possibly non-linear effects. Estimations are performed for five Latin-American economies: Brazil, Chile, Colombia, Mexico and Peru. The results show that the model has good fit for all countries and the expected sign holds for most estimated coefficients. In particular, it is found that sovereign risk has a significantly positive relation with the real exchange rate. There is evidence of the non-linearity of this relation for Brazil, Colombia and Peru. This non-linearity implies coefficients that change with smooth transition as a function of international volatility indicators. In addition, we perform misalignment analyses and show that real exchange rates became over-depreciated during the initial development of the great financial crisis. Then, between 2011 and 2013, they went through a few periods of over-appreciation as international monetary and fiscal policies became expansive and international capital flows were bound to emerging economies searching for higher yields. Finally, the strong reduction of commodity prices led to a new over-depreciation episode during the second half of 2015 in most economies. Journal: International Economics Pages:1-14 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300148 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-1 Template-Type: ReDIF-Article 1.0 Title: Asymmetric impacts of public and private investments on the non-oil GDP of Saudi Arabia Author-Name: Walid Mensi Author-Name: Syed Jawad Hussain Shahzad Author-Name: Shawkat Hammoudeh Author-Name: Khamis Hamed Al-Yahyaee Keywords: Saudi Arabia;Investments;Macroeconomic variables;Non-oil GDP;NARDL;Causality-in-quantiles Classification-JEL:G14;G15 Abstract: This paper investigates the impact of four major macroeconomic variables (private investment, public investment, oil production and inflation) on non-oil GDP in the oil-based Saudi Arabia. To this end, we use the nonlinear autoregressive distributed lag (NARDL) and the causality-in-quantiles methods to measure the impact of these variables on non-oil GDP. The results show that past non-oil GDP shocks affect current non-oil GDP strongly in the short term. Moreover, a surge in public investment increases non-oil GDP in both the short- and long-run, while a negative private investment shock reduces non-oil GDP in both the short- and long-run. Furthermore, positive (negative) oil production shocks increase the non-oil GDP also in the short- and long-run. In addition, we find a positive relationship between negative and positive inflation shocks and non-oil GDP in the long run, while negative inflation shocks decrease non-oil GDP. Using the nonparametric causality-in- quantile approach, we find that causality-in-the mean and causality-in-the variance emanating from the four explanatory variables vary across the quantiles. Finally, non-oil GDP does not Granger cause these macroeconomic variables. Those non-standard macroeconomic results for this major oil exporter are different from those for well-diversified developed countries. Regardless, they have important implications for Saudi policy makers involved in the Vision 2030 initiative, international organizations and institutional investors. Journal: International Economics Pages:15-30 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300902 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-2 Template-Type: ReDIF-Article 1.0 Title: The causal effect of reducing trade policy uncertainty: A comparative case study of Bangladesh's textile exports to Switzerland Author-Name: Christian Ritzel Author-Name: Andreas Kohler Author-Name: Stefan Mann Author-Name: Silviu Beciu Keywords: Trade policy uncertainty;Causal effect;Free trade;Least-developed countries Classification-JEL:F1;O1 Abstract: Swiss duty-free and quota-free market access (DFQFMA) for the least-developed countries (LDCs) within the industrial sector, including textiles, was introduced in 1997. However, a binding legal basis providing a secured and predictable DFQFMA did not come into force until 2007. In this context, the DFQFMA for LDCs was extended for an unlimited period. Additionally, four years later, Switzerland revised and improved its rules of origins for LDCs significantly with the objective of increasing the utilization of DFQFMA for LDCs. Accordingly, this paper challenges the effectiveness of reduced trade policy uncertainty by granting a legally secured and improved DFQFMA for LDCs. Using the Human Development Index as a proxy for United Nations LDC status criteria, we can provide unbiased causal average treatment effects. In a comparative case study, we compare Bangladesh's preferential textile and clothing exports under the legally secured and improved DFQFMA with those of its major competitors from Asia. Applying methods of causal inference, namely an interrupted time series analysis, we find that Bangladesh's preferential textile and clothing exports increased by 29 percent on average due to the first intervention in 2007 and by 17 percent due to the second intervention in 2011. Journal: International Economics Pages:31-44 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300719 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-3 Template-Type: ReDIF-Article 1.0 Title: Are all cycles alike? An empirical investigation of regional and global factors in developed and emerging economies Author-Name: Zouhair Ait Benhamou Keywords: Classification-JEL:C14;F20;F44 Abstract: Business cycles are significantly more volatile in emerging economies than in developed ones, as has been extensively documented in the macroeconomic literature. There is also consensus that a substantial share of output volatility in emerging economies can be accounted for by domestic and idiosyncratic factors. As a result, the policy implications of these findings tend to predict that substantial welfare gains can be made from domestic policies that smooth business cycles. This paper argues the opposite view and asserts that there are no significant differences between emerging and developed economies in terms of the global and regional factors shaping macroeconomic fluctuations. Our results show that global factors account for 37%–48% of the de-trended output variance in emerging economies, substantially more than the 5%–15% range reported in the literature. By comparison, approximately half of output variance in developed economies is accounted for by global factors. We conclude that global and regional factors account for the bulk of output fluctuations in all economies, and that domestic factors are marginally more important in emerging economies than in developed ones. Therefore, cycle-smoothing domestic policies in emerging economies may not be as effective as the literature suggests. Journal: International Economics Pages:45-60 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300070 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-4 Template-Type: ReDIF-Article 1.0 Title: Who fears or favors globalization? Evidence from individual-level survey data in Japan Author-Name: Koichi Kagitani Author-Name: Kozo Harimaya Keywords: Individual preference;Globalization;Self-interest;National interest;Japan Classification-JEL:F13;F17 Abstract: This study examines which factors determine how to assess the impact of globalization on self-interests and the national interest in Japan. The factors affecting individuals' opinions about globalization's effect on economic self-interests do not necessarily correspond to those on the national economy. To understand what causes the public to fear or favor globalization, we should take account of which viewpoint to use. We find that English-proficient people and high-income household members are more likely to think positively about globalization regardless of their perspectives. On the contrary, blue-collar and low-wage workers are more likely to worry about the impact of globalization on their job security and consumption. Rural workers and students are also more likely to feel anxiety about the impact of globalization on their employment opportunities. Finally, women are more likely to feel uncertain, particularly about the impact of globalization on their life as a consumer regardless of whether they are working. Journal: International Economics Pages:61-76 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301950 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-5 Template-Type: ReDIF-Article 1.0 Title: Re-examination of the convergence hypothesis among OECD countries: Evidence from Fourier quantile unit root test Author-Name: Mohsen Bahmani-Oskooee Author-Name: Tsangyao Chang Author-Name: Zahra (Mila) Elmic Author-Name: Omid Ranjbar Keywords: Convergence;Quantile unit root test;Fourier expansion;OECD Classification-JEL:E01;E25 Abstract: In this paper we revisit the convergence hypothesis among OECD countries. Unlike previous research which relied upon conventional unit root tests to determine if per capita real income in each country converge toward the real per capita income of a benchmark level, we employ recently introduced quantile unit root testing procedure which also accounts for multiple and unknown structural breaks via a Fourier expansion series. Our results indicate that the negative shocks due to World wars I and II and/or financial crises have transitory effects in countries such as Japan and Germany, while in other countries like Italy and France they have permanent effects. Journal: International Economics Pages:77-85 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301415 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-6 Template-Type: ReDIF-Article 1.0 Title: Globalization and terror in Africa Author-Name: Simplice A. Asongu Author-Name: Nicholas Biekpe Keywords: Terrorism;Globalization;Africa Classification-JEL:C52;D74;F30;F42;O55 Abstract: This study examines the role of globalization on terrorism in 51 African countries for the period 1996–2011. Four terrorism indicators are used, namely: domestic, transnational, unclear and total terrorism. Political, economic, social and general globalisation variables are employed and the empirical evidence is based on Fixed Effects (FE) regressions and Generalised Method of Moments (GMM). Whereas the FE regressions are overwhelmingly not significant, the following findings are established from GMM estimations. Political globalisation increases both domestic and transnational terrorism. Social globalisation and general globalisation increase transnational terrorism. Economic globalisation reduces domestic terrorism. Political globalisation, social globalisation and general globalization positively affect unclear terrorism. Social globalisation has a positive impact on total terrorism. Possible channels and policy implications are discussed. Journal: International Economics Pages:86-97 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302433 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-7 Template-Type: ReDIF-Article 1.0 Title: Reducing model risk in early warning systems for banking crises in the euro area Author-Name: Virginie Coudert Author-Name: Julien Idier Keywords: Macroprudential policy;Banking crises;Early warning indicators Classification-JEL:E52;G12;C58 Abstract: We aim at detecting periods preceding banking crises in the euro area through an early warning system (EWS) and propose a new method to deal with model uncertainty. In a first step, we select a set of macro-financial risk indicators for their signaling ability among a large number of candidates over the period spanning from 1985:q1 to 2009:q4. Then, we run all the possible logit models including four of these indicators as explanatory variables in order to assess the pre-crises probabilities at each time. We retain two sets of models: a small one only including models with all coefficients significant and with the expected signs, and a large set, obtained by relaxing the selection criteria. In a second step, we calculate the weighted average of the pre-crisis probabilities estimated by the models belonging to the two selected sets. The weight given to each model is proportional to its usefulness at identifying pre-crises periods either at the panel or the country-level. The simulations performed both over and out of sample show that aggregating more models yields better results than relying on any single model or only a few of them, as model uncertainty is reduced. Performance is also enhanced by aggregating models’ results with country-specific weights relatively to common panel-weightings. Journal: International Economics Pages:98-116 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301871 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-8 Template-Type: ReDIF-Article 1.0 Title: Under pressure: Dynamic pass-through of oil prices to the RUB/USD exchange rate Author-Name: Svetlana Fedoseeva Keywords: Oil price;Ruble;Pass-through;Breakpoint analysis;Bounds testing;Time-varying cointegration Classification-JEL:C22;F31;Q31 Abstract: This paper investigates the relationship between the RUB/USD exchange rate and oil prices. I apply a combination of time-varying cointegration techniques to the data of 1999–2017 to show how this relation evolved dynamically. When the Ruble was not decoupled from oil prices by the efforts of the Central Bank, the pass-through continuously grew over time, both in the long and the short run, substantially increasing during the oil price collapse of 2014. The results further indicate that the Ruble might still be overvalued, implying possible further depreciations, should oil prices remain low. Journal: International Economics Pages:117-126 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302524 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-9 Template-Type: ReDIF-Article 1.0 Title: Do renewable energies improve energy security in the long run? Author-Name: Emmanuel Hache Keywords: Energy transition;Energy security;Critical materials;Patents;Energy technology Classification-JEL:Q48;Q58;Q34;O33;O34 Abstract: The aim of this article is to analyze the geopolitical consequences of the spread of renewable energies worldwide. From a macroeconomic point of view, it would be tempting to conclude that the transition to renewables (solar, wind …) will gradually end today's geopolitics of fossil fuels based on historical relationships between energy producers and consumers. The new challenges induced by energy transition policies could paradoxically turn out being as complex as today's geopolitics of energy. Local and decentralized relations could add a new geopolitical layer to current traditional actors. Technical, economic, sociological, behavioural, spatial and legal dimensions could also complicate the emerging puzzle. A massive diffusion of renewables into the world's energy mix could also lead to new, unexpected interdependencies such as dependencies to critical materials, a new geopolitics of patents and the implementation of a renewable diplomacy. Critical materials and patents on energy transition technologies could then become the new specific assets of the upcoming international climate negotiations for numerous countries. Journal: International Economics Pages:127-135 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303013 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-10 Template-Type: ReDIF-Article 1.0 Title: Shocks to the international prices of agricultural commodities and the effects on welfare and poverty. A simulation of the ex ante long-run effects for Uruguay Author-Name: Pedro Moncarz Author-Name: Sergio Barone Author-Name: Ricardo Descalzi Keywords: Trade;Commodity prices;Poverty;Uruguay Classification-JEL:F10;F13;F14;F16;I30 Abstract: In countries with a large share of low- and medium–low-income households, an increase in agricultural commodity prices may have a damaging and widespread effect on the population through the rise in the cost of the consumption basket. A less obvious channel, changes in labor income, would be more beneficial to middle-income households. The simulations show that ex ante all households would experience losses of up to 7.5% of their initial expenditure, with poorer households being the most affected. Poverty would increase by 25% (7.2 p.p.), while indigence would increase even more by 35% (2.25 p.p.). The results also show that, on average, both poor and indigent households would move further away from the threshold lines, meaning that, within each category, poor and indigent households would become more homogeneous. Finally, since Uruguay has a comparative advantage in agricultural commodities, the improvement in the terms of trade is likely to increase the tax revenues, which could be used to compensate those who are negatively affected. Journal: International Economics Pages:136-155 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171730063X File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-11 Template-Type: ReDIF-Article 1.0 Title: Forecasting currency crises with threshold models Author-Name: Terence T.L. Chong Author-Name: Isabel K. Yan Keywords: Threshold model;Multiple threshold variables;Currency crisis;Panel data Classification-JEL:C33;C12;C13 Abstract: This paper develops a multi-factor threshold model to provide warning signals for currency crises. Using a panel data set for 16 economies over 20 years, it is found that the ratio of short-term external liabilities to reserves and the lending rate differential are valid threshold variables that can segregate “turbulent” from “tranquil” regime. The corresponding threshold estimates can provide useful pivotal points for governments to formulate regulatory policy measures to reduce the risk of financial crises. Journal: International Economics Pages:156-174 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300720 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-12 Template-Type: ReDIF-Article 1.0 Title: Estimating value-at-risk using a multivariate copula-based volatility model: Evidence from European banks Author-Name: Marius Galabe Sampid Author-Name: Haslifah M.Hasim Keywords: Value-at-risk;Dynamic conditional correlation;GARCH;Copulas;Volatility Classification-JEL:C15;C58;G11;G32 Abstract: This paper proposes a multivariate copula-based volatility model for estimating Value-at-Risk (VaR) in the banking sector of selected European countries by combining dynamic conditional correlation (DCC) multivariate GARCH (M-GARCH) volatility model and copula functions. Non-normality in multivariate models is associated with the joint probability of the univariate models' marginal probabilities –the joint probability of large market movements, referred to as tail dependence. In this paper, we use copula functions to model the tail dependence of large market movements and test the validity of our results by performing back-testing techniques. The results show that the copula-based approach provides better estimates than the common methods currently used and captures VaR reasonably well based on the differences in the numbers of exceptions produced during different observation periods at the same confidence level. Journal: International Economics Pages:175-192 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303050 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-13 Template-Type: ReDIF-Article 1.0 Title: Income level and the emissions, energy, and growth nexus: Evidence from Asia and the Pacific Author-Name: Thai-Ha Le Author-Name: Euston Quah Keywords: Carbon emissions;Energy consumption;Economic growth;Asia and the Pacific Classification-JEL:Q43 Abstract: This study examines the relationships between carbon emissions, energy consumption, and economic growth for 14 selected countries in Asia and the Pacific during the period 1984–2012. Based on panel cointegration test results, we show that there is a long-run relationship between carbon emissions, energy consumption, and economic growth. The Fully Modified OLS estimators of the panel, as well as the sub-panel of lower-to-upper-middle-income countries, provide evidence against the Environmental Kuznets Curve (EKC) hypothesis. Evidence from the panel of high income countries is, however, consistent with the EKC hypothesis. The findings of causality tests suggest that carbon emissions in the region could be reduced through energy conservation policy measures without harming economic growth. Journal: International Economics Pages:193-205 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302901 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-14 Template-Type: ReDIF-Article 1.0 Title: EQCHANGE: A World Database on Actual and Equilibrium Effective Exchange Rates Author-Name: Cécile Couharde Author-Name: Anne-Laure Delatte Author-Name: Carl Grekou Author-Name: Valérie Mignon Author-Name: Florian Morvillier Keywords: Exchange rates;Equilibrium exchange rates;Currency misalignments Classification-JEL:F31;C23;C82 Abstract: The aim of this paper is to present EQCHANGE, the new database developed by the CEPII on effective exchange rates. EQCHANGE includes two sub-databases containing data on (i) nominal and real effective exchange rates, and (ii) equilibrium real effective exchange rates and corresponding currency misalignments for advanced, emerging and developing countries. More specifically, the first sub-database delivers effective exchange rates for 187 countries that are computed under three different weighting schemes and two panels of trading partners (186 and top 30) over the 1973–2016 period. The second sub-database provides behavioral equilibrium exchange rate (BEER) estimates and corresponding currency misalignments for 182 economies over the 1973–2016 period. We describe the construction of the two datasets and illustrate some possible uses by presenting results concerning the evolution and main characteristics of currency misalignments in the world from 2015 to 2016. By providing publicly available indicators of equilibrium exchange rates, EQCHANGE aims to contribute to key debates in international macroeconomics. Journal: International Economics Pages:206-230 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302457 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-15 Template-Type: ReDIF-Article 1.0 Title: Natural resource curse in oil exporting countries: A nonlinear approach Author-Name: Olivier Damette Author-Name: Majda Seghir Keywords: Oil resource;Oil curse;Government quality;Public expenditures;Non-linear econometrics Classification-JEL:C33;Q32;H52 Abstract: This paper aims at extending the concept of conditional natural resource curse and examining the quantity as well as the quality of public spending as the main drivers of the oil curse in oil exporting countries. Using nonlinear threshold models, there is evidence in favor of non-linear relationship between oil incomes and economic performances. We show that highly oil dependent countries are more likely to experience inefficiencies in government decision and, by extension, oil revenues misallocation leading to underdevelopment. Relying on human capital as the mirror of the quantity as well as the quality of government spending in education, we find a similar pattern. The alteration in government efficiency is the main mechanism through which oil incomes lead to poor economic performances. Indeed, the direct contribution of oil incomes to total output is rather positive, even if the magnitude of this effect is likely to decrease with the relative level of oil dependence. The estimates indicate that the non-linear model is the better for explaining economic growth divergences across oil exporting countries as well as for reconciling the conflicting results from the empirical literature of the oil curse. Journal: International Economics Pages:231-246 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303232 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-16 Template-Type: ReDIF-Article 1.0 Title: Impact of macroeconomic news surprises and uncertainty for major economies on returns and volatility of oil futures Author-Name: Walid Bahloul Author-Name: Rangan Gupta Keywords: Macroeconomic news surprises;Uncertainty;Behavioural finance;Oil futures;Returns and volatility Classification-JEL:C32;Q41;G40 Abstract: We analyze the impact of macroeconomic news surprises for Canada, the Euro area, Japan, the UK, and the US relating to returns and volatility for West Texas Intermediate and Brent crude oil futures. We look at futures markets, since they are widely believed to predict spot market movements. We also investigate the possibility of an asymmetric impact of good and bad macroeconomic news surprises, as well as the role of economic uncertainty for these economies in affecting oil futures market movements. Two major conclusions can de drawn from our study: (a) macroeconomic surprises, as well as uncertainties for other economies (over and above that of the US) were found to be important in driving oil futures, with the effect of these other economies being relatively stronger than the US in some instances; and (b) there is strong evidence of asymmetric effects, especially for volatility. Journal: International Economics Pages:247-253 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303037 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-17 Template-Type: ReDIF-Article 1.0 Title: Environment-energy-growth nexus in Sub-Saharan Africa: The role of intermediate goods Author-Name: Mohamed Amine Boutabba Author-Name: Diadié Diaw Author-Name: Albert Lessoua Keywords: Carbon emissions;Energy consumption;Intermediate goods;Sub-Saharan Africa Classification-JEL:C32;F64;O44;Q43 Abstract: This paper examines the way trade in intermediate goods may influence carbon emissions using data from 17 Sub-Saharan African countries for 1995–2013. Previous studies have discussed carbon emission drivers, but little attention has been paid to the contribution of trade in intermediate goods, which involve international production fragmentation. Using time-series techniques, our results reveal that trade in intermediate goods is a mitigating factor in carbon emissions for a panel of Sub-Saharan African countries. There is evidence here to support the Environmental Kuznets Curve hypothesis. However, the turning point appears to be higher for intermediate trade imports, suggesting that environmental concerns are taken into account differently for imports and exports. Moreover, results show long-run bidirectional causality between carbon emissions, income, and intermediate goods trade; long-run unidirectional causality running from energy consumption to income and carbon emissions; and unidirectional causality running from trade in intermediate goods to carbon emissions in the short run. These findings suggest that national authorities should encourage trade in intermediate goods, develop the use of cleaner energy sources, and focus on public awareness on energy efficiency and clean environment, since these countries have increasingly integrated global value chains, even though most remain exporters of primary products. Journal: International Economics Pages:254-267 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301506 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-18 Template-Type: ReDIF-Article 1.0 Title: Dynamics of net foreign asset components in the EMU Author-Name: Tatiana Cesaroni Author-Name: Roberta De Santis Keywords: Net international investment positions;PEI;FDI and PDI;Institutional quality;Euro area Classification-JEL:C3;F3;F4 Abstract: In the last two decades, foreign capital investments have followed different paths in EMU countries. Given their importance for growth and productivity, we analyse the factors underlying the dynamics of foreign direct investments, portfolio debt investments, and portfolio equity investments in EMU countries over the years 1996–2014. We assess how the heterogeneous behaviour between core and peripheral countries can be related to macroeconomic factors (business cycle, trade, financial openness and spreads) and institutional quality. Our results show that financial integration as well as interest rates spread had an impact on the main components of foreign assets which was different between core and peripheral countries. In EMU countries as a whole we find a statistical significant relationship between institutional quality and foreign capital components, which is entirely driven by core countries. Journal: International Economics Pages:268-283 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302974 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-19 Template-Type: ReDIF-Article 1.0 Title: How do Islamic versus conventional equity markets react to political risk? Dynamic panel evidence Author-Name: Walid M.A. Ahmed Keywords: Islamic equity markets;Conventional equity markets;Political risk;Dynamic panel analysis;GMM estimators Classification-JEL:F21;F30;F52;G12;G15 Abstract: This study aims to assess the differential impact of political risk on Sharia-compliant vis-à-vis conventional stocks. For comparison purposes, the analysis is carried out within the separate contexts of developed and developing economies, employing a framework that controls for an array of relevant influences and risk factors. Based on dynamic panel GMM techniques, the results suggest that conventional equity markets of developed countries prove much more sensitive to political uncertainty than do their Islamic counterparts. In developing countries, political risk tends to have a substantial effect on both conventional and Islamic markets, with such an effect being more pronounced in the former than in the latter. Additionally, Islamic equity markets appear to be neither immune to global sources of risk nor sheltered from contagion effects triggered by financial and economic crises. Overall, the present findings lend no support to the decoupling hypothesis between Islamic and conventional equities. Journal: International Economics Pages:284-304 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717303062 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-20 Template-Type: ReDIF-Article 1.0 Title: How important are global geopolitical risks to emerging countries? Author-Name: Chak Hung Jack Cheng Author-Name: Ching-Wai (Jeremy) Chiu Keywords: Global geopolitical risks;Emerging countries;Business cycles;Structural VAR Classification-JEL:E32;F42;F44 Abstract: This paper shows that shocks to global geopolitical risk carry considerable business cycle implications for emerging economies. We estimate structural VAR models for 38 emerging countries and find evidence that these shocks are associated with significant economic contractions. The average share of output variation explained by global geopolitical risk shocks is between 13 and 22 percent. However, the individual share for each country varies vastly across our sample. The results remain robust when controlling for the terms of trade, global financial conditions, the US economic policy uncertainty and the US stock market volatility. Journal: International Economics Pages:305-325 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302548 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-21 Template-Type: ReDIF-Article 1.0 Title: Governance and economic growth: The role of the exchange rate regime Author-Name: Salma Hadj Fraj Author-Name: Mekki Hamdaoui Author-Name: Samir Maktouf Keywords: Exchange rate regimes;Governance;Economic growth;Generalized moment method;Panel data Classification-JEL:F31;D73;E20 Abstract: In this paper, we revisit the relationship between governance and economic growth focusing on the role of exchange rate regime. The conventional theoretical view is that increased quality of governance stimulates economic growth, while recent years show that some countries with weak governance are experiencing more economic growth. We show that the effect of governance on economic growth is influenced by several factors such as the potential costs associated with choice of the exchange rate regime. We carried out GMM regressions on panel data to overcome heteroscedasticity, autocorrelation and homogeneity problems. Our panel covers the period 1996-2012 and comprises 50 countries, among which 21 are developed and 29 are emerging. We found that governance is not highly significant to explain economic growth while exchange rate flexibility significantly destabilizes emerging markets and accelerates economic growth in developed countries. Likewise, we found that good governance encourages the choice of flexible exchange rate regime and that exchange rate flexibility requires the improvement of governance to stimulate economic growth in emerging countries. Concerning developed countries, good governance accelerates economic growth if the exchange rate regime is not too flexible and exchange rate flexibility increases economic activity if the governance is not of high quality. Thus, our estimates show that the nature of the exchange rate regime plays a crucial role in the decision to improve the quality of governance. Similarly, the quality of governance determines the optimal exchange rate regime. The interaction term between the overall governance index and the degree of exchange flexibility is statistically significant at the conventional threshold, confirming the importance of the theoretical and empirical foundations raised in this research. Journal: International Economics Pages:326-364 Issue: 156 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300453 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q4-156-22 Template-Type: ReDIF-Article 1.0 Title: Introduction to the special issue: Social values of carbon and climate policy signals in the post-COP21 context Author-Name: Etienne Espagne Author-Name: Jean-Charles Hourcade Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:1-2 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718301793 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-1 Template-Type: ReDIF-Article 1.0 Title: Pricing carbon removal Author-Name: Alfredo Sirkis Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:3-7 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301452 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-2 Template-Type: ReDIF-Article 1.0 Title: Social value of mitigation activities and forms of carbon pricing Author-Name: Jean-Charles Hourcade Author-Name: Antonin Pottier Author-Name: Etienne Espagne Keywords: Classification-JEL: Abstract: In the Decision accompanying the Paris Agreement, the Conference of the Parties “recog-nizes the social, economic and environmental value of voluntary mitigation actions and their co-benefits to adaptation, health and sustainable development”. This paper argues that this Social Value of Mitigation Activities (SVMA) can lay the ground to a new set of tools in climate policies, complementary to more traditional carbon pricing strategies. It first proposes a summary of the economic and political reasons which lead to this article 108 of the Paris Agreement, and the follow-up that emerged since December 2015. It then gives a theoretical back-up to this necessity of SVMA as a climate policy tool by deriving it from the more usual concepts of Social Cost of Carbon (SCC) and Shadow Price of Carbon (SPC). The use of such a value to help fund projects at the micro-level is proposed in a specific institutional arrangement, especially when carbon pricing strategies fail to be implemented at the optimal level. Its potential to bridge the macro-level funding gap between developed and developing or emerging countries is also developed. The last section concludes on the perspectives opened by the recent Stern-Stiglitz report and its corridor of carbon prices to the local and global implementation of SVMAs. Journal: International Economics Pages:8-18 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302561 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-3 Template-Type: ReDIF-Article 1.0 Title: The role of financing cost and de-risking strategies for clean energy investment Author-Name: Jan Christoph Steckel Author-Name: Michael Jakob Keywords: Financing costs;Renewable energy;Carbon pricing;De-risking Classification-JEL:Q54;Q48;Q58;G32 Abstract: Even though costs for renewable energy sources keep falling, the initial investments required for their build-up can pose a substantial challenge in countries with high capital costs. In this paper, we start from the observation that when capital costs are high, carbon pricing alone is unlikely to be sufficient to achieve high shares of renewable energy sources in the power sector. Instead, complementary measures to decrease investors' capital costs are required. We then discuss how financing costs can be lowered by either addressing the underlying sources of investment risk (policy de-risking) or shifting risk away from private sector investors (financial de-risking) on the domestic and the international level. Journal: International Economics Pages:19-28 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302123 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-4 Template-Type: ReDIF-Article 1.0 Title: SCCs and the use of IAMs: Let's separate the wheat from the chaff Author-Name: Etienne Espagne Author-Name: Antonin Pottier Author-Name: Baptiste Perrissin Fabert Author-Name: Franck Nadaud Author-Name: Patrice Dumas Keywords: SCC;IAM;Corridor of Carbon Prices;Stern-Nordhaus Controversy;Worldview Classification-JEL:Q50;Q58;B4;F5;E6 Abstract: This paper argues that integrated assessment models (IAMs) are useful tools to build corridors of social costs of carbon (SCC) reflecting divergent worldviews. Instead of pursuing the elusive quest for the right SCC, IAMs could indeed be useful tools to rationalize the different beliefs on climate related parameters (or worldviews) in the climate debate and help build politically coherent corridors of SCCs. We first take the example of the Stern-Nordhaus controversy as an illustration of the impossible quest for the right SCC. Disentangling the drivers of this controversy, we show that the main differences in results come from a mix of ethical choices of the representative agent (pure time preference), long-term assumptions on technical parameters (abatement cost dynamics) and climate related unknowns (climate sensitivity). We then argue that these sources of disagreement can be best understood as differing worldviews rather than pure scientific uncertainties. This implies that IAMs are of limited help in determining the right SCC, in line with Pindyck (2017). But contrary to him, we consider it necessary to separate the wheat from the chaff, and argue for a middle way between the blind confidence in IAMs' outputs and their full rejection with respect to the SCC debate. Instead, we show how they could help rationalize the climate debates around a corridor of SCCs. We thus analyze the drivers of such corridors of values, or how the sources of divergent worldviews differently impact the SCC-abatement space with time. All in all, the climate policy debate around carbon pricing can benefit from a renewed understanding of the role of IAMs, less divinatory and more institutionally centered. Journal: International Economics Pages:29-47 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302238 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-5 Template-Type: ReDIF-Article 1.0 Title: On the link between oil and agricultural commodity prices: Do biofuels matter? Author-Name: Anthony Paris Keywords: Biofuel;Oil Price;Agricultural Commodity;Nonlinear Econometrics Classification-JEL:C22;Q02;Q16 Abstract: The aim of this paper is to investigate the long-term effect of the price of oil on agricultural commodity prices by accounting for the influence of biofuel production. Relying on the estimation of nonlinear, cointegrating regime-switching processes, we show that biofuel development has led to an increase in the oil-price effect on agricultural commodity prices: the growing production of biofuels is contributing to the price rise of agricultural commodities. This result underlines the importance of considering alternative biofuels which are not produced from agricultural commodities, and of analyzing the potential effects of the second-generation biofuels derived from agricultural plant residuals or non-food plants. Journal: International Economics Pages:48-60 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301622 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-6 Template-Type: ReDIF-Article 1.0 Title: Overcoming the financial barrier to a low emission development strategy in Brazil Author-Name: E. L. La Rovere Author-Name: C.Grottera Author-Name: W.Wills Keywords: Climate change mitigation;Low emission development strategies;Deep decarbonization;Climate finance;Innovative financial devices;Brazil Classification-JEL:Q54;P45;P18;P43;Q43 Abstract: This paper presents two low GHG emission scenarios for Brazil up to 2050, and discusses the impact in the implementation of a deep decarbonization scenario of a financial device allowing for decreasing capital costs of mitigation investments. Specifically, we consider (i) a governmental plan scenario assuming the achievement of NDC targets up to 2030 and the extension of current policies up to 2050; and (ii) a deep decarbonization scenario leading to a national GHG emission pathway compatible with an international effort targeted to stabilize the global temperature at 1.5?°C above pre-industrial levels. We present a comparative analysis of the scenario results for key economic and social indicators, and simulate the adoption of a new financial device allowing to decrease capital costs of low carbon investments in Brazil. Our conclusions highlight the potential of innovative financial mechanisms to foster the transition to a low carbon society in developing countries, as illustrated in the case of Brazil. Journal: International Economics Pages:61-68 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302299 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-7 Template-Type: ReDIF-Article 1.0 Title: The Landscape of domestic climate investment and finance flows: Methodological lessons from five years of application in France Author-Name: Hadrien Hainaut Author-Name: Ian Cochran Keywords: Climate change;Investment;Finance;Domestic;Landscape;France Classification-JEL:Q56 Abstract: The transition to a low-carbon and climate-resilient economy requires an unprecedented redirection and scaling-up of investment and finance to adapt economic and societal systems. In comparison with these investment needs, the tracking of current domestic investment levels has been patchy in both developed and developing countries. This article details the methodology developed by I4CE – Institute for Climate Economics and its results in measuring domestic climate investment and finance flows in a coherent, sound and replicable fashion into a single ‘Landscape’. Applied for the last five years in France, the results allow the assessment of the share of climate investment in domestic gross fixed capital formation. It also tracks financial instruments used by project developers to cover their capital expenditures. The 2017 French Landscape identified climate investment reaching €32bn in 2016, with variations in sources of capital and uses of financial instruments across sectors and types of project developers. These results support decision-makers in France and allow comparative assessments when contrasted with similar studies conducted in other E.U. countries. Journal: International Economics Pages:69-83 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302202 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-8 Template-Type: ReDIF-Article 1.0 Title: Guaranteeing sustainable infrastructure Author-Name: Rogerio Studart Author-Name: Kevin Gallagher Keywords: Infrastructure;Sustainability;Financing gaps;Global guarantee fund Classification-JEL: Abstract: There is an urgent need to scale up investment into sustainable infrastructure. The “supply of private capital” is not lacking for this task, given the rapid expansion of global liquidity that has swelled the balance sheets of pension funds and other institutional investors. Industrialized nations and multi-lateral development banks have begun to pledge billions of dollars toward meeting the climate challenge, but those resources do not match the scale of the problem and seldom grant developing countries ‘ownership’ over projects and broader goals. In turn, private financial intermediaries and markets are skewed away from longer-term sustainable investment. A new financial architecture is needed that more effectively “connects the dots" between private financial markets and global public needs—particularly in emerging and developing nations. In addition to earmarking public budget resources for actual green projects, there is a clear need for new structures and instruments. This paper discusses the rationale underpinning one possible instrument that could be part of this architecture: a global guarantee financed fund that would use some of the international pledges anchored in an international coalition between national, regional and multilateral banks, that would allow emerging market and developing countries to finance the sustainable transition themselves. Journal: International Economics Pages:84-91 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302639 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-9 Template-Type: ReDIF-Article 1.0 Title: Debt and damages: What are the chances of staying under the 2C warming threshold? Author-Name: Emmanuel Bovari Author-Name: Oskar Lecuyer Author-Name: Florent Mc Isaac Keywords: Ecological macroeconomics;Stock-flow consistency;Climate change;Integrated assessment;Debt Classification-JEL:C51;D72;E12;O13;Q51; Q54 Abstract: In a stock-flow consistent macrodynamic model featuring two crucial endogenous destabilizing channels, debt accumulation and climate change, we perform a sensitivity analysis on four fundamental parameters of the climate and economic systems: (i) the climate sensitivity, (ii) the inertia of the carbon cycle, (iii) the labor productivity growth, and (iv) the share of damages sustained by the capital stock. Our main findings are that there is a mere 0.5% chance of achieving the 2°C global warming target of the Paris Agreement in a no policy scenario, while a carbon tax, and a carbon tax plus a subsidy to mitigation efforts, increase that probability to approximately 6.5% and 25.6% respectively. We also investigate the trade-off between mitigating climate change damages and staying in a sustainable debt trajectory. While implementing effective climate policies comes at the cost of increasing the debt burden, shifting some of the debt burden to the public sector significantly reduces the chance of overstepping a threshold of unsustainable debt. Journal: International Economics Pages:92-108 Issue: 155 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302615 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q3-155-10 Template-Type: ReDIF-Article 1.0 Title: Introduction to the special issue: Firms, trade and productivity: Empirical analysis based on recent theoretical advances Author-Name: Massimo Del Gatto Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:1-2 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300283 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-1 Template-Type: ReDIF-Article 1.0 Title: The revealed cost competitiveness of changing trade patterns: A country-sector exercise Author-Name: Massimo Del Gatto Keywords: Firm selection;Gravity equation;Import competition Classification-JEL:F12;F14;F15;O47 Abstract: In new trade models with heterogenous firms, trade liberalization between high-cost and low-cost countries is expected, all the rest equal, to increase cost competitiveness (i.e., to decrease real marginal costs) relatively more in the former. We report evidence in favour of this prediction for a sample of countries, accounting for about 85% of world trade, from the 1980s to the 2000s. The estimation of the country-sector changes in cost competitiveness (relative to the UK) hinges on taking advantage of the observability of international trade patterns to reveal information on cross-country differences in marginal costs, hence ‘revealed’ cost competitiveness. Journal: International Economics Pages:3-22 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301063 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-2 Template-Type: ReDIF-Article 1.0 Title: Relaxing credit constraints in emerging economies: The impact of public loans on the productivity of Brazilian manufacturers Author-Name: Filipe Lage de Sousa Author-Name: Gianmarco I.P. Ottaviano Keywords: Credit constraints;Firm productivity;Public loans;BNDES Classification-JEL:G28;O38;H25 Abstract: In emerging economies credit constraints are often perceived as one of the most important market frictions hampering firm productivity growth in manufacturing. Huge amount of public money is devoted to the removal of such constraints but its effectiveness is still subject to an intense policy debate. This paper contributes to this debate by analyzing the effects of the Brazilian Development Bank (BNDES) loans. Exploiting the unique features of a dataset on BNDES loans to Brazilian manufactures, it finds that credit constraints facing Brazilian manufacturing firms are real, in particular for firms that apply to BNDES repeatedly, and BNDES support has allowed granted firms to match the performance of similar unconstrained firms but not to outperform them. Journal: International Economics Pages:23-47 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300914 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-3 Template-Type: ReDIF-Article 1.0 Title: Productivity and wage premiums: Evidence from Vietnamese ordinary and processing exporters Author-Name: Mai T.P. Vu Author-Name: Flora Bellone Author-Name: Marion Dovis Keywords: Processing trade;Wage;Firm productivity;Firm-level data;Vietnam Classification-JEL:F10;F14;L60 Abstract: We propose some new stylized facts on Vietnamese exporters that emphasize firm heterogeneity in trade regimes and firm ownership. We show first that the distribution of firms' export intensities is U-shaped with more than half of Vietnamese exporters exporting more than 50% of their output. This contrasts with the export patterns in industrialized countries but is similar to the export intensity distribution for other emerging economies with strong participation in global value chains. Second, we show that export premia, evaluated in terms of both productivity and wage indexes, are positive only for Vietnamese exporters involved primarily in ordinary trade, and that processing exporters exhibit lower productivity indexes and pay lower wages than their non-exporting counterparts. This pattern is more pronounced among the group of foreign-owned firms in Vietnam compared to the group of domestic firms and is in line with previous findings for China. Journal: International Economics Pages:48-67 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300999 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-4 Template-Type: ReDIF-Article 1.0 Title: The exchange rate, asymmetric shocks and asymmetric distributions Author-Name: Calin-Vlad Demian Author-Name: Filippo di Mauro Keywords: Exchange rate elasticity;Bilateral trade;Productivity dispersion;TFP Classification-JEL:F14;F41;F31 Abstract: The elasticity of exports to exchange rate fluctuations has been the subject of a large body of literature without a clear consensus emerging. Using a novel sector-level dataset based on firm level information, we show that exchange rate elasticities double in size when country and sector specific firm productivity distributions are considered in the empirical estimations. In addition, exports appear to be sensitive to appreciation episodes, but rather unaffected by depreciations. Finally, only rather large changes in the exchange rate appear to matter. The paper intends to contribute to the debate on the effectiveness and impacts of exchange rate movements, which features highly in the policy agenda. Journal: International Economics Pages:68-85 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301038 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-5 Template-Type: ReDIF-Article 1.0 Title: Governance, value chain positioning and firms' heterogeneous performance: The case of Tuscany Author-Name: Giorgia Giovannetti Author-Name: Enrico Marvasi Keywords: Global value chains;Buyer-supplier relations;Heterogeneous firms;International trade;Firms' performance Classification-JEL:F14;F23 Abstract: The recent trade literature has shown how incomplete contracts can shape firms' boundary and the decision of whether to outsource or integrate vertically. Related evidence and conceptualizations from the business literature show that buyer-supplier relations in global value chains can take several governance structures, depending on the degree of vertical coordination and power relations between firms. Building upon these two non-competing strands of the literature, we construct a taxonomy of firms that considers their positioning (upstream or downstream), their belonging to domestic or global value chains and the type of relations they entertain with other firms. We apply our taxonomy to the 2011 census of firms operating in Tuscany. We first describe regional characteristics and then study how positioning and governance affect firms' decisions and performance. Our results show that firms in hierarchical value chains are more productive than those in market chains; that firms involved in global value chains outperform the one outside or in domestic value chains, and, finally, that firms which are both suppliers and buyers in a value chain have the highest productivity premium. Journal: International Economics Pages:86-107 Issue: 154 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301105 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q2-154-6 Template-Type: ReDIF-Article 1.0 Title: Editorial Author-Name: Sébastien Jean Author-Name: Mario Larch Author-Name: Valérie Mignon Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:1-2 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300027 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-1 Template-Type: ReDIF-Article 1.0 Title: Analyzing Global and Regional Value Chains Author-Name: Koen De Backer Author-Name: Philippe De Lombaerde Author-Name: Lelio Lapadre Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:3-10 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701718300076 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-2 Template-Type: ReDIF-Article 1.0 Title: International production networks and the world trade structure Author-Name: Isabella Cingolani Author-Name: Lelio Iapadre Author-Name: Lucia Tajoli Keywords: Global production networks;Global value chains;Regionalization Classification-JEL:F14;F15;F12 Abstract: In this work, we examine bilateral trade data in two industries with different technological characteristics (textiles and apparel, and electronics) in order to detect the presence of international production networks in these sectors and to assess their structures and organization. Moving from the recent stream of literature that underlines the importance of assessing the participation and position of a country within an international production system, generally much more complex than a simple chain, we examine if these networks can be identified using traditional trade data and if they are still mainly regional. We start by applying a particular specification of bilateral trade intensity indices to the matrix of world trade in each sector (from the BACI – CEPII database), using the BEC classification to distinguish between intermediate and final goods, in order to highlight trade flows driven by international production networks. We compute indicators for the world trade matrix and its regional partitions, as defined by exogenous geographical criteria, or by the existence of regional integration agreements. The resulting pattern of revealed trade preferences conveys useful information about the actual geographic distribution of the underlying international value chains. The core of the paper is an application of network analysis to better understand the topology of global and regional value chains. In each industry, we identify endogenous geographical sub-networks based on preferential trade links, again distinguishing between trade flows in intermediate or final goods, and we examine the topological structure of the trading regions, to assess whether they are similar across industries and goods’ categories, and if they are built around a central core country. On the basis of both approaches, we conclude that trade regionalization is still high, especially in electronics, confirming that geographical proximity and other integration factors still play a role in facilitating international production and trade. However, regionalization has slightly declined in the recent past, and there are some relevant preferential linkages bridging different regions. In addition, the topology of trade networks can indeed shed some light on the structure of the underlying production linkages. In particular, a stronger preferentiality and selection of partners seem to occur for trade in intermediate goods, as suggested by the theory of international fragmentation of production. Journal: International Economics Pages:11-33 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/journal/international-economics/vol/153/suppl/C File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-3 Template-Type: ReDIF-Article 1.0 Title: Value chains in Europe and Asia: Which countries participate? Author-Name: Richard Pomfret Author-Name: Patricia Sourdin Keywords: Regionalism;Global value chains Classification-JEL: Abstract: The paper starts by reviewing the evolution and current status of value chains, and by assessing alternative measures of their significance. The value chains centred on North America, the European Union and East Asia are contrasted. North American value chains tend to be limited to the three NAFTA members under negotiated rules. In the European Union and East Asia value-chain formation has been largely a bottom-up process with free entry supported by low trade costs. To identify which countries have joined value chains, we calculate two measures of value-chain participation by European and Asian emerging market economies. The measures highlight (1) the rapid growth of value-chain activity in the twenty-first century, (2) the greater value-chain participation by East Asian emerging market economies than by EU emerging market economies, and (3) the cross-country variation in participation, with value- chain participation dominated by a handful of countries in both continents. The final section draws conclusions about the nature of international value chains and the policy implications. Journal: International Economics Pages:34-41 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301639 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-4 Template-Type: ReDIF-Article 1.0 Title: Global value chains: New evidence for North Africa Author-Name: Davide Del Prete Author-Name: Giorgia Giovannetti Author-Name: Enrico Marvasic Keywords: International production networks;Global value chains;Multi-Regional Input-Output tables;North Africa Classification-JEL:F14;F15;L23;O11;O55 Abstract: This paper analyzes the participation and the position of North African countries in global value chains (GVCs). Exploiting the recently released Eora multiregional Input-Output tables, we describe regional and country GVC involvement. North African countries have not so far been able to fully integrate into international production networks. However, a large part of their (low) trade is due to value added related activities, mainly in the upstream phases, and the importance of foreign linkages has been increasing over time. We complement the Input-Output analysis with sectoral evidence from selected case studies and policy experiences. Overall, our results suggest that enhancing the GVC participation of North African countries has potential to substantially benefit local industries, countries and indeed the whole area. However, the ability to retain such benefits relies on specific local conditions, such as a favorable environment for foreign investments, and lower trade barriers, thus leaving room for policy intervention. Journal: International Economics Pages:42-54 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716300221 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-5 Template-Type: ReDIF-Article 1.0 Title: Value chains and the great recession: Evidence from Italian and German firms Author-Name: Antonio Accetturo Author-Name: Anna Giunta Keywords: Global Value Chains;Germany;Italy;Industrial firms;Firms’ organization;World trade Classification-JEL:D230;L220;F140;F230 Abstract: Global Value Chains (GVCs) were one of the main transmission mechanisms of the 2009 great trade collapse. Our paper describes the effects of the crisis from a country-comparative perspective (Germany and Italy) and at firm level. There are two main conclusions: i) supplier firms were hit by the crisis more than final firms; ii) firms’ position in GVCs and their strategies explain part of the performance gap between Italian and German firms. Journal: International Economics Pages:55-68 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301238 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-6 Template-Type: ReDIF-Article 1.0 Title: The puzzle of measuring global value chains – The business statistics perspective Author-Name: Peter Bøegh Nielsen Keywords: Global value chains;Micro data linking;International sourcing;Business functions Classification-JEL:D22;F23;F61;L23;L25 Abstract: Measuring Global Value Chains (GVCs) is recognized as a prioritized but complicated challenge for statistical offices as the concept is complex. GVC’s are difficult to measure due to interlinked cross border relations of goods, services, labour and capital at the level of the individual enterprise. A focal point in GVCs is the relationship between enterprises and currently only few statistics measure directly linkages between enterprises (e.g. FATS statistics) and new types of statistical evidence needs to be developed by linking different data sources at enterprise level. Measuring GVCs consists of a number of conceptual and methodological aspects which need to be combined in an analytical framework. Pieces of the puzzle exist or are being developed already today, e.g. the Trade in Value Added (TiVA) concept, Trade by Enterprise Statistics (TEC), or Foreign Affiliates Statistics (FATS) which constitute elements of a measurement framework under elaboration but other elements are still missing, such as information on business functions, governance structures and network relations. This paper presents results of recent initiatives in business statistics within the European Statistical System addressing different aspects of GVCs by different approaches; partly by launching a new survey on international organisation and sourcing of business functions, and partly by linking existing statistical registers at enterprise level. Finally, the paper identifies new activities to be launched by the statistical community in order to improve the measurement of GVCs. Journal: International Economics Pages:69-79 Issue: 153 Year: 2018 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716300464 File-Format: text/html Handle: RePEc:cii:cepiie:2018-Q1-153-7 Template-Type: ReDIF-Article 1.0 Title: Comment: Inferring trade costs from trade booms and trade busts Author-Name: Guillaume Corlay Author-Name: Stéphane Dupraz Author-Name: Claire Labonne Author-Name: Anne Muller Author-Name: Céline Antonin Keywords: Trade costs;Globalization;Gravity Model;Aggregation;Structure Effect Classification-JEL:F14;N70 Abstract: Jacks et al. (2011) offer a method to measure trade costs that relies exclusively on bilateral exports and GDP statistics. They argue that the reduction in trade costs was the main driving force of trade growth during the first globalization (1870–1913), whereas economic expansion was the main driving force during the second globalization (1950–2000). This potentially major result is driven by the use of an ad hoc aggregation method of bilateral trade costs at the country and at the global levels. What Jacks et al. (2011) capture is that some pairs of countries experienced faster trade growth in the first globalization than in the second globalization. More generally, we cast doubts on the possibility to reach conclusions on aggregate costs with a method that excludes a priori changes in non-trade costs determinants of openness rates and hence can only rephrase the information contained in them. Journal: International Economics Pages:1-8 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717302445 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-1 Template-Type: ReDIF-Article 1.0 Title: Offshore renminbi trading: Findings from the 2013 Triennial Central Bank Survey Author-Name: Yin-Wong Cheung Author-Name: Matthew S.Yiu Keywords: China;Offshore RMB trading;Censored data;Tobit model;Heckman two-stage estimation procedure Classification-JEL:C24;F31;F33;G15;G18 Abstract: Using foreign exchange transaction data reported in the Triennial Central Bank Survey by the Bank for International Settlements, we find that offshore renminbi (RMB) trading activity is affected by both the host economy's characteristics and links with China. For instance, the occurrence of offshore RMB trading is determined by the economy's GDP, stage of financial development, equity market capitalization and free trade agreement with China. When an economy hosts offshore RMB trading, the trading volume is affected by the size of its foreign exchange market, equity market capitalization, as well as the bilateral link with China through FDI flows. Journal: International Economics Pages:9-20 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300215 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-2 Template-Type: ReDIF-Article 1.0 Title: Relationships between international tourism and modes of foreign market access Author-Name: Akinori Tomohara Keywords: Immigration;International tourism;Foreign direct investment;Trade Classification-JEL:F21;F22;F23 Abstract: This paper studies how enhanced tourism affects trade and FDI. Our analysis is distinct because interactions among tourism, trade, and FDI are examined comprehensively by relating the research on tourism-FDI relationships with the different trade-FDI relationships. The analysis uses bilateral data (i.e., inbound tourism, imports, and inward FDI) between Japan and 29 countries/areas during 1996–2011. Our analysis shows that the relative importance of inward FDI on imports increases with a rising number of inbound foreign tourists. The results suggest the effectiveness of policy instruments related to trade and FDI promotion, and that stimulating foreign tourism should be evaluated comprehensively, but not independently. Journal: International Economics Pages:21-25 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171730001X File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-3 Template-Type: ReDIF-Article 1.0 Title: Financial liberalization and systemic banking crises: A meta-analysis Author-Name: Mekki Hamdaoui Keywords: Financial liberalization;Systemic banking crisis;Meta analysis;Bayesian Model Averaging;Publication selection bias Classification-JEL:C4;C8;F2;F4;G2 Abstract: This paper provides systematic analysis of the empirical literature about the relation between financial liberalization and banking crises by conducting a meta-analysis. To our knowledge, this is the first study based on a meta-analysis as a tool to identify banking crises’ origins, especially financial liberalization effect. We are interested in explaining heterogeneity of results reported in previous empirical works by investigating the importance of specific characteristics of studies, data, methodology and accounting for model uncertainty. Our contribution resides in the use of the Bayesian Model Averaging approach to determine potential explanatory factors of earlier finding discrepancies. We find that the sample size plays an important role in explaining divergences in previous results, and that the use of multidimensional measures in developing countries tends to reduce significantly the link between financial liberalization and banking crises. Furthermore, we find that some estimation techniques deliver results systematically different from those obtained via other methods. For example, the use of logit approach results in substantially important estimates of the relationship. Journal: International Economics Pages:26-54 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300707 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-4 Template-Type: ReDIF-Article 1.0 Title: An empirical model of diversification cones and wage inequality for the states of Brazil Author-Name: Eleydiane Maria Gomes Vale Author-Name: João Mário deSantos De Frnança Keywords: Diversification cones;Wage inequality;Development paths Classification-JEL:F14;F16;C31 Abstract: The objective of this article is to join the discussion in the area of international trade, the so-called: diversification cones model, to provide evidence that it is robust in explaining differences in wages also for developing countries. We propose an application of the model created by Kiyota (2012), which separates Brazilian states into two cones. This is accomplished through an ISUR econometric model with eighteen manufacturing industries and two annual samples, 1997 and 2007. Wage differences between cones are measured, and salary equation showed to be crucial for the fit of the model. Journal: International Economics Pages:55-62 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301342 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-5 Template-Type: ReDIF-Article 1.0 Title: On the link between current account and oil price fluctuations in diversified economies: The case of Canada Author-Name: Blaise Gnimassoun Author-Name: Marc Joëts Author-Name: Tovonony Razafindrabe Keywords: Current account;Oil prices;Time-varying parameters Classification-JEL:F32;Q43;C32 Abstract: This study revisits the important relationship between oil prices and current account for an oil-exporting-country with a diversified economy, namely Canada, by paying particular attention to the time-varying nature of this link. To this end, we rely on an innovative method, the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has a non-significant impact on the current account, an oil demand shock has a positive and significant effect, which tends to increase over time. In addition, by studying the economic factors underlying the evolution of this relation, we show that the propensity to spend oil revenues on imports has a significant negative influence on the pass-through of oil demand shocks on current account. However, a deepening of the domestic financial market and an accumulation of foreign exchange reserves have a significant positive effect on this relationship. Journal: International Economics Pages:63-78 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717300446 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-6 Template-Type: ReDIF-Article 1.0 Title: Internationalization modes and productivity of Italian manufacturing: Some firm-level evidence Author-Name: Rosa Capolupo Author-Name: Vito Amendolagine Author-Name: Laura Serlenga Keywords: International trade;Foreign outsourcing;FDI;Productivity Classification-JEL:F11;F14 Abstract: This paper compares the productivity ranking of alternative modes of internationalization for a panel of Italian manufacturing firms that are (i) purely domestic or internationally engaged in (ii) exports, (iii) foreign sourcing and (iv) foreign direct investment. By using consistent tests of stochastic dominance of first and second order, as well as by estimating productivity premia across firms for all strategies, we aim at investigating whether and to what extent these modes of firm's entry into the foreign markets conform to the predictions of both Helpman et al. (2004) and Antràs and Helpman (2004)'s seminal papers. While our data confirm the hierarchical theoretical ranking of the traditional moves, no evidence emerges that FDI firms dominate in productivity foreign sourcing firms. Obviously, our evidence also supports the prediction in the literature that domestic firms exhibit lower performances compared to their internationally involved counterparts. Journal: International Economics Pages:79-90 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301901 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-7 Template-Type: ReDIF-Article 1.0 Title: Understanding the decision-making process of sovereign wealth funds: The case of Temasek Author-Name: J.Y. Gnabo Author-Name: M. Kerkour Author-Name: C. Lecourt Author-Name: H. Raymond Keywords: Sovereign Wealth Funds;Nested Logit model;Foreign Investment Classification-JEL:F30;G11;G15 Abstract: Sovereign wealth funds (SWFs) have been increasingly active over the past decade, with governments raising concern regarding their actual motives and the potential for cross-border interest in national strategic sectors. The aim of this paper is to contribute to the existing literature by improving our understanding of the decisions being taken by this new class of investors. The decision-making process informing such investments is complex in the sense that it involves several levels of decision that may potentially interact. In this study, we investigate the determinants of SWFs' foreign investments, while considering in a single model the sequence of choices involved in their decisions, specifically (i) the decision to invest abroad or not, (ii) the decision to invest in a listed versus unlisted firm, and (iii) the decision to take large versus small stakes. Using a nested logit approach on one of the largest SWFs, the Singaporean fund Temasek, over the period 1990–2010, we provide clear evidence of dependence in the three levels of decision making considered. In addition, we show that the probability of Temasek's cross-border investment increases with the excess of foreign exchange (FX) reserves, that the SWF tends to target unlisted firms when asymmetry of information is low between the target company and its home country, and that its involvement in large stakes depends on a firm's financial characteristics. Journal: International Economics Pages:91-106 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716300956 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-7 Template-Type: ReDIF-Article 1.0 Title: Does the J-curve hypothesis hold for a small open economy? Evidence from time-varying coefficients of a distributed-lag model for Tunisia Author-Name: Mohamed Mehdi Jelassi Author-Name: Jamel Trabelsi Author-Name: Maryem Turki Keywords: Trade balance;Effective real exchange rate;J- curve;Kalman Filter Classification-JEL:F14;F31;F32;C32 Abstract: This paper determines how the Tunisian trade balance reacts to exchange rate changes during the post liberalization period, 1993:01 to 2014:03. To achieve this, a state space specification technique is employed to estimate a trade balance model for Tunisia. Our findings suggest that the real effective exchange rate has a significant impact on the trade balance of Tunisia, showing oscillating effects that can be best described by a “W-curve.” Journal: International Economics Pages:107-115 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701716301202 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-8 Template-Type: ReDIF-Article 1.0 Title: Central bank policy rates: Are they cointegrated? Author-Name: Guglielmo Maria Caporale Author-Name: Hector Carcel Author-Name: Luis Gil-Alana Keywords: Interest rates;Long memory;Fractional integration and cointegration Classification-JEL:C22;C32;E47 Abstract: This paper analyses the stochastic properties of the bilateral linkages between the central bank policy rates of the US, the Eurozone, Australia, Canada, Japan and the UK using fractional integration and cointegration techniques respectively. The univariate analysis suggests a high degree of persistence in all cases: the fractional integration parameter d is estimated to be above 1, ranging from 1.26 (US) to 1.48 (UK), with the single exception of Japan, for which the unit root null cannot be rejected. Concerning the bivariate results, Australian interest rates are found to be cointegrated with the Eurozone and UK ones, Canadian rates with the UK and US ones, and Japanese rates with the UK ones. The increasing degree of integration of international financial markets and the coordinated monetary policy responses following the global financial crisis might both account for such linkages. Journal: International Economics Pages:116-123 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S211070171730015X File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-9 Template-Type: ReDIF-Article 1.0 Title: Exchange rate misalignments in energy-exporting countries: Do sovereign wealth funds matter? Author-Name: Hélène Raymond Author-Name: Dramane Coulibaly Author-Name: Luc Désiré Omgba Keywords: Oil;Curse;Misalignment;Sovereign wealth funds Classification-JEL:F31;F32;F41 Abstract: In recent years, several energy-exporting economies have established sovereign wealth funds (SWFs), which invest part of their resource rents in foreign assets. This paper investigates whether these SWFs can help to reduce the volatility of real exchange rate (RER) misalignments by dampening the transmission of energy prices. Using a database on 24 oil-producing countries, we rely on recent advances in the panel cointegration literature to determine a measure for RER misalignment. Our results show evidence that establishing a SWF is associated with a reduction in the volatility of RER misalignments, with a more pronounced magnitude when the fixedness of the exchange rate regime increases. This finding is robust to various sensitivity analyzes. Journal: International Economics Pages:124-144 Issue: 152 Year: 2017 File-URL: https://www.sciencedirect.com/science/article/pii/S2110701717301245 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-152-11 Template-Type: ReDIF-Article 1.0 Title: CO2 emissions, renewable and non-renewable energy consumption, and economic growth: Evidence from panel data for developing countries Author-Name: Katsuya Ito Keywords: CO2 emissions;Renewable energy consumption;Economic growth Classification-JEL:Q01 Abstract: In this paper, using panel data of 42 developed countries over the period 2002–2011 we attempt to empirically examine the linkage between CO2 emissions, renewable and non-renewable energy consumption, and economic growth. Our results suggest that non-renewable energy consumption leads to a negative impact on economic growth for developing countries. Additionally, we find that renewable energy consumption positively contributes to economic growth in the long run. Journal: International Economics Pages:1-6 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301573 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-1 Template-Type: ReDIF-Article 1.0 Title: From natural resource boom to sustainable economic growth: Lessons from Mongolia Author-Name: Bin Grace Li Author-Name: Pranav Gupta Author-Name: Jiangyan Yu Keywords: Natural resources management;Debt sustainability;Public investment Classification-JEL:05;F34;Q32 Abstract: We attempted to investigate empirically whether or not the Dutch disease (de-industrialization) exists in Russia. This study led to the following main findings: (i) manufacturing output in Russia is positively associated with the price of oil, though the response following an oil-price shock is marginal in the short run; (ii) manufacturing output rises slightly even in case of the appreciation of real effective exchange rate; (iii) FDI inflows contribute to the growth of manufacturing output, but not significant; (iv) an increase in government expenditures crowds out the manufacturing sector; and (v) the government has a tight fiscal policy in response to a rise in manufacturing output. Journal: International Economics Pages:7-25 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301573 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-2 Template-Type: ReDIF-Article 1.0 Title: Manufacturing export diversification and regionalization of trade: Which destinations for newly exported goods? Author-Name: Julie Regolo Keywords: Export diversification;Trade costs;Newly exported goods;Regional trade Classification-JEL:F1;O1 Abstract: This paper studies the extent to which export diversification is related to the regionalization of trade by examining the destination pattern of newly exported goods. Using a panel database of bilateral trade between 116 countries of 1090 HS4 manufacturing goods over the period 2000–2010, I first show that for almost all countries in the sample, the average destination of goods not exported before 2000 and newly exported over the 2000–2010 period is more “accessible” in terms of distance, language or tariffs preferences compared to the average destination of traditionally exported goods. I find that this pattern of destinations is weakly dependent on the “age” of the exported goods but rather is explained by the fact that these newly exported goods have emerged in industries where the country has high production and export costs. It follows that export diversification is accompanied by trade regionalization, at least in the medium term. Journal: International Economics Pages:26-47 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301585 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-3 Template-Type: ReDIF-Article 1.0 Title: The role of confidence shocks in business cycles and their global dimension Author-Name: Stéphane Dees Keywords: Consumer confidence;Consumption;International Linkages;Vector Autoregression (VAR);Factor-Augmented VAR (FAVAR) Classification-JEL:C32;E17;E32;F41 Abstract: This paper uses survey data on consumer sentiment to identify the causal effects of confidence shocks on real economic activity in a selection of advanced economies. Starting from a set of closed-economy VAR models, we show that these shocks have a significant and persistent impact on domestic consumption and real GDP. In line with the existing literature, we find that confidence shocks explain a large share of the forecast error variance of real economic activity. At the same time, the shocks we identify are significantly correlated across countries. In order to account for common global components in international confidence cycles, we extend the analysis to a FAVAR model. This approach proves effective in removing the correlation in country-specific confidence shocks and in isolating mutually orthogonal idiosyncratic components. As a result, the (domestic and cross-border) effects of country-specific confidence shocks are attenuated and the forecast error variance contributions are reduced. Overall, our findings suggest that, while confidence shocks play an important role in domestic business cycle fluctuations, they contain a strong common component, which confirms their global dimension. Journal: International Economics Pages:48-65 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301421 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-4 Template-Type: ReDIF-Article 1.0 Title: Dutch disease and Russia Author-Name: Katsuya Ito Keywords: Dutch Disease;Manufacturing output;Russia Classification-JEL:05 Abstract: We attempted to investigate empirically whether or not the Dutch disease (de-industrialization) exists in Russia. This study led to the following main findings: (i) manufacturing output in Russia is positively associated with the price of oil, though the response following an oil-price shock is marginal in the short run; (ii) manufacturing output rises slightly even in case of the appreciation of real effective exchange rate; (iii) FDI inflows contribute to the growth of manufacturing output, but not significant; (iv) an increase in government expenditures crowds out the manufacturing sector; and (v) the government has a tight fiscal policy in response to a rise in manufacturing output. Journal: International Economics Pages:66-70 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301561 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q4-151-5 Template-Type: ReDIF-Article 1.0 Title: On the drivers of inflation in Sub-Saharan Africa Author-Name: Anh D.M. Nguyen Author-Name: Jemma Dridib Author-Name: Filiz D. Unsal Author-Name: Oral H. Williams Keywords: Inflation;Global VAR (GVAR);Monetary policy;Spillovers;Sub-Saharan Africa Classification-JEL:C32;E31;E52;F40 Abstract: The perception that inflation dynamics in Sub-Saharan Africa (SSA) are driven by supply shocks implies a limited role for monetary policy in influencing inflation in the short run. SSA's rapid growth, its integration with the global economy, changes in the policy frameworks, among others, in the last decade suggest that the drivers of inflation may have changed. We quantitatively analyse inflation dynamics in SSA using a Global VAR model, which incorporates linkages among economies, as well as the role of regional and global demand and inflationary spillovers. We find that in the past 25 years, the main drivers of inflation have been domestic supply shocks and shocks to the exchange rate and monetary variables; but that, in recent years, the contribution of these shocks to inflation has fallen. Domestic demand pressures as well as global shocks, and particularly shocks to output, however, have played a larger role in driving inflation over the last decade. This implies a greater role of monetary policy as some SSA countries modernize their monetary policy frameworks. Journal: International Economics Pages:71-84 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301536 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-6 Template-Type: ReDIF-Article 1.0 Title: A quality-adjusted AIDS model in the study of French imports Author-Name: Dr. Thannaletchimy Thanagopal Author-Name: Félix Housset Keywords: AIDS;Quality;Price elasticity;Trade in services;French importation;International trade Classification-JEL:C02;D01;D11;F10;F11 Abstract: To study price and quality competitiveness across 5 exporting regions towards France, we estimate price and quality elasticity on French imports and compare these elasticities between the services and goods sectors using the World Input-Output Database. To estimate these elasticities, we use an Almost Ideal Demand System (AIDS) augmented with a quality variable. The value added of this new AIDS is that it ensures realistic assumptions on individual's preferences on quality are held. We use an original proxy for quality which includes both direct innovation efforts and positive externalities originating from innovation efforts made by other countries and other sectors. Our empirical results confirm that correcting for quality improves the estimation of price elasticities. The results also demonstrate the type of competitiveness across different regions notably developed countries compete in quality while developing countries compete in prices; but BRIC countries are beginning to compete in quality. Journal: International Economics Pages:85-99 Issue: 151 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701717301087 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q3-151-7 Template-Type: ReDIF-Article 1.0 Title: Spillovers between food and energy prices and structural breaks Author-Name: Alanoud Al-Maadid Author-Name: Guglielmo Maria Caporale Author-Name: Fabio Spagnolo Author-Name: Nicola Spagnolo Keywords: Energy and food prices;VAR-GARCH BEKK model;Mean and volatility spillovers Classification-JEL:C32;F36;G15 Abstract: This paper estimates a bivariate VAR-GARCH(1,1) model to examine linkages between food and energy prices. The adopted framework is suitable to analyse both mean and volatility spillovers, and also allows for possible parameter shifts resulting from four recent events, namely: (1) the 2006 food crisis, (2) the Brent oil bubble, (3) the introduction of the Renewable Fuel Standard (RFS) policy, and (4) the 2008 global financial crisis. The empirical findings suggest that there are significant linkages between food and both oil and ethanol prices. Further, the four events considered had mixed effects, the 2006 food crisis and 2008 financial crisis leading to the most significant shifts in the (volatility) spillovers between the price series considered. Journal: International Economics Pages:1-18 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300609 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-1 Template-Type: ReDIF-Article 1.0 Title: Non-linearity in the finance-growth nexus: Evidence from Indonesia Author-Name: Wahyoe Soedarmono Author-Name: Iftekhar Hasan Author-Name: Nuruzzaman Arsyad Keywords: Financial deepening;Financial intermediation;Bank credit decomposition;Regional economic growth Classification-JEL:G20;O16;O40 Abstract: This paper investigates the finance-growth nexus where bank credit is decomposed into investment, consumption, and working capital credit. From a panel dataset of provinces in Indonesia, it documents that higher financial development measured by financial deepening and financial intermediation exhibits an inverted U-shaped relationship with economic growth. This non-linear effect of financial deepening is driven by both investment credit and consumption credit. These results suggest that too much investment credit and, to a lesser extent, consumption credit are detrimental to economic growth. Ultimately, only financial intermediation associated with working capital credit has a positive and monotonic impact on economic growth. Journal: International Economics Pages:19-35 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301858 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-2 Template-Type: ReDIF-Article 1.0 Title: Do countries' endowments of non-renewable energy resources matter for FDI attraction? A panel data analysis of 125 countries over the period 1995–2012 Author-Name: Aurora A.C. Teixeira Author-Name: Rosa Forte Author-Name: Susana Assunção Keywords: FDI;Determinants of FDI;Non-renewable energy resources;Panel data Classification-JEL:F21;C19;O13 Abstract: Empirical studies on FDI location determinants have neglected the role of natural resources. Panel data estimations for 125 host countries over the period between 1995 and 2012 show that a country's endowment of Non-Renewable Energy Resources (NRERs) matters for FDI attraction, when measured by the share of oil, coal and gas exports in total exports but not when measured by oil, coal and gas ‘proven reserves’. Thus, although to possess a vast amount of proven NRERs is not a sufficient condition for FDI inflows, countries with low export diversification, highly dependent on the exports of mineral fuel, tend to succeed in attracting FDI. This evidence supports the content that resource seeking FDI targets mainly economically feeble countries. Moreover, our results firmly indicate that regardless NRERs endowments, FDI attraction is fostered when countries make convincing efforts to open up their economies to international trade and devote resources to the enhancement of their human capital, control of corruption, and have more beneficial tax rates. Journal: International Economics Pages:57-71 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300439 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-3 Template-Type: ReDIF-Article 1.0 Title: The role of financial conditions in transmitting external shocks to South Africa Author-Name: Thanda Sithole Author-Name: Beatrice D. Simo-Kengne Author-Name: Modeste Some Keywords: Financial Conditions Index;Global Vector Autoregressive model;Spillover effects Classification-JEL:C32;E32;F42 Abstract: This paper analyses the spillover effects of external financial conditions to South Africa using quarterly domestic and international data from 1996Q1 to 2014Q4. First, principal component analysis and vector autoregressive model are utilized to build financial conditions indices for South Africa and its main trading partners, namely, China, Germany, the United States, Japan, the United King, Netherlands, Italy, France and Belgium. Consistently across both methodologies, the financial conditions indices obtained track each other fairly well and capture the 2008/09 global financial crisis. Second, a Global Vector Autoregressive model comprised of financial indices and other macroeconomic variables is implemented to assess how international financial shocks spillover into South Africa. Our findings show that a sudden tightening of the US financial conditions has a significant but short lived effect on the South Africa's real GDP growth while the spillover effects from other trading partners appear to be of negligible impact throughout the sample period. Journal: International Economics Pages:36-56 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701717300057 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-4 Template-Type: ReDIF-Article 1.0 Title: CPI and inflation in Kenya. Structural breaks, non-linearities and dependenceOriginal Research Article Author-Name: Luis A. Gil-Alana Author-Name: Robert Mudida Keywords: Prices;Inflation;Non-linearities;Long memory;Structural breaks;Kenya Classification-JEL:C22;E31 Abstract: This paper deals with the analysis of inflation in Kenya. We use data from the Consumer Price Index and inflation to examine, among other issues, features such as the presence of structural breaks, non-linearities and time dependence or persistence in the data. The results indicate the presence of a structural break in the inflation rate taking place in 1994, observing a level shift and a reduction in the degree of integration of the series. However, the results change depending on the assumptions made on the error term. Thus, under no autocorrelation the unit root hypothesis cannot be rejected in any of the two subsamples; however, under the more realistic assumption of autocorrelation, mean reversion takes places in the two subsample, with a slightly reduction after the break. These results are explained in terms of the policy reform and intervention during the last two decades, and some policy recommendations are also presented in the paper. Journal: International Economics Pages:72-79 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301226 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-5 Template-Type: ReDIF-Article 1.0 Title: Energy taxes, reforms and income inequality: An empirical cross-country analysis Author-Name: Walid Oueslati Author-Name: Vera Zipperer Author-Name: Damien Rousselière Author-Name: Alexandros Dimitropoulos Keywords: Energy tax;Environmental tax reform;Income inequality;Gini coefficient Classification-JEL:E62;H23;Q48;Q52 Abstract: Environmentally-motivated taxes on energy products can effectively induce households and firms to take into account the environmental externalities of energy transformation and use. The levy of such taxes is, however, often hampered by public concerns over possible distributional effects. This paper analyses the macroeconomic relationship between taxes on energy products and income inequality. It also investigates whether this relationship is different in cases where explicit mechanisms to shift tax burden from labour and income to environmentally harmful activities have been established. In contrast to earlier empirical studies which analyse the distributional effects of energy taxes on the uses of household income, this paper focuses on their macroeconomic relationship with income sources. Using a panel of 34 OECD countries from 1995 to 2011, the paper shows that in the absence of explicit tax revenue recycling mechanisms there is a positive, although modest, relationship between the share of revenues from energy taxes in GDP and the Gini coefficient, which is the adopted measure of income inequality. In contrast, where such mechanisms have been implemented, there is an inverse and relatively stronger relationship between the share of energy tax revenues in GDP and inequality in income sources. Journal: International Economics Pages:80-95 Issue: 150 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300890 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q2-150-6 Template-Type: ReDIF-Article 1.0 Title: Crisis, potential output and hysteresis Author-Name: Annabelle Mourougane Keywords: Crisis;Potential output;Hysteresis;OECD;Panel estimation Classification-JEL:C23;E30;O40 Abstract: This paper seeks to estimate the effects of financial crises on potential output accounting for hysteresis on a panel of 34 OECD economies. Hysteresis amplifies the effect of financial crises on potential output. The difference is marginal in the first years (below 0.5% point) but grows over time to about 1/3 after six years. These results are robust to a range of specifications. On average across crisis and country the maximum crisis effect on potential output is about 3%. The effect appears to be more severe for the 2008 crisis though, with a maximum impact above 4% on average for G7 countries. Lastly, the empirical work undertaken in this paper suggests that financial crises have had on average an effect on potential growth in the first years following the crisis but not after. Journal: International Economics Pages:1-14 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300634 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-1 Template-Type: ReDIF-Article 1.0 Title: Wealth effects on world private financial saving Author-Name: Ray C. Fair Keywords: Financial saving;World economy;Wealth effects Classification-JEL:E21;E44;F41 Abstract: This paper shows that about 70% of the variance of the yearly change in the world private financial saving rate can be explained by lagged changes in world stock and housing values for the sample period 1982–2013. A theory consistent with these results is that world asset-value changes affect world consumption and investment spending, which affects the world private financial saving rate. Journal: International Economics Pages:15-26 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300853 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-2 Template-Type: ReDIF-Article 1.0 Title: Do preferential trade agreements contribute to the development of trade? Taking into account the institutional heterogeneity Author-Name: Philippe Saucier Author-Name: Arslan Tariq Rana Keywords: Trade agreements;Gravity model;International trade Classification-JEL:F10;F13;F15 Abstract: Following the surge of preferential trade agreements (PTAs) from the 1990's, especially bilateral ones, recent research has begun to reconsider their effects on the development of international trade. These agreements are so different in terms of scope, sectorial coverage, institutional framework…that they can be no more considered as belonging to a homogeneous category. Especially, the inclusion of new areas of negotiation raises questions as to their positive or negative contribution to trade liberalization. In this paper, four trade-related policy domains, more and more frequently negotiated in PTAs, are identified (capital mobility, competition policy, labor mobility and environment). After a general discussion of their supposed effects on international trade, an empirical investigation identifies their effects separately. The gravity model with panel data on the 1960–2010 period is used. To account for zero trade flows, Poisson Pseudo-Maximum Likelihood approach has been applied. Results show that negotiating labor mobility and environmental provisions significantly increases trade, whereas the effects of clauses on capital mobility and competition policy are not systematically significant. Statistical analysis shows that negotiation on labor mobility and environmental issues have an impact independent from the agreement as a whole, confirming the relevance of the heterogeneity hypothesis. Journal: International Economics Pages:41-56 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301500 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-3 Template-Type: ReDIF-Article 1.0 Title: Plant exit and U.S. imports from low-wage countries Author-Name: David L. Rigby Author-Name: Thomas Kemeny Author-Name: Abigail Cooke Keywords: International trade;Low-wage country import competition;Plant exit Classification-JEL:F14;F15;F16;L6 Abstract: Over the past twenty years, imports to the U.S. from low-wage countries have increased dramatically. In this paper we examine how low-wage country import competition in the U.S. influences the probability of manufacturing establishment closure. Confidential data from the U.S. Bureau of the Census are used to track all manufacturing establishments between 1992 and 2007. These data are linked to measures of import competition built from individual trade transactions. Controlling for a variety of plant and firm covariates, we show that low-wage import competition has played a significant role in manufacturing plant exit. Analysis employs fixed effects panel models running across three periods: the first plant-level panels examining trade and exit for the U.S. economy. Our results appear robust to concerns regarding endogeneity. Journal: International Economics Pages:27-40 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301123 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-4 Template-Type: ReDIF-Article 1.0 Title: Financial stress and economic dynamics: The case of France Author-Name: Sofiane Aboura Author-Name: Bjoern van Roye Keywords: Financial stress index;Financial crises;Financial stability;Macro-financial linkages;Bayesian Markov-Switching VAR Classification-JEL:E44;F3;G01;G20;G14 Abstract: In this paper, we develop a financial stress index (FSI) that can be used as a real-time composite indicator for the state of financial stability. We take 17 financial variables from different market segments and extract a common stress component using a dynamic approximate factor model. We estimate the model with a combined maximum-likelihood and Expectation-Maximization algorithm allowing for mixed frequencies and an arbitrary pattern of missing data. Using a Markov-Switching Bayesian vector autoregressions (MS-BVAR), we show that while episodes of high financial stress are associated with significantly lower economic activity, episodes of low financial stress regime are negligible with respect to economic dynamics. The financial stress index can be used to gauge the stability of the French financial sector. Journal: International Economics Pages:57-73 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301603 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-5 Template-Type: ReDIF-Article 1.0 Title: A dynamic IS-LM-X model of exchange rate adjustments and movements Author-Name: Peijie Wang Keywords: Exchange rate;Monetary policy;Interest rate parity;Purchasing power parity Classification-JEL:F31;F37 Abstract: This paper contributes to the literature through developing a model of exchange rate adjustments in a dynamic IS-LM-X analytical framework. Our new model, in particular, a) makes the IS-LM model dynamic; b) endogenizes the exchange rate and price variables and; c) extends the dynamic IS and LM components into the external sector in an open economy that evolves over time. The effect of a change in monetary policy on the exchange rate is evaluated and the trajectory towards its new long-run equilibrium level is projected. These are in contrast to the traditional monetary models of exchange rate determination and adjustments that play primarily with the LM component of the IS-LM framework in discrete steps. Effects of interest rate parity and purchasing power parity are then scrutinized, ranging from the short-term to the long-run continuously. The study has profound policy implications, especially in an era of quantitative easing. Journal: International Economics Pages:74-86 Issue: 149 Year: 2017 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716301056 File-Format: text/html Handle: RePEc:cii:cepiie:2017-Q1-149-6 Template-Type: ReDIF-Article 1.0 Title: Are trade integration and the environment in conflict? The decisive role of countries’ strategic interactions Author-Name: Lisa Anouliès Keywords: Environmental standards;Global and local pollution;Intra-industry trade;Monopolistic competition Classification-JEL:F12;Q56 Abstract: Are trade integration and the environment in conflict? I address this controversial issue in a framework of intra-industry trade of a differentiated good produced by firms in monopolistic competition who choose to enter into a market and whose activity pollutes. Two mechanisms are at work in the model: first, unilaterally strengthening a national environmental policy leads to firm relocations. Second, trade integration makes firms more sensitive to any difference in environmental policy between countries. The model then predicts that the non-cooperative environmental regulation is too strict with regard to local pollution and too lax with regard to global pollution and that trade integration reinforces the incentives to strategically use this instrument. As a result, trade integration, which has no direct effect on the environment, generates less local pollution but more global pollution through the environmental policy response it triggers. These effects can be decomposed into a technique effect and a scale effect operating both at the extensive and the intensive margins, highlighting the decisive role of strategic interactions between countries and of firms' decisions. Journal: International Economics Pages:1-15 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171630049X File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-1 Template-Type: ReDIF-Article 1.0 Title: Exchange rate, political environment and FDI decision Author-Name: Ivan Deseatnicov Author-Name: Hiroya Akiba Keywords: Foreign direct investment;Multinational companies;Exchange rate volatility;Exchange rate expectation;Political environment Classification-JEL:F21;F23 Abstract: We examine the role of exchange rate (ER) and political environment (PE) alterations in determining Japanese Multinational Companies’ (MNCs) investment decisions. First, we present a model where MNCs make an investment decision under uncertainty. Second, we employ a panel data analysis of 56 developed and developing countries for the period of 1995–2012 (country and industry level). The main findings show that MNCs are less likely to tolerate exchange rate risk and political risk in developing countries. However, they may tolerate these risks in developed countries if the level of initial stability is far enough than their essential need. Results of the cross-effect analysis imply a complementarity of these risks. The impact of ER expectation remained ambiguous. Various interpretations and mechanisms are discussed. Journal: International Economics Pages:16-30 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300506 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-2 Template-Type: ReDIF-Article 1.0 Title: On financial liberalization and long-run risk sharing Author-Name: Mark J. Holmes Author-Name: Jesús Otero Keywords: Consumption smoothing;Risk sharing;Financial integration;Pair-wise Classification-JEL:F3;F4;F6 Abstract: We address the noted puzzle that despite increased capital mobility, international consumption risk sharing appears to be very limited. For all possible country pairings, we measure idiosyncratic consumption as the difference between national real per capita consumption expenditures. Using a pair-wise framework based on the time-series properties of idiosyncratic consumption, a probabilistic test for non-stationarity suggests that the extent of risk sharing in fact occurs for a large sample of industrial countries. Further to this, we conduct a probit analysis to confirm a statistically significant positive association between the probability of cointegration between national measures of real per capita consumption and the degree of capital mobility. Journal: International Economics Pages:31-40 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300518 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-3 Template-Type: ReDIF-Article 1.0 Title: Firms' leverage and export market participation: Evidence from South Korea Author-Name: Haeng-Sun KIM Keywords: Exports;Firm heterogeneity;Financial constraints;Leverage Classification-JEL:F14;G32;D92 Abstract: To understand why some firms export while others do not, it is necessary to understand major determinants which lead some firms to engage in exporting. A large base of empirical literature provides evidence that firms which trade are systematically different from those which do not trade in size, productivity, and the involvement of multinational corporations. In this paper, we introduce a financial dimension as an additional source of firm heterogeneity to understand export market participation, and examine how the impact of leverage on firms’ exporting decisions varies depending on financial constraints, using a panel of 3353 Korean manufacturing firms over the period 1994–2011. We find that leverage for financially-constrained firms is negatively associated with the probability of exporting while leverage for financially-unconstrained is not. Also, we find that in the sample of financially-constrained firms, future exporters have higher leverage before they begin to export, while in the sample of financially-unconstrained firms, firms with ex-ante lower leverage self-select to export. Journal: International Economics Pages:41-58 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171630052X File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-4 Template-Type: ReDIF-Article 1.0 Title: Dynamic spillovers between Nigerian, South African and international equity markets Author-Name: Babajide Fowowe Author-Name: Mohammed Shuaibu Keywords: Stock return;Volatility transmission;Spillovers;Variance decomposition Classification-JEL:G15;C32;F36 Abstract: This paper examines the dynamic interdependence and extent of integration between South African, Nigerian and international equity markets. The study made use of a new methodology for computing spillovers within and between markets, which utilizes a generalized VAR framework that produces forecast error variance decompositions and also accounts for correlated shocks using historically observed distribution of the errors. The empirical results revealed that return and volatility spillovers between the Nigerian and South African markets and major international equity markets are substantial when markets from various regions are considered together. For the regional analysis, it was found that the Nigerian and South African markets have greater interdependencies with Asian markets than with European markets. The results also showed that the South African market is more integrated with international markets than the Nigerian market. A crucial finding is that the lowest spillover index recorded was between the Nigerian and South African markets. This does not bode well for African integration and suggests that more efforts need to be channeled towards enhancing financial integration within Africa. Journal: International Economics Pages:59-80 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300531 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-5 Template-Type: ReDIF-Article 1.0 Title: Terrorism and capital flight from Africa Author-Name: Uchenna Efobi Author-Name: Simplice Asongu Keywords: Africa;Capital flight;Foreign capital;Terrorism;Violence Classification-JEL:C50;D74;F23;N40;O55 Abstract: We assess the effects of terrorism on capital flight in a panel of 29 African countries for which data is available for the period 1987–2008. The terrorism dynamics entail domestic, transnational, unclear and total terrorisms. The empirical evidence is based on Generalised Method of Moments (GMM) with forward orthogonal deviations and Quantile regressions (QR). The following findings are established. First, for GMM, domestic, transnational, unclear and total terrorisms consistently increase capital flight. Second, for QR, with the exception of transnational terrorism for which a positive effect on capital flight is apparent in the 0.90th quintile, terrorism dynamics affect capital flight in low quintiles of the capital flight distribution. In other words, terrorism increases capital flight for the most part when initial levels of capital flight are low. Policy implications are discussed. Journal: International Economics Pages:81-94 Issue: 148 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300592 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q4-148-6 Template-Type: ReDIF-Article 1.0 Title: Economic and political determinants of exchange rate regimes: The case of Latin America Author-Name: Cesar M. Rodriguez Keywords: Political factors;Exchange rate regimes;Latin America Classification-JEL:F33;F55;H80 Abstract: This study examines the determinants of exchange rate regime choice between 1985 and 2010 for 20 Latin American countries. The study uses an ordered panel probit that takes into account economic, political and institutional factors. Results indicate that fixed exchange rate regimes in Latin America are associated with small and open economies with respect to trade and financial flows. The larger the tradable sectors are, the less likely it is that a government will peg its currency. Furthermore, the quality of political institutions, political strength and credibility have an influence on how exchange rate regimes are set. Democratic institutions and politically stable contexts are associated with flexible exchange rate regimes, while long tenured governments with more years left in the current term tend to peg their currency. These results seem to support the idea that governments are more concerned about their sustainability than using the exchange rate regime as a commitment device. Finally, results are robust to various specifications and methodologies. Journal: International Economics Pages:1–26 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300014 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-1 Template-Type: ReDIF-Article 1.0 Title: New evidence on the (de)synchronisation of business cycles: Reshaping the European business cycle Author-Name: Veaceslav Grigoras Author-Name: Irina Eusignia Stanciu Keywords: Business cycle dating;Business cycles synchronisation;International business cycles Classification-JEL:E32;F44 Abstract: Business cycle synchronisation (or the lack thereof) has fallen once again under the spotlight of policy and academic circles. In the spirit of Burns and Mitchell and the NBER, this paper dates turning points for most European countries and the US. Later on, synchronisation is addressed through a series of measures, studying the clustering of turning points, along with indicators of concordance and correlation. Last but not least, the main properties of cycles are analysed, in order to provide a more comprehensive view on business cycle similarities. We conclude that previous to the Great Recession the European business cycle has been constantly enforced by formal or informal cohesion between EU member states. However, post-crisis developments show signs of a great disconnect, both within Europe and between Europe and the US. Moreover, heterogeneity of business cycle measures hints at a possible overstating of business cycle synchronisation within the EU. Journal: International Economics Pages:27–52 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300026 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-2 Template-Type: ReDIF-Article 1.0 Title: Fiscal policy and private investment in Greece Author-Name: Maria Th. Kasselaki Author-Name: Athanasios O. Tagkalakis Keywords: Fiscal consolidation;Investment;Output;Financial markets;Economic sentiment Classification-JEL:E62;E22;E44;O52 Abstract: This paper investigates the effects of fiscal policy on private non-residential investment and output in Greece. Besides examining the direct effects of fiscal consolidation, we investigate the role of financial markets and economic sentiment in the transmission of fiscal policy shocks. A tax based fiscal consolidation has more pronounced and more protracted negative effects on output and private non-residential investment relative to an expenditure based fiscal consolidation. A government spending-based fiscal consolidation improves financial markets and boosts economic sentiment. This in turn mitigates the direct negative effects of fiscal consolidation on private investment and output leading to a more rapid recovery. On the other hand, a tax hike fails to induce this positive confidence effect magnifying the negative effects of fiscal adjustment. Journal: International Economics Pages:53–106 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300087 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-3 Template-Type: ReDIF-Article 1.0 Title: Does monetary policy matter for trade? Author-Name: Kin-Ming Wong Author-Name: Terence Tai-Leung Chong Keywords: Monetary policy regimes;Inflation targeting;Exchange-rate targeting;Gravity model;Trade Classification-JEL:E42;E52;E58;F14 Abstract: This paper offers empirical evidence to shed light on the trade creation effect of inflation targeting regime. The existing empirical literature mostly focuses on the effect of exchange rate arrangements on trade. Bacchetta and van Wincoop (2000), however, highlight the important role of monetary policy on trade with a full equilibrium model. The literature on the effect of price and cost uncertainty on the behavior of risk-averse firms also suggests a possible negative effect of price level uncertainty on trade. Using the standard gravity model, we find that an inflation targeting regime has a trade creation effect on bilateral trade, but the effect is much more moderate than that under exchange-rate targeting. Unlike a direct peg, however, the moderate effect of inflation targeting exists in the bilateral trade between an inflation targeter and all of its trading partners. This moderate effect is therefore much larger at the multilateral level, suggesting the inflation targeting regime may not have a lower level of total trade than the exchange-rate targeting regime. This view is further supported by an empirical analysis of total trade under the two monetary policy regimes. Journal: International Economics Pages:107–125 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300099 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-4 Template-Type: ReDIF-Article 1.0 Title: Is the European banking system robust? An evaluation through the lens of the ECB?s Comprehensive Assessment Author-Name: Guillaume Arnould Author-Name: Salim Dehmej Keywords: Financial stability;Stress tests;Banking;Financial regulation;Basel III Classification-JEL:G21;G28 Abstract: The results of the Comprehensive Assessment conducted by the ECB seem to attest the soundness of the European banking system since only 8 of 130 assessed banks had to raise capital (€6bn) when results were released. However, non-failing banks are not completely healthy. If the Comprehensive Assessment has been a very complex exercise, it has flaws that lead to middling conclusion on the soundness of the Eurozone banking system. Relying on stress tests? literature and an international comparison, we show that the assumptions used for the Asset Quality Review and stress tests lead to weak capital requirements. Using public bank-level data provided by the ECB and the EBA, we address some critics and highlight substantial capital shortfalls due to the transitional arrangements, an implementation of Basel III sovereign debt requirements instead of the zero risk weights applied in Europe and a stressed leverage ratio as a complementary indicator of banks soundness. Finally, we show that the low profitability, the massive dividend distribution and the incurred fines, give rise to concern on the ability of Eurozone banks to meet the incoming capital requirements. Journal: International Economics Pages:126–144 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716300105 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-5 Template-Type: ReDIF-Article 1.0 Title: Forecasting the Great Trade Collapse Author-Name: Hakan Yilmazkuday Keywords: Great Trade Collapse;Non-homothetic preferences;Forecasting Classification-JEL:F14;F17 Abstract: This paper introduces a simple methodology to forecast international trade. The main innovation is to calculate non-unitary expenditure elasticities of import demand implied by non-homothetic preferences in the previous year to be further combined with the current change in expenditure to forecast the current imports. Using U.S. data on aggregate expenditure and good-level imports, we test the performance of the methodology in forecasting international imports. The methodology is successful in forecasting not only the Great Trade Collapse and the corresponding recovery period but also the other periods in the sample. Journal: International Economics Pages:145–154 Issue: 147 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171630035X File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q3-147-6 Template-Type: ReDIF-Article 1.0 Title: Evidence on the functional form of inflation and output growth variability relationship in European economies Author-Name: Muhammad Khan Keywords: Inflation;Output growth;Variability;Nonlinearity;Europe Classification-JEL:E23;E31;E43 Abstract: A bulk of literature reports positive and significant link between inflation and relative price variability (RPV). Monetarists hold that this positive connection between the two variables exerts huge welfare consequences due to the fact that a high RPV increases output dispersion among firms. Some recent studies, however, show that the inflation–RPV nexus is neither linear nor stable over-time and thereby the inflation effects on output dispersion, appearing through this channel, should be minor. To address these ambiguities, this study directly tests the effect of inflation on output growth variability using a large panel of 25 developed and emerging European economies. Moreover, we also probe into the functional form of this nexus by employing a panel smooth transition regression model. Our results support a nonlinear relationship between the two variables and advance certain inflation thresholds below which inflation appeases the sectoral output growth variability and above this level it aggravates the later. Journal: International Economics Pages:1-11 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000530 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-1 Template-Type: ReDIF-Article 1.0 Title: A methodology to estimate the costs of data regulations Author-Name: Erik van der Marel Author-Name: Matthias Bauer Author-Name: Hosuk Lee-Makiyama Author-Name: Bert Verschelde Keywords: Regulation;Data Flows;Total Factor Productivity;GTAP Classification-JEL:C68;C54;D24;L8 Abstract: This paper provides a robust and significant explanation of how the costs of data regulation affect downstream industries in an economy. In doing so we first select observable regulatory barriers that explicitly inhibit the domestic and cross-border movement of data, which are currently being implemented by various governments. Second, we calculate the costs of these data regulations for domestic industries through establishing an empirical link between regulation in data and domestic downstream performance at industry level across a set of countries. As such, this paper is the first work that attempts to analyse this connection econometrically by setting up a proxy index of data regulation using a typology of existing indices of administrative barriers. We show that the type of regulations prevalent in data indeed tends to affect downstream industry performance of industries that depend more heavily on data services for the countries under consideration in our study. Finally, the negative performance outcomes as a result of data regulation in these countries are employed in a general equilibrium analysis using the Global Trade Analysis Project (GTAP) in order to estimate the impact on country-specific GDP, industry production, and foreign trade. Journal: International Economics Pages:12-39 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000670 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-2 Template-Type: ReDIF-Article 1.0 Title: A self-organizing map analysis of survey-based agents? expectations before impending shocks for model selection: The case of the 2008 financial crisis Author-Name: Oscar Claveria Author-Name: Enric Monte Author-Name: Salvador Torra Keywords: Business Surveys Indicators;Expectations;Self-Organizing Maps;Artificial Neural Networks;Time Series Models;Forecasting Classification-JEL:C02;C22;C45;C63;E27 Abstract: This paper examines the role of clustering techniques to assist in the selection of the most indicated method to model survey-based expectations. First, relying on a Self-Organizing Map (SOM) analysis and using the financial crisis of 2008 as a benchmark, we distinguish between countries that show a progressive anticipation of the crisis, and countries where sudden changes in expectations occur. We then generate predictions of survey indicators, which are usually used as explanatory variables in econometric models. We compare the forecasting performance of a multi-layer perceptron (MLP) Artificial Neural Network (ANN) model to that of three different time series models. By combining both types of analysis, we find that ANN models outperform time series models in countries in which the evolution of expectations shows brisk changes before impending shocks. Conversely, in countries where expectations follow a smooth transition towards recession, autoregressive integrated moving-average (ARIMA) models outperform neural networks. Journal: International Economics Pages:40-58 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000694 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-3 Template-Type: ReDIF-Article 1.0 Title: Fiscal multipliers in Emerging Market Economies: Can we learn something from Advanced Economies? Author-Name: Marie-Pierre Hory Keywords: Fiscal Multiplier;Spending Multiplier;PCH-VAR;Emerging Markets Classification-JEL:E62;H5;O23 Abstract: It is a well-established fact that Emerging Market Economies (EMEs) have smaller fiscal multipliers than Advanced Economies (AEs). We confirm this difference for our sample using Panel VAR and Interactive Panel VAR (Saborowski and Weber, 2013) models. Then we analyze the impact of some macroeconomic factors on multiplier effects for EMEs and AEs separately. We argue that the development degree can modify the effect of the traditional determinants of fiscal multipliers. A Panel Conditionally Homogeneous VAR (Georgiadis, 2012) is used to test this statement. First of all, we find that the tested determinants (imports, public debt, savings, unemployment and financial development) act in the same way both in EMEs and in AEs. Secondly, public spending efficiency is relatively more sensitive to each tested determinant in EMEs than in AEs. Thirdly, the most important factor for improving fiscal policy efficiency in EMEs (public debt), differs from the one in AEs (openness to trade). Last but not least, we show that improving the tested determinants individually is not sufficient to achieve the same public spending efficiency in EMEs. Journal: International Economics Pages:59-84 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000682 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-4 Template-Type: ReDIF-Article 1.0 Title: Burley Tobacco Clubs in Malawi: Nonmarket Institutions for Exports Author-Name: Mariano Negri Author-Name: Guido G. Porto Keywords: Institutional Access;Collective Action and Economies of Scale;Supporting Networks;Tobacco Exports;Trade Facilitation Classification-JEL:F10;O17;Q17 Abstract: This paper studies nonmarket institutions that facilitate exports. In Malawi, as in many other developing countries, farmers face numerous constraints that disconnect them from export markets. We explore the role of a local institution, the burley tobacco clubs, in bridging smallholders to exports. Burley clubs potentially enable farmers to increase their tobacco farming productivity by providing services related to institutional access, collective action, economies of scale, and supporting network. Using matching methods and instrumental variable techniques, we find that tobacco club membership causes an increase in output per acre between 40 and 74 percent and an increase in tobacco sales per acre between 45 and 89 percent. Instead, neither the land share allocated to tobacco nor the unit value obtained by the producers is affected by club membership. Journal: International Economics Pages:85-107 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000797 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-5 Template-Type: ReDIF-Article 1.0 Title: Food Prices and Inflation Targeting in Emerging Economies Author-Name: Marc Pourroy Author-Name: Benjamin Carton Author-Name: Dramane Coulibaly Keywords: Monetary Policy;Commodities;Food Prices;DSGE Models Classification-JEL:E32;E52;O23 Abstract: The two episodes of food price surges in 2007 and 2011 followed by a drop in 2014 have been particularly challenging for developing and emerging economies’ central banks and have raised the question of how monetary authorities should react to such external relative price shocks. We investigate the optimal monetary policy that manages food price shocks. To this end, we develop a new-Keynesian small open-economy model that incorporates world food price shocks. We show that the optimal monetary policy depends on country income level. In low and medium income countries, overall consumer price targeting is optimal, while in high-income countries non-food inflation targeting is the best option. This result holds not only because food represents a significant share in total consumption in low and medium income countries, but also because of food good composition. Indeed, the poorer the country, the higher the share of purely domestic food in consumption and the more detrimental lack of attention to the evolution in food prices. Journal: International Economics Pages:108-140 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000815 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-6 Template-Type: ReDIF-Article 1.0 Title: The Interactive Relationship Between the US Economic Policy Uncertainty and BRIC Stock Markets Author-Name: Imen Dakhlaoui Author-Name: Chaker Aloui Keywords: Cross Correction Function;Rolling Correlation;Economic Uncertainty;BRIC Equity Markets;Volatility Spillovers Classification-JEL:C32;C51;E44;E60;G17 Abstract: The purpose of this paper is to investigate the dynamics of volatility spillovers between the US economic policy uncertainty and the BRIC equity markets. To do so, we perform the cross correlation function suggested by Cheung–Ng (1996) within a rolling approach. Although the mean return spillover between the BRIC stock indices and US uncertainty is negative, the volatility spillover is found to oscillate between negative and positive values. Therefore, it is highly risky for investors to invest in the US and BRIC stock markets simultaneously. In addition, we find that there is strong evidence of a time-varying correlation between US economic uncertainty and stock market volatility. Furthermore, the correlation is found to be highly volatile during periods of global economic instability. So, market participants in the BRIC stock markets do closely monitor the US economic policy conditions. Journal: International Economics Pages:141-157 Issue: 146 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701716000032 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q2-146-7 Template-Type: ReDIF-Article 1.0 Title: International Trade, FDI and Growth: Some Interactions Author-Name: Sophie Brana Abstract: Introduction to the special issue Journal: International Economics Pages:1-6 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000803 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-1 Template-Type: ReDIF-Article 1.0 Title: Determinants for locating research and development activity in Europe Author-Name: Sylvie Montout Author-Name: Mina Sami Keywords: R&D;FDI;Agglomeration;Co-Location;Coordination costs Classification-JEL:F23;F21;D22 Abstract: In this paper, we contribute to the literature by analyzing the location determinants of R&D activities in Europe. We do so by studying the location choices of 1281 investment decisions from 2007 to 2012. We used a dataset from the European Observatory IFA. We began by analyzing the location determinants of R&D activities and then studied the co-location phenomena between production and innovation activities at the firm level. The results confirm that the location of innovation activities is more driven by market access, agglomeration forces and skilled labor pools. Furthermore, we demonstrate there is interdependence between the location decisions for innovation and production units at the firm level. Journal: International Economics Pages:7-20 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000529 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-2 Template-Type: ReDIF-Article 1.0 Title: Technology spillover and TFP growth: A spatial Durbin model Author-Name: Aligui Tientao Author-Name: Diego Legros Author-Name: Marie Claude Pichery Keywords: Diffusion;Productivity;R&D;Spatial Auto-correlation Classification-JEL:R12;E23;O32;C21 Abstract: Beginning with a model in which technological progress is reflected by product variety, we provide a structural approach to estimate technology spillovers allowing for spatial interdependencies. To this end, we first present a theoretical model of TFP growth by decomposing TFP into quality and variety components. We address the quality component by introducing a country?s distance to the technological frontier. Quality is assumed to be a negative function of the technological gap of country i with respect to its own technological frontier. This technological threshold is defined as the geometric means of knowledge levels in all countries. We deal with the variety component by using R&D expenditure combined with human capital stocks. In doing so, we show how a spatial Durbin model can be obtained from a theoretical model and thus better capture technology spillovers. Our TFP growth model is estimated from a sample of 107 countries for the period 2000–2011. The main focus is on the role played by technological spillovers. They impact productivity growth substantially, as do traditional factors such as R &D and human capital stock. Technological spillovers are captured by the spatial autocorrelation coefficient and the indirect impact of R &D. Journal: International Economics Pages:21-31 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000268 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-3 Template-Type: ReDIF-Article 1.0 Title: Employment Effects of Foreign Direct Investment: New evidence from Central and Eastern European Countries Author-Name: Cristina Jude Author-Name: Monica Ioana Pop Silaghi Keywords: FDI;Employment;Labor demand;Transition countries;Dynamic panel Classification-JEL:F23;J23 Abstract: This paper examines the role of FDI as a determinant of employment by using a dynamic labor demand model applied for a panel of 20 Central and Eastern European Countries during the period 1995–2012. Our results indicate that FDI leads to a phenomenon of creative destruction. The introduction of labor saving techniques leads to an initial negative effect on employment, while the progressive vertical integration of foreign affiliates into the local economy eventually converges toward a positive long run effect. However, this phenomenon is only observed in EU countries. Our analysis thus gives partial support to the worries that FDI may displace jobs. Still, the relative importance of FDI as a determinant of employment is modest compared to economic restructuring and output growth. Finally, our results show evidence of a skill bias of production in foreign affiliates, as human capital favors a positive contribution of FDI to employment. Journal: International Economics Pages:32-49 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000141 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-4 Template-Type: ReDIF-Article 1.0 Title: The Role of Sectoral FDI in Promoting Agricultural Production and Improving Food Security Author-Name: Mehdi Ben Slimane Author-Name: Marilyne Huchet-Bourdon Author-Name: Habib Zitouna Keywords: Food security;FDI;Agricultural production;Developing countries Classification-JEL:F1;Q1 Abstract: The aim of this paper is to examine the effects of foreign direct investments (FDI) on food security for 55 developing countries in a panel framework over the period 1995–2009. There are various measures of food security that can be used. Our first contribution is to build a composite indicator that synthesizes the food indicators used by the Food and Agriculture Organization to measure the food availability and food utilization. Second, our empirical study is based on a model composed of a food security equation and an agricultural production equation. Our results show that sectoral FDI have different effects on food security. FDI in the agriculture sector improves food security and FDI in the secondary and tertiary sector increases the food insecurity. We found a significant FDI?s spillover through the agricultural production to food security. While the effect is positive with FDI in secondary sector, it is negative for FDI in the tertiary sector. Journal: International Economics Pages:50-65 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/journal/21107017/145 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-5 Template-Type: ReDIF-Article 1.0 Title: The Effect of Macroeconomic Instability on FDI Flows: A Gravity Estimation of the Impact of Regional Integration in the Case of Euro-Mediterranean Agreements Author-Name: Dalila Chenaf-Nicet Author-Name: Eric Rougier Keywords: FDI;Gravity model;European Union;Middle East and North Africa;Regional trade integration Classification-JEL:F21;F43;F44 Abstract: In order to diversify their risks, firms facing uncertainty in their domestic market may choose to increase their investment abroad by transferring production to more stable host economies. By estimating a gravity model of foreign direct investment (FDI) flows from Europe and the Mediterranean region to the four main recipients of FDI in the Middle East and North Africa (MENA) region from 1985 to 2009, this article tests (1) the extent to which FDI inflows are affected by macroeconomic volatility in the source country and (2) whether regional trade and investment agreements could have increased this FDI sensitivity to external macroeconomic volatility. We find that the incidence of FDI between two countries increases with source GDP instability and with host GDP stability. Moreover, FDI to MENA countries tends to be countercyclical with respect to the source country’s business cycle. We also find that although FDI reactivity to host country’s uncertainty is not conditioned by North–South trade and investment agreements, it becomes negative for South–South regional integration. Last, we show that although the source country’s instability certainly matters when explaining bilateral FDI flows in our sample, its impact may be less important when investments are driven by cost differentials, that is, for vertical investment. Journal: International Economics Pages:66-91 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000657 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-6 Template-Type: ReDIF-Article 1.0 Title: Do exchange rate misalignments really affect economic growth? The case of Sub-Saharan African countries Author-Name: Ferdinand Owoundi Keywords: Misalignments;Growth;Bayesian inference;Cross-sectional dependence Classification-JEL:F31;O47;C51 Abstract: In order to shed light on the debate concerning the exiting of the Franc Zone area, we address the issue of the growth effects of currency misalignments in Sub-Saharan African countries. To this end, we first assess misalignments which we include in a growth equation while taking into account uncertainty and “jointness” between growth determinants using recent Bayesian inference techniques. More specifically, exchange rate regimes, as well as cross-sectional error dependence, will be explored. We thus demonstrate that the gain related to undervaluation is almost zero regardless of the exchange rate regime. Journal: International Economics Pages:92-110 Issue: 145 Year: 2016 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000645 File-Format: text/html Handle: RePEc:cii:cepiie:2016-Q1-145-7 Template-Type: ReDIF-Article 1.0 Title: Product market regulation and wage premia in Europe and North America: An empirical investigation Author-Name: Sébastien Jean Author-Name: Giuseppe Nicoletti Keywords: Regulation;Competition;Wage premia;Rent-sharing;Panel data Classification-JEL:J31;L51;C23 Abstract: The paper explores the link between wage premia and the determinants of product market rents. We first estimate 2-digit industry premia from 1996 wage earnings data by category of worker (age, sex, education and type of contract) in 10 European countries, the US and Canada. Using industry-specific regulation data, we then look at the effects of restrictions to competition and public ownership on wage premia in non-manufacturing industries, where regulatory conditions vary the most and are better documented. We find that, given workers? bargaining power, anticompetitive regulations significantly increase wage premia, reflecting the presence of rents. However, premia decline in industries dominated by legal public monopolies, suggesting a hump-shaped relationship between regulation and premia. We show that the hump-shape is consistent with a model of non-pecuniary rent-sharing between workers and a populist public monopolist. Journal: International Economics Pages:1-28 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171500027X File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-1 Template-Type: ReDIF-Article 1.0 Title: Africa: Out of debt, into fiscal space? Dynamic fiscal impact of the debt relief initiatives on African Heavily Indebted Poor Countries (HIPCs) Author-Name: Danny Cassimon Author-Name: Bjorn Van Campenhout Author-Name: Marin Ferry Author-Name: Marc Raffinot Keywords: HIPC;MDRI;Debt relief;Fiscal revenue;Public investment;Fiscal response Classification-JEL:H20;H54;H63;O55;F34 Abstract: After two debt relief initiatives launched in 1996 (the Heavily Indebted Poor Countries Initiative, HIPC) and in 1999 (The enhanced HIPC initiative), the G7 decided to go further by cancelling (most of) the remaining multilateral debt for these HIPC countries through the Multilateral Debt Relief Initiative (MDRI, 2005). Building on earlier literature that tries to assess the fiscal response effects of HIPC debt relief, we extend this assessment by explicitly including the fiscal response effects of MDRI debt relief, and by using an extended dataset and alternative econometric techniques, in order to have sufficient hindsight and better tackle methodological issues such as country-specific effects. We confirm earlier findings that debt relief, and especially the enhanced HIPC initiative, has had a positive impact on recipient country total domestic revenue and public investment (as percentage of GDP). Additionally, thanks to our large observation span, we also observe that the MDRI led to a significant increase in current primary expenditures and domestic revenue ratios, although these effects are on average smaller than the HIPC Initiative ones. Journal: International Economics Pages:29-52 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000293 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-2 Template-Type: ReDIF-Article 1.0 Title: Does exchange rate volatility hurt domestic consumption? Evidence from emerging economies Author-Name: Mohsen Bahmani-Oskooee Author-Name: Ali M. Kutan Author-Name: Dan Xif Keywords: Aggregate consumption;Exchange rate uncertainty;Emerging economies Classification-JEL:e21;f31 Abstract: Inflation volatility is said to reduce consumption by introducing more uncertainty to consumers who try to allocate their budget toward consumption and saving. Since exchange rate volatility contributes to inflation volatility, it is shown to have direct negative effect on consumption. Previous research established the link between exchange rate volatility and consumption using data from industrial countries. In this paper we provide a counter part by using data from 12 emerging economies. We find that while exchange rate uncertainty has short-run effects on domestic consumption of almost all countries, the short-run effects last into the long run only in half of the countries. Besides theoretical modeling of consumption behavior, the results also have important implications for business cycles and economic growth in emerging economies. Journal: International Economics Pages:53-65 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000487 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-3 Template-Type: ReDIF-Article 1.0 Title: The determinants of trade agreements in services vs. goods Author-Name: Matthew T. Cole Author-Name: Amélie Guillin Keywords: Regional trade agreements;Services;Qualitative choice Classification-JEL:f14;f15 Abstract: Since Baier and Bergstrand (2004) there has been a focus on empirically testing the economic determinants of signing a free trade agreement (FTA). However, FTAs do not imply an agreement on services; a separate economic integration (EIA) is needed. As trade in services is one of the fastest growing sectors of the global economy, it is important to pay special attention to these agreements. We use the methodology of Baier and Bergstrand (2004) to investigate differences in the determinants of signing an agreement on goods trade and services trade. In addition to the standard economic variables, we include variables for skilled/unskilled labor, and political stability. We find in general, qualitative similarities (though different magnitudes) and some robust specific differences. Journal: International Economics Pages:66-82 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000505 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-4 Template-Type: ReDIF-Article 1.0 Title: Revisiting the Fisher parity consistency for the Swiss economy around the modification of the National Bank?s monetary policy strategy Author-Name: David Neto Keywords: Chebyshev time-polynomials;Fisher parity;Mundell–Tobin effect;Smooth time-varying cointegration;FMLS estimator;Fully modified Wald test;DOLS Classification-JEL:c12;c13;e31;e43 Abstract: This paper aims at testing a smooth time-varying long-run relationship between the Swiss interest rates and inflation around the modification of the monetary policy strategy. In order to test for time-invariant cointegration hypothesis, we use a general cointegration model, allowing the long-run parameters to vary smoothly and slowly over time. Our finding states that the time-invariant assumption is too restrictive for the Swiss Fisher puzzle. Additionally, it is found that the full Fisher effect (i.e. the superneutrality of the inflation) cannot be rejected over the considered period. Journal: International Economics Pages:83-94 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000517 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-5 Template-Type: ReDIF-Article 1.0 Title: Banking union: Mind the gaps Author-Name: Adrien Béranger Author-Name: Laurence Scialom Keywords: Eurozone;Banking union;Bank supervision;Resolution Classification-JEL:g21;g28;h12;e58 Abstract: This paper reviews the various mechanisms and rules that have been proposed to create a banking union in Europe. We argue that the banking union is a promising solution to the Eurozone crisis because it completes the unification of the Euro currency, forms a solution to both the financial and monetary fragmentation of the Euro zone financial markets and helps break the vicious cycle created by domestic banking system impairments and the sovereign debt crisis. We underline the shortcomings and hurdles to attaining a fully-fledged banking union, and the hazards created by the inconsistencies between the phasing-in of the sequential programme decided by European member states. Various suggestions are made to fill the gaps created by the current architecture: establishing a shared-bailout rule to absorb the remaining losses, simplifying the organisation of banking groups and creating a truly federal deposit insurance scheme. Journal: International Economics Pages:95-115 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000633 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-6 Template-Type: ReDIF-Article 1.0 Title: Estimating household responses to trade reforms: Net consumers and net producers in rural Mexico Author-Name: Guido G. Porto Keywords: Agricultural trade reforms;Welfare and poverty impacts of trade policy Classification-JEL:f13;f14;f16 Abstract: This paper explores an empirical methodology to assess the impacts of trade reforms in agriculture on household behavior in developing countries. I focus on consumption and income responses: when price reforms take place, households modify consumption and production decisions and local labor markets adjust. The paper proposes a joint estimator of demand and wage price elasticities from survey data. The method uses an empirical model of demand to extract price information from unit values, and uses this information to estimate the response of households to price reforms. By correcting unit values for quality effects and measurement error, the method overcomes the problem of the endogeneity of unit values. By endogeneizing household income, the model corrects potential biases in the estimation of own- and cross-price elasticities in consumption. I apply the method to an expenditure and income survey for rural Mexico. It is shown that the corrections suggested in this paper are empirically important. In particular, I show that allowing for consumption and income responses is a key element of an accurate empirical assessment of trade policy. Journal: International Economics Pages:116-142 Issue: 144 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000669 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q4-144-7 Template-Type: ReDIF-Article 1.0 Title: Euro area structural convergence? A multi-criterion cluster analysis Author-Name: Delphine Irac Author-Name: Jimmy Lopez Keywords: Cluster analysis;European monetary union;Structural policies Classification-JEL:C38;E02;F33 Abstract: This paper proposes a classification of the old member countries of the euro area in a structural data rich environment and run a convergence analysis using the same framework. First, we use a clustering approach and identify two structurally distinct clusters of countries that are not modified between 1999 and 2012: the South Countries Group (SCG) – composed of Greece, Italy, Portugal and Spain – and the Other Countries Group (OCG). Second, we propose a convergence metrics and reach three key findings: (i) increase over time of the between-clusters? dispersion; (ii) diverging demographics and innovation performance into the OCG, and (iii) an unfortunate convergence towards high labour market duality in the SCG. Journal: International Economics Pages:1-22 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000128 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-1 Template-Type: ReDIF-Article 1.0 Title: Does financial openness explain the increase of global imbalances before the crisis of 2008? Author-Name: Jamel Saadaoui Keywords: Global imbalances;Financial openness;Panel data Classification-JEL:C23;F32;F41 Abstract: We investigate whether financial openness has played a major role in the evolution of global imbalances over the period before the crisis of 2008. We estimate, with panel regression techniques, the impact of financial openness on medium run trends in current account imbalances for industrialized and emerging countries by using a de jure measure of financial openness and a de facto measure of financial openness. Nowadays, current account imbalances are larger in reason of higher capital mobility. Nevertheless, a large part of imbalances may be considered as unrelated with the evolution of macroeconomic fundamentals. Journal: International Economics Pages:23-35 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000244 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-2 Template-Type: ReDIF-Article 1.0 Title: Trade spillovers on output growth during the 2008 financial crisis Author-Name: Jean-Sébastien Pentecôte Author-Name: Fabien Rondeau Keywords: Global Financial Crisis;Output loss;Trade spillovers;Impulse response functions Classification-JEL:F14;G01;F15 Abstract: This paper gives an empirical assessment of the extent to which a financial crash in a country can slowdown the domestic economic growth and how these effects can spread through trade relationships. First, we modify the Cerra and Saxena?s (2008) methodology in order to understand the interplay between economic activity and foreign trade during the 2008 financial crisis. Our sample is made of monthly data for 26 countries over 1993–2013. We then simulate the dynamic responses of domestic activity to a demand shock and to a financial crisis. Trade contributes to growth in the context of a demand shock (from 63% for developing countries to 433% for NAFTA) whereas it dampens output loss in the context of the 2008 financial crisis (from -38% for developing countries to -127% for NAFTA). Journal: International Economics Pages:36-47 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000256 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-3 Template-Type: ReDIF-Article 1.0 Title: Transmission of real exchange rate changes to the manufacturing sector: The role of financial access Author-Name: Anubha Dhasmana Keywords: Real exchange rate;Manufacturing performance;Financial access Classification-JEL:F1;F4 Abstract: We explore the impact of real exchange rate changes on the performance of Indian manufacturing firms over the period 2000–2012. Our empirical analysis shows that real exchange rate movements have a significant impact on Indian firms’ performance but the impact varies across different firm and industry characteristics. In particular, the impact depends upon the degree of market power, trade orientation, foreign ownership, access to domestic finance and industry concentration. Furthermore, appreciation and depreciation affect firms’ performance differently. Results from Panel-VAR confirm these findings. Overall, our results point toward the need for taking into account firm and industry level heterogeneity in designing policies aimed at managing exchange rate shocks and also the role of greater financial development in currency risk management. Journal: International Economics Pages:48-69 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000281 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-4 Template-Type: ReDIF-Article 1.0 Title: A simple model of the juggernaut effect of trade liberalisation Author-Name: Richard Baldwin Author-Name: Frédéric Robert-Nicoud Keywords: Reciprocal trade liberalisation;Juggernaut effect Classification-JEL:;O16 Abstract: This paper posits a political economy model where (i) reciprocity in multilateral trade talks results in a one-off tariff cut below their unilateral level because reciprocal trade talks turn each nation?s exporters into anti-protectionists at home and (ii) this one-off global tariff is self-reinforcing because it reshapes the political economy landscape via entry and exit. Journal: International Economics Pages:70-79 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171500030X File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-5 Template-Type: ReDIF-Article 1.0 Title: Capital inflows, exchange rate regimes and credit dynamics in emerging market economies Author-Name: Robin Boudias Keywords: Capital flows;Dollarization;Emerging market economies;Exchange rate regime;PSTR Classification-JEL:C33;E42;F31;O16 Abstract: This paper investigates the impact of the exchange rate regime (ERR) on the cycle of capital flows, the private credit growth rate and the level of dollarization in emerging market economies. We consider two different panels including 12 and 22 countries over the periods 1980–2010 and 1994–2008, respectively. We estimate a Panel Smooth Transition Regression (PSTR) model in order to assess whether the impact of ERR on credit dynamics is affected by the cyclical component of capital flows. Our findings are threefold. First, the ERR has no impact on the cyclical component of capital flows. Second, credit expansion is procyclical in economies with pegged currencies. Third, during capital inflows or low outflows periods, economies with fixed exchange rate regimes show a higher level of dollarization. When outflows are sizeable, ERR no longer impacts the level of dollarization. These results suggest that ERR should be an important variable in conceiving the policy mix to cope with domestic credit expansions and liability dollarization. Journal: International Economics Pages:80-97 Issue: 143 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000475 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q3-143-6 Template-Type: ReDIF-Article 1.0 Title: Economics of global interactions: Introduction to the special issue Author-Name: Nicola D. Coniglio Author-Name: Hubert Jayet Keywords: Classification-JEL: Abstract: The catalyst for the collection of papers included in this special issue was the 2013 International Conference on “Economics of Global Interactions” held in Bari (Italy), a yearly event that is currently on its 6th edition. This scientific event is build around the idea of bringing together economists which employ different, though strictly connected, prisms of analysis to the study of global interactions. This special issue represents a combination of novel empirical and theoretical approaches surrounding the borders of international trade, factor mobility and international development. The paper by Kawabata and Takarada analyses the welfare effects of free trade agreements (FTAs) in a three-country model characterized by oligopolistic competition. The novelty of the analysis is related to an explicit investigation on the role of product differentiation. The authors highlight a potential welfare improvements of FTAs for both member and non-member countries when product differentiation is accounted for. The authors also contribute to the debate on the nexus between FTAs and multilateral trade liberalization. In particular they find that when the products offered by competing oligopolistic firms are near substitute, FTA might represent a stumbling block to multilateral trade liberalization when firms compete à la Bertrand while the opposite happens when firms compete à la Cournot. Kondoh and Coniglio focus on international policy interactions related to another important global phenomenon, i.e. international migration. In a three-country setting, where two rich countries attract immigrants from a large poor country, the authors highlight policy externalities stemming from the adoption of heterogeneous and asymmetric immigration policies and emphasize possible welfare distortions arising from deeper labor market integration between the two rich countries. The issues raised in this work are particularly interesting in the context of the European Union where deep market integration coexists with highly heterogeneous immigration policies by its member states. Garcia Pires analyses the strategic use of R&D subsidies in international oligopolistic markets. Contrarily to the bulk of existing papers on strategic trade/R&D policy, Pires develops a model with endogenous production costs and first-mover advantage of the foreign competitors (leader). He shows that a subsidy to the R&D follower can make it to leap-frog in terms of competitiveness the R&D leader. Consequently, the country that hosts the R&D follower does not face a prisoner?s dilemma in international subsidy wars, since even when the foreign country retaliates it is always better off when it intervenes. The paper by Kurata investigates the welfare effects of the reduction of service costs in a “service-with-location” industry. The author introduces the realistic assumption of different region-specific marginal costs in industries with and without entry regulation. The main result is that while in industries where entry is regulated the reduction of service costs has a positive welfare effect for both producers and consumers, the effect might be detrimental to consumers in entry-unregulated industries. The special issue includes two papers focussing on the determinants of firms? internationalizations strategies. The paper by Ferri, De Bonis and Rotondi investigates the link between the strength of the firm–bank relationship and firm?s internationalization. The evidence obtained is that a longer relationship with the main bank foster firms? foreign direct investment but does not affect the export status of firms not engaging in FDI. Besides, the probability of a firm undertaking FDI further increases if its main bank is also internationalized by holding foreign subsidiaries. Presbitero, Richiardi and Amighini, using Italian data, test the hypothesis that increased labor flexibility might acts as a substitute to firms? delocalization strategies. The authors do not find the existence of a trade-off between labor market flexibility and the degree of offshoring of firms. Once reverse causality and spurious correlation are controlled for with IV, a higher share of temporary workers does not appear to reduce the likelihood of future offshoring. Do MNEs generate linkages in developing countries? Perez-Villar and Seric address this issue in the context of Sub-Saharan Africa using a rich database developed by UNIDO (Africa Investor Survey 2010). In particular the authors analyze the firm-level and macro-level determinants of linkages between foreign MNEs and domestic African firms. Interestingly, the authors find that institutional distances between origin and destination countries of the investment matters in shaping and reinforcing local linkages; a higher distance deters the extent of domestic linkage in host countries if institutions are worse than in the origin country (typically what happens in the case of North–South investments). Naiditch, Tomini and Ben Lakhdar analyze the interactions between two important global phenomena, remittances and international migration flows, using a rather novel theoretical approach – an epidemic model. Remittances are considered as an income transfer to households in the origin countries. The authors identify the steady state equilibria and study their stability under different assumptions concerning the effect of remittances on the incentive to migrate (“contagion function”). Their analysis shows that low remittances, decreasing recipients? credit constraints, foster migration while high remittances, increasing sufficiently recipients? incomes, deter migration. International migrants often move (or try their best to do so) irregularly. This form of mobility is generally highly costly and dangerous – as the growing flow of migrants across the Southern and Northern Mediterranean shores demonstrate. What motivates irregular migration? Surely future expectations are a fundamental element of the choice. The work by Hoxhaj starts from the anecdotic observation that these expectations are often unrealistic and imprecise. The author then investigates – using a unique survey on illegal immigrants apprehended in Italy and interviewed within a very short time from their arrival – migrants expected wages at the intended destination. He shows that a large part of immigrants overestimate the expected wage. Interestingly higher expected wages are associated with migration within an established network and with previous migration experience. This study surely expands our knowledge on the, rather neglected, role of expectations in shaping the migration decision. The last paper in this special issue, authored by Vézina, focusses on the phenomena of illegal trade in natural resources. The author documents a very high illegal trade in particular when export restrictions are high and in highly corrupted countries. The results highlight a potential drawback of export restrictions policies that are often employed by developing countries in order to control domestic prices and favor downstream industries. Journal: International Economics Pages:1-3 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000232 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-0 Template-Type: ReDIF-Article 1.0 Title: Welfare implications of free trade agreements under Bertrand and Cournot competition with product differentiation Author-Name: Yasushi Kawabata Author-Name: Yasuhiro Takarada Keywords: Free trade agreement;Bertrand competition;Cournot competition;Product differentiation Classification-JEL:F12;F13;F15 Abstract: This study examines the effects of free trade agreements (FTAs) on the welfare of both member and nonmember countries and the incentives for multilateral free trade in a three-country model of Bertrand and Cournot competition in differentiated oligopolies. First, we demonstrate that an FTA increases the welfare of all member and nonmember countries in both Bertrand and Cournot competition with product differentiation. Second, we show that if products are nearly perfect substitutes, an FTA may hamper the incentive of a nonmember country to support multilateral trade liberalization with Bertrand competition, which sharply contrasts with the case of Cournot competition. Journal: International Economics Pages:4-14 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000298 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-1 Template-Type: ReDIF-Article 1.0 Title: International integration with heterogeneous immigration policies Author-Name: Nicola D. Coniglio Author-Name: Kenji Kondoh Keywords: Immigration policy;Economic integration;Policy externality;International migration Classification-JEL:F02;F22 Abstract: This paper investigates the welfare effects of developed countries with heterogeneous and uncoordinated immigration policies. We build a simple three-country model where two rich countries with different immigration policies receive immigrants from the third developing country. We consider the effects of economic integration in the form of free mobility of native workers and show that under certain conditions, wage gap between two developed countries is crucial whether integration ends in win–win or lose–lose. Journal: International Economics Pages:15-31 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000116 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-2 Template-Type: ReDIF-Article 1.0 Title: Competitiveness-shifting effects and the prisoner?s dilemma in international R&D subsidy wars Author-Name: Armando J. Garcia Pires Keywords: R&D subsidies;Competitiveness-shifting effects Classification-JEL:F13;H52;L13;L52;O31 Abstract: We analyze the incentives to subsidize R&D when there is an R&D leader and an R&D follower. Without government intervention, the R&D leader always achieves higher cost competitiveness than the R&D follower. In the presence of R&D subsidies, the country that hosts the R&D follower offers higher R&D subsidies than the country that hosts the R&D leader. As a result, competitiveness-shifting effects arise, since due to the R&D subsidy the R&D follower achieves higher cost competitiveness than the R&D leader. Consequently, the country that hosts the R&D follower does not face a prisoner?s dilemma in international subsidy wars, since even when the foreign country retaliates, it is always better off when it intervenes. Journal: International Economics Pages:32-49 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000074 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-3 Template-Type: ReDIF-Article 1.0 Title: Service costs and economic welfare Author-Name: Hiroshi Kurata Keywords: Service costs;Location choice;Cournot competition Classification-JEL:F12;F13 Abstract: This study examines the effects of service cost reduction on a “service-with-location” industry from a welfare perspective. We consider the situation where firms decide to locate in one of two regions with different region-specific marginal costs in industries with and without entry regulation. We demonstrate that in the entry-regulated industry, service cost reduction is favorable for producers and the overall economy, but it may be unfavorable for consumers. In contrast, in the entry-unregulated industry, service cost reduction is unambiguously favorable for all agents. This result implies that governments have an incentive to implement policies to reduce service costs, and they need formulate policies to protect consumers when service costs are reduced under entry-regulation. • We examine the effects of service cost reduction from a welfare perspective. • Firms determine their location in one of the two regions with different costs. • Service cost reduction may not be favorable for consumers in the entry-regulated industry. • Service cost is favorable for producers and the overall economy. • The result suggests that governments need formulate policies to protect consumers. Journal: International Economics Pages:50-59 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000086 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-4 Template-Type: ReDIF-Article 1.0 Title: Do firm–bank relationships affect firms’ internationalization? Author-Name: Riccardo De Bonis Author-Name: Giovanni Ferri Author-Name: Zeno Rotondi Keywords: Internationalization;Foreign direct investment;Exports;External finance;Firm–bank relationships;Bank internationalization mode Classification-JEL:D21;F10;F21;F23;G21 Abstract: We test whether the length of a firm–bank relationship affects firms’ foreign direct investment (FDI) and/or exports and if this nexus depends on the main bank itself being internationalized. The analysis is carried out on matched micro-data from a large survey of Italian manufacturing enterprises from 1998 to 2003. Our main result is that a longer relationship with the main bank fosters firms’ FDI but does not affect exports. Moreover, when the main bank has subsidiaries abroad this result is strengthened for FDI and there is even a weak positive effect of the duration of the firm–bank relationship on exports. Journal: International Economics Pages:60-80 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000037 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-5 Template-Type: ReDIF-Article 1.0 Title: Is labor flexibility a substitute to offshoring? Evidence from Italian manufacturing Author-Name: Andrea F. Presbitero Author-Name: Matteo G. Richiardi Author-Name: Alessia A. Amighini Keywords: Offshoring;Labor flexibility;Temporary work;Delocalization;Labor market reforms Classification-JEL:J21;F16;F23 Abstract: We test whether labor flexibility acts as a substitute to delocalization. Using Italian survey data, we show that a higher share of temporary workers appears to reduce the likelihood of future offshoring. However, once reverse causality and spurious correlation are controlled for with IV techniques, the relationship vanishes. This finding suggests that a solid argument that labor flexibility and offshoring are substitutes has still to be made. Journal: International Economics Pages:81-93 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171400047X File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-6 Template-Type: ReDIF-Article 1.0 Title: Multinationals in Sub-Saharan Africa: Domestic linkages and institutional distance Author-Name: L. Pérez-Villar Author-Name: A. Seric Keywords: Multinational firms;South–South FDI;Backward linkages;Institutions Classification-JEL: Abstract: This paper analyzes the role of institutional distance in the establishment of domestic linkages by multinational enterprises in a cross-section of 19 Sub-Saharan countries. Investors? familiarity with formal and informal procedures in the host country lowers uncertainty and facilitates networking with local firms. Hence, a similar degree of institutional development boosts linkages between domestic firms and multinationals. Using a novel dataset from the 2010 Africa Investor Survey by UNIDO, we find that institutional distance in terms of contract enforcement deters the domestic linkage if institutions are worse in host countries than in the origin country. Additionally, institutional distance matters more for multinationals from industrialized countries. The paper contributes to the literature on domestic linkages by including the understudied institutional dimension, to the still scarce literature on South–South foreign direct investment in least developed countries and contributes to the definition of clearer targets for foreign investment policies. Journal: International Economics Pages:94-117 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000341 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-7 Template-Type: ReDIF-Article 1.0 Title: Remittances and incentive to migrate: An epidemic approach of migration Author-Name: Claire Naiditch Author-Name: Agnes Tomini Author-Name: Christian Ben Lakhdar Keywords: Migration;Remittances;Epidemic Modeling;Dynamic Analysis Classification-JEL:F22;F24;C61;C62 Abstract: This paper focuses on feedback mechanisms of remittances on the size of the migrant population. We argue that low remittances contribute to relax recipients’ credit constraints and foster further emigration. On the other hand, high remittances may deter migration if they make further emigration unnecessary. Thus, remittances can be considered as a contaminating factor in an epidemic model of migration. This model allows us to characterize a rich set of situations in order to appraise the impact of different policies on the total number of migrants. For instance, we show the mechanisms through which a policy aiming at making migrants successful in the host country may finally lower migration. Journal: International Economics Pages:118-135 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000153 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-8 Template-Type: ReDIF-Article 1.0 Title: Wage expectations of illegal immigrants: The role of networks and previous migration experience Author-Name: Rezart Hoxhaj Keywords: Illegal migration;Wage expectations;Overestimation;Italy Classification-JEL:F22;J31 Abstract: In this paper, I use a unique survey on illegal immigrants apprehended in Italy to investigate migrants expected wages at the intended destination. The results show that – taking into account individual?s human capital – a large part of immigrants overestimate the wage they could earn in Italy. We find that expected wages are positively affected by migration network and previous experience. When migrating within a network, skilled migrants do not expect higher wages compared to unskilled ones probably anticipating the ‘skill waste’ associated with the illegal status. Journal: International Economics Pages:136-151 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171400050X File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-9 Template-Type: ReDIF-Article 1.0 Title: Illegal trade in natural resources: Evidence from missing exports Author-Name: Pierre-Louis Vézina Keywords: Natural resources;Illegal trade;Trade barriers Classification-JEL:F13;O17;O19 Abstract: Countries restrict the export of natural resources to lower domestic prices, stimulate downstream industries, earn rents on international markets, or on environmental grounds. This paper provides empirical evidence of evasion of such export barriers. Using tools from the illicit trade literature, I show that exports of minerals, metals, or wood products are more likely to be missing from the exporter?s statistics if they face export barriers such as prohibitions or taxes. Furthermore, I show that this relationship is significantly higher in countries with high levels of corruption. The results have implications for the design of trade policies and environmental protection. Journal: International Economics Pages:152-160 Issue: 142 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000481 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q2-142-10 Template-Type: ReDIF-Article 1.0 Title: Capital flows and asset prices: Empirical evidence from emerging and developing economies Author-Name: Hiroyuki Taguchi Author-Name: Pravakar Sahoo Author-Name: Geethanjali Nataraj Keywords: Capital flows;Asset prices;Emerging and developing economies Classification-JEL:E51;E52;F32 Abstract: This paper aims at providing empirical evidence on the effect of capital flows on asset prices including its channel under different currency regimes. To this end, we focus, on 10 emerging and developing economies and rely on a generalized impulse response analysis under a vector auto-regression model. The main findings are as follows. Portfolio capital inflows have a significantly positive effect on stock prices in all sample economies except two transition economies, which implies that the direct channel from capital inflows into stock markets is at least working in sample economies regardless of their currency regimes. The indirect channel – the channel in which capital inflows raise share prices through an increase in domestic monetary base – works differently under different currency regimes: it works in the economies with peg regime through their intervention to foreign exchange markets, whereas the indirect channel seems to be shut down in those with floating regime probably by sterilizing the intervention. Journal: International Economics Pages:1-14 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000511 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-1 Template-Type: ReDIF-Article 1.0 Title: Interest burden and external finance choices in emerging markets: Firm-level data evidence from Malaysia Author-Name: Muhamed Zulkhibri Keywords: External finance;Credit channel;Monetary transmission;GMM Classification-JEL:E44;E52 Abstract: This paper provides empirical evidence on the credit channel of the monetary transmission mechanism within the framework of external finance choices using a firm-level panel data. We estimate the corporate finance behaviour in Malaysia, a country with relatively developed capital market, but significant involvement of banking sector in financing the economy using a panel dataset of over 900 listed firms in Malaysia for the period 1990–2010. The analysis suggests the following insights: firm-specific characteristics are important factor in explaining the corporate financing choices of firms; different monetary conditions affect the rate of interest charged by lenders to firms, with financially constrained firms paying a higher premium; and financially constrained firms have limited access to external finance and are severely affected during times of increasing interest rates. Overall, our results are consistent with the existence of credit channel and support the unequal propagation of monetary policy among firms in different monetary conditions. Journal: International Economics Pages:15-33 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000049 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-2 Template-Type: ReDIF-Article 1.0 Title: On the use of singular spectrum analysis for forecasting U.S. trade before, during and after the 2008 recession Author-Name: Emmanuel Sirimal Silva Author-Name: Hossein Hassani Keywords: United States;International trade;Recession;Forecasting;Singular spectrum analysis Classification-JEL:F1;F10;F17 Abstract: This paper is aimed at introducing the powerful, nonparametric time series analysis and forecasting technique of Singular Spectrum Analysis (SSA) for trade forecasting via an application which evaluates the impact of the 2008 recession on U.S. trade forecasting models. This research is felicitous given the magnitude of the structural break visible in the U.S. trade series following the 2008 economic crisis. Structural breaks resulting from such recessions might affect conclusions from traditional unit root tests and forecasting models which make use of these tests. As such, it is prudent to evaluate the sensitivity and reliability of parametric, historical trade forecasting models in comparison to the relatively modern, nonparametric models. In doing so, we introduce the SSA technique for trade forecasting and perform exhaustive statistical tests on the data for normality, stationarity and change points, and the forecasting results for statistical significance prior to reaching the well-founded conclusion that SSA is less sensitive to the impact of recessions on U.S. trade, in comparison to an optimised ARIMA model, Exponential Smoothing and Neural Network models. Ergo, we conclude that SSA is able to provide more accurate forecasts for U.S. trade in the face of recessions, and is therefore presented as an apt alternative for U.S. trade forecasting before, during and after a future recession. Journal: International Economics Pages:34-49 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000050 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-3 Template-Type: ReDIF-Article 1.0 Title: Fiscal austerity, growth prospects, and sovereign CDS spreads: The Eurozone and beyond Author-Name: Chunming Yuan Author-Name: Tanu J. Pongsiri Keywords: Credit default swap;Fiscal austerity;Growth prospects;Dynamic simultaneous equations model Classification-JEL:F34;G10;G15;H60 Abstract: This paper applies both conventional panel data models and a dynamic simultaneous equations model to analyze the impact of fiscal austerity and growth prospects along with other macro fundamentals on the pricing of sovereign credit default swaps (CDS) for a panel of 36 countries including the Eurozone. We find that austerity practice generally leads to an expectation of improved fiscal situations, which tends to help the CDS market grow more confidence in indebted sovereigns? ability to service their debt. The public debt to GDP ratio and projected future output growth also play an important role in determining the prices of sovereign debt insurance. Our analyses further show that the behavior of CDS spreads is considerably affected by common time trends over the sample period. Journal: International Economics Pages:50-79 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000025 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-4 Template-Type: ReDIF-Article 1.0 Title: The “mother of all puzzles” at thirty: A meta-analysis Author-Name: Christophe Tavéra Author-Name: Jean-Christophe Poutineau Author-Name: Jean-Sébastien Pentecôte Author-Name: Isabelle Cadoret Author-Name: Arthur Charpentier Keywords: Feldstein-Horioka coefficient;Capital mobility;Saving-investment correlation;Meta-analysis Classification-JEL:F32;F40;C83 Abstract: This paper provides a meta-analysis of 1651 point estimates of Feldstein and Horioka saving retention coefficient from 49 peer-reviewed papers published over three decades. We get two main results. First, correcting for publication bias, we find a consistent underlying coefficient lying between 0.56 and 0.67 for studies using the original paper. Second, heterogeneity reported in the estimates of the Feldstein and Horioka can be explained by a few main factors. In particular, we find evidence that the saving retention coefficient is systematically underestimated with models written in first difference, models using the saving ratio or the current account ratio as the dependent variable instead of the investment ratio, and models including indicators of the public deficit or indicators of the country size as additional explanatory variables. Journal: International Economics Pages:80-96 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000062 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-5 Template-Type: ReDIF-Article 1.0 Title: Dissecting the brains of central bankers: The case of the ECB’s Governing Council members on reforms Author-Name: Hamza Bennani Keywords: European central bank;Monetary policy;Euro debt crisis;Cognitive mapping Classification-JEL:E42;E58;H12 Abstract: Since 2009, European central bankers have supported some reforms, in order to draw roadmaps to get out of the euro debt crisis. This paper tests whether the educational and professional background of European central bankers matter for the type of reforms each of them advocated. Through a textual analysis of public speeches delivered by the European central bankers, we draw a cognitive map for each of them and, thus, of the reforms they propose as ways out of the euro debt crisis. Our results show that their occupational background is an important determinant of their respective economic reform proposals. Journal: International Economics Pages:97-114 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000098 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-6 Template-Type: ReDIF-Article 1.0 Title: Heterogeneous monetary transmission process in the Eurozone: Does banking competition matter? Author-Name: Aurélien Leroy Author-Name: Yannick Lucotte Keywords: Interest rate pass-through;Bank competition;Lerner index;Euro area countries;Error-correction model Classification-JEL:C23;D4;E43;E52;G21 Abstract: This paper examines the implications of banking competition for the interest rate channel in the Eurozone over the period 2003–2010. We use an Error Correction Model (ECM) approach to measure the long-run and short-run relationships between money market rates, bank interest rates, and our competition proxy, namely, the Lerner index. We find that competition (i) reduces the bank lending interest rates, (ii) increases the long-term interest pass-through and (iii) speeds up the adjustment towards the long-run equilibrium in the short-run. Therefore, increased competition would improve the effectiveness of monetary policy transmission through the interest rate channel, and from this point of view should be fostered in the Eurozone. Finally even if we observe that other factors related to the recent crisis matter for monetary policy transmission, bank competition remains a key determinant of the pass-through. Journal: International Economics Pages:115-134 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171500013X File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-7 Template-Type: ReDIF-Article 1.0 Title: What determines the extent of real exchange rate misalignment in developing countries? Author-Name: Ridha Nouira Author-Name: Khalid Sekkat Keywords: Misalignment;Determinants;Institutions Classification-JEL:O1;E5 Abstract: The paper seeks to explain the extent of real exchange rate misalignment, defined as its deviation from its equilibrium level. It enlarges the traditional analysis, which focuses mainly on the role of nominal exchange rate regimes, to consider the role of the quality of institutions and financial development. The results show that the intermediate regime induces higher and more volatile misalignment than both fixed and float. The fixed regime exhibits a pattern of misalignment similar to the float regime. Inflation pressures and dependence on oil exports are associated with more misalignment. More importantly, persistence in misalignment is an important phenomenon that should be taken into account, better quality of institutions is associated with less misalignment, while financial development seems to have no impact on misalignment. Journal: International Economics Pages:135-151 Issue: 141 Year: 2015 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701715000104 File-Format: text/html Handle: RePEc:cii:cepiie:2015-Q1-141-8 Template-Type: ReDIF-Article 1.0 Title: Credit constraints and firm imports of capital goods: Evidence from middle- and low-income countries Author-Name: Dario Fauceglia Keywords: International trade;Capital imports;Machinery and equipment;Financial development;Credit constraints Classification-JEL:F10;F12;F14;G20 Abstract: Using firm-level data across developing countries, this paper estimates the effect of credit constraints on machinery and equipment imports (i.e. capital imports). We infer credit constraints from survey questions on the availability and cost of finance instead of relying on firms’ financial situation. After accounting for the potential endogeneity of self-reported credit constraints, the analysis suggests that the probability to import capital goods reduces to almost zero for credit constrained firms. This finding holds after controlling for other relevant firm characteristics and across various specifications and models. Journal: International Economics Pages:1-18 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000365 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-1 Template-Type: ReDIF-Article 1.0 Title: Financial Constraints and Export Participation in India Author-Name: Priya Nagaraj Keywords: Export participation;Financial constraints Classification-JEL:D22;F14;G31;G32;L20 Abstract: A firm making an entry decision into the export market faces various non-recoverable fixed costs. Financially constrained firms, unable to make this investment, cannot enter the export market. In this paper, I investigate this relation between financial constraints and the export market entry decision for manufacturing firms in India. Using multiple estimators, I find a strong correlation between the two. I find that firms entering the export market are financially healthier than non-exporting firms. I am also able to show that financial health is the cause and not an effect of exports. Further, the intensive margin of exports (increase in exports of continuing exporters) does not depend on the financial health of the firms. The extensive margin of exports (increase in exports due to new exporters) can be increased if financial constraints faced by firms are reduced. These results are important for the export promotion policies of a developing economy. Journal: International Economics Pages:19-35 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000328 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-2 Template-Type: ReDIF-Article 1.0 Title: Modelling the oil price –exchange rate nexus for South Africa Author-Name: Babajide Fowowe Keywords: Exchange rate;Oil price;Jumps;GARCH;South Africa Classification-JEL:F31;C22;G15 Abstract: This paper conducts an empirical analysis of the relationship between oil prices and exchange rates in South Africa. We model the volatility and jumps in exchange rate returns by using the GARCH autoregressive conditional jump intensity model of Chan and Maheu which models the effects of extreme news events (jumps) in returns. The empirical results show that oil price increases lead to a depreciation of the South African rand relative to the US dollar. This finding suggests that oil price increases have led to a transfer of wealth from South Africa to the OPEC countries. Journal: International Economics Pages:36-48 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000353 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-3 Template-Type: ReDIF-Article 1.0 Title: Assessment of the global financial crisis effects on energy consumption and economic growth in Malaysia: An input–output analysis Author-Name: Hussain Ali Bekhet Author-Name: Tahira Yasmin Keywords: Global financial crisis;Energy consumption;Economic growth;Input–output model;Malaysia Classification-JEL:C67;F43;G01;N75;O23; Q43 Abstract: During the last three decades, dependence on foreign trade has increased sharply in Malaysia, causing the Malaysian economy to become increasingly export-oriented. The global financial crisis (GFC) affected Malaysia?s economic growth tremendously in the fourth quarter of 2008, and policy makers subsequently adopted effective measures to avoid future crises. The government unveiled two stimulus packages; the first—totalling RM7 billion (US$1.9 billion), accounting for 1.04% of the GDP—was launched in November 2008 while the second—totalling RM60 billion (US$16.2 billion), or 9% of the GDP—was launched in March 2009. The objectives of this paper are to (1) discuss the influence of the GFC on Malaysia?s trade and energy consumption and (2) analyse the effect of the Malaysian government?s stimulus plans for economic revival using an input–output model. The results indicate that the drop in exports caused by the GFC led to a 13% decrease in GDP and a 16% reduction in energy consumption. The stimulus packages led to 1.83% and 4.64% increases in economic growth and energy consumption, respectively. Journal: International Economics Pages:49-70 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000468 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-4 Template-Type: ReDIF-Article 1.0 Title: Greenhouse gases mitigation potential and economic efficiency of phasing-out fossil fuel subsidies Author-Name: Jean-Marc Burniaux Author-Name: Jean Chateau Keywords: Fossil-fuel subsidies;General Equilibrium models;GHGs emissions Classification-JEL:H23;O41;Q56 Abstract: Quoting a joint analysis made by the OECD and the IEA, G20 Leaders committed in September 2009 to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”. This analysis was based on the OECD ENV-Linkages General Equilibrium model and shows that removing fossil fuel subsidies in a number of non-OECD countries could reduce world Greenhouse Gas (GHG) emissions by 10% in 2050 (OECD, 2009). Indeed, these subsidies are huge. IEA estimates indicate that total subsidies to fossil fuel consumption in 37 non-OECD countries in 2008 amounted to USD 557 billion (17 and 18). This represents almost five times the yearly bilateral aid flows to developing countries as defined by the Official Development Assistance (ODA). This paper discusses the assumptions, data and both environmental and economic implications of removing these subsidies. It shows that, though removing these subsidies would amount to roughly a seventh of the effort needed to stabilize GHG concentration at a level of 450 ppm or below 2 °C, the full environmental benefit of this policy option can only be achieved if, in parallel, emissions are also capped in OECD countries. Finally, though removing these subsidies qualifies as being a “win–win” option at the global level in terms of environmental and economic benefits, this is not true for all countries/regions. The paper also provides some discussion about the robustness of these results. Journal: International Economics Pages:71-88 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171400033X File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-5 Template-Type: ReDIF-Article 1.0 Title: Structural breaks and the time-varying levels of weak-form efficiency in crude oil markets: Evidence from the Hurst exponent and Shannon entropy methods Author-Name: Walid Mensi Author-Name: Makram Beljid Author-Name: Shunsuke Managi Keywords: Oil market efficiency;Structural breaks;Hurst exponent;Shannon entropy;Rolling approach Classification-JEL:G14;G15;C87 Abstract: This paper examines the time-varying levels of weak-form efficiency and the presence of structural breaks for two worldwide crude oil benchmarks over the period spanning from January 2, 1990, through September 18, 2012. We use two different econophysics approaches for comparison purposes. The Hurst exponent is provided by the scaled range R/S analysis to measure the degree of long-range dependency exhibited by the West Texas Intermediate (WTI) and European Brent crude oil indices. The Shannon entropy approach, which is based on a symbolic time series analysis (STSA), allows a ranking of market-level efficiency. The empirical results show that the European Brent index is less inefficient than the WTI index for both methods. Moreover, we find that the Hurst exponent displays better performance than the Shannon entropy method. The Hurst exponent is also more effective than the Shannon entropy in detecting financial crashes and crises as well as extreme events, such as wars and terrorist attacks. These findings have several implications for commodity portfolio hedgers and risk managers. Journal: International Economics Pages:89-106 Issue: 140 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000493 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q4-140-6 Template-Type: ReDIF-Article 1.0 Title: Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter? Author-Name: Issiaka Coulibaly Keywords: Anchor currency;CFA zone;Competitiveness;Growth Classification-JEL:O40;F01;C23 Abstract: In this paper, we seek to analyze the impacts exerted by the substitution of the French franc for the euro on real and nominal effective exchange rates, competitiveness and growth within the CFA zone. Our findings show that, since the advent of the euro, the evolution of the real exchange rates and the competitiveness (measured by currency misalignments) have become increasingly dependent on nominal exchange rate movements and therefore on the evolution of the anchor currency. While the appreciation of the euro in the last decade did not translate into strong and generalized currency overvaluations—except in Central African Republic, Benin and Equatorial Guinea—it had however strongly reduced the extent of real undervaluations induced by the 1994 devaluation of the CFA franc. This has resulted in an increasingly negative effect exerted by real and nominal appreciations on growth rates of these countries since the switch to the euro. Journal: International Economics Pages:1-18 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000122 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-1 Template-Type: ReDIF-Article 1.0 Title: Gender inequality and emigration: Push factor or selection process? Author-Name: Thierry Baudassé Author-Name: Rémi Bazillier Keywords: Migration;Gender inequality;Core labor standards Classification-JEL:F22;J61;J71 Abstract: Our objective in this research is to provide empirical evidence relating to the linkages between gender equality and international emigration. Two theoretical hypotheses can be made for the purpose of analyzing such linkages. The first is that gender inequality in origin countries could be a push factor for women. The second one is that gender inequality may create a “gender bias” in the selection of migrants within a household or a community. An improvement of gender equality would then increase female migration. We build several original indices of gender equality using principal component analysis. Our empirical results show that the push factor hypothesis is clearly rejected. All else held constant, improving gender equality in the labor market is positively correlated with the migration of women, especially of the high-skilled. We observe the opposite effect for low-skilled men. This result is robust to several specifications and to various measurements of gender equality. Journal: International Economics Pages:19-47 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171400016X File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-2 Template-Type: ReDIF-Article 1.0 Title: New revealed comparative advantage index: Dataset and empirical distribution Author-Name: Elsa Leromain Author-Name: Gianluca Orefice Keywords: Revealed comparative advantage;Ricardian model;Exports Classification-JEL:F11;F14 Abstract: This paper presents a new database of revealed comparative advantage (RCA) measures based on the recent index of RCA proposed by Costinot et al. (2012). This new index conceptually fits the ex ante and country-sector specific nature of the Ricardian comparative advantage better than the traditional Balassa index. The Balassa index, indeed, being computed directly on observed export flows, does not distinguish between exporter, importer and sector specific factors affecting export flows. The RCA index proposed by Costinot et al. (2012) derives from a micro-foundation of the Ricardian model and, being an econometrically based measure, is able to fit the ex ante nature of Ricardian comparative advantage. Costinot et al. (2012) compute the RCA for a sample of 21 OECD countries and 13 industries (ISIC) in 1997. In this paper, we extend the RCA calculations to the period 1995–2010 up to a HS4 digit product classification for manufacturing (i.e. 1018 products). We also present some empirical distribution features of the new index in comparison with the traditional Balassa index. Journal: International Economics Pages:48-70 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000158 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-3 Template-Type: ReDIF-Article 1.0 Title: Stock dividend ex-day effect and market microstructure in a unique environment Author-Name: Khamis Hamed Al-Yahyaee Keywords: Stock dividends;Bid-ask effect;Market microstructure Classification-JEL:G14;G35 Abstract: This paper examines the stock dividend ex-day effect on the Muscat Securities Market (MSM), which is of interest because several of the market microstructure explanations for the ex-day effect can be ruled out. We find that there are positive abnormal returns on Omani stock dividend ex-days. We also find that firms distributing stock dividends have higher stock prices than firms that are in the same industries but do not distribute stock dividends. In addition, we find that the positive abnormal returns are positively related to stock price increases in the pre-announcement period and to stock dividend percentages. This evidence suggests that stock dividends in Oman might be used to reduce stock prices. Journal: International Economics Pages:71-79 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000183 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-4 Template-Type: ReDIF-Article 1.0 Title: Corruption, capital account liberalization, and economic growth: Theory and evidence Author-Name: Takuma Kunieda Author-Name: Keisuke Okada Author-Name: Akihisa Shibata Keywords: Economic growth;Government corruption;Capital account liberalization;Two-country model Classification-JEL:O40;O43;F43;E62 Abstract: We investigate, both theoretically and empirically, how the negative effect of government corruption on economic growth is magnified or reduced by capital account liberalization. Our model shows that highly corrupt countries impose higher tax rates than do less corrupt countries, thereby magnifying the negative impact of government corruption on economic growth in highly corrupt countries and reducing the impact in less corrupt countries if capital account liberalization is enacted. Empirical evidence obtained from an analysis of panel data collected from 109 countries is consistent with our theoretical predictions, namely the interaction term of government corruption and financial openness has a significant and negative impact on economic growth, implying that financial openness magnifies the negative effect of government corruption on economic growth. Our theoretical and empirical results contribute to the recent policy debates on the merits and demerits of capital account liberalization. Journal: International Economics Pages:80-108 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000134 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-5 Template-Type: ReDIF-Article 1.0 Title: Business cycle, market power and bank behaviour in emerging countries Author-Name: Zied Saadaoui Keywords: Capital buffers;Loan default risk;Business cycle;Market power;Emerging countries Classification-JEL:G21 Abstract: This paper tries to overcome the lack of empirical studies on bank cyclical behaviour in emerging countries. According to the literature, market competition is also a relevant determinant of banking stability in emerging countries, but does market power influences the relationship between business cycle and bank behaviour? Drawing from two bodies of literature – business cycle and market power effects on banking stability – this study is the first to give an answer to this question using a quite representative sample of 740 commercial banks installed in 50 emerging countries, observed from 1997 to 2008. Estimation of a simultaneous equations model demonstrates, after several robustness checks that bank capital buffers and loan default risk are negatively correlated with the business cycle, which supports the implementation of the Basel countercyclical prudential tools in emerging countries. The study also shows that market power attenuates the negative relationship between business cycle and bank behaviour, suggesting that banking authorities in emerging countries should also consider the competitive behaviour of banks in implementing countercyclical capital standards. Journal: International Economics Pages:109-132 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000171 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-6 Template-Type: ReDIF-Article 1.0 Title: On the inclusion of the Chinese renminbi in the SDR basket Author-Name: Agnès Bénassy-Quéré Author-Name: Damien Capelle Keywords: SDR;Renminbi;International monetary system;Foreign exchange volatility Classification-JEL:F31;F33 Abstract: This paper studies the impact of a broadening of the SDR basket to the Chinese currency on the composition and volatility of the basket. Although, in the past, RMB inclusion would have had negligible impact due to its limited weight, a much more significant impact can be expected in the next decades. If the objective is to reinforce the attractiveness of the SDR as a unit of account and a store of value through more stability, then a broadening of the SDR to the RMB could be appropriate, provided some flexibility is introduced in the Chinese exchange-rate regime. This issue of flexibility is de facto more important than that of “freely usable” to make the SDR more stable, at least in the short and medium run. Journal: International Economics Pages:133-151 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000146 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-7 Template-Type: ReDIF-Article 1.0 Title: Credit constraints, firm ownership and the structure of exports in China Author-Name: Joachim Jarreau Author-Name: Sandra Poncet Keywords: International trade;Firm ownership;Export margins;Credit constraints;Financial development Classification-JEL:F10;F14;F23;F36;G32 Abstract: We investigate how the export performance in China is influenced by credit constraints. Using panel data from Chinese customs, we show that credit constraints affect the sectoral composition of exports. We confirm that credit constraints provide an advantage to foreign-owned firms and joint ventures over private domestic firms in sectors with higher levels of financial vulnerability. We show that these distortions have been lessened over the period in conjunction with the reduction of State control over the financial intermediation system. Journal: International Economics Pages:152-173 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000304 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-8 Template-Type: ReDIF-Article 1.0 Title: The impossible trinity and Krugman?s balance of payments crisis model Author-Name: Partha Sen Keywords: First generation balance of payments crisis models;Multiple Equilibria;Krugman–Flood–Garber model Classification-JEL:F30;F31;F32;F40;F41 Abstract: The “impossible trinity” refers to the impossibility of the simultaneous presence of a fixed exchange rate regime, uncovered interest parity and the Central Bank?s control over the money supply. I apply this to Krugman?s (1979) balance of payments crisis model, where he argued that there is a unique date on which a crisis occurs. I show that the crisis can occur on any date. The Central Bank may be left with reserves in excess of the level that they wish to defend, which seems consistent with the data. But for the attack to be successful the amount of foreign exchange reserves that the Central Bank will lose on any date is uniquely determined, and is the same as in Krugman (1979). Journal: International Economics Pages:174-181 Issue: 139 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000316 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q3-139-9 Template-Type: ReDIF-Article 1.0 Title: Where is the system? Author-Name: Sylvain Benoit Keywords: Systemic risk;Financial regulation;SRISK;G-SIBs;D-SIBs Classification-JEL:G01;G28;G32 Abstract: The aim of this paper is to determine the optimal size of the system (global, supranational or national) when measuring the systemic importance of a bank. Since 2011, the Basel Committee on Banking Supervision (BCBS) has tagged global systemically important banks (G-SIBs) and has imposed a higher regulatory capital of loss absorbency (HLA) requirement. However, the identification of G-SIBs may overlook banks with major domestic systemic importance, i.e. the domestic systemically important banks (D-SIBs). This paper describes how to adjust market-based systemic risk measures to identify D-SIBs. In an empirical analysis within the eurozone, I show that (i) the SRISK methodology produces similar rankings whatever the system used. However, (ii) the SRISK values greatly vary across systems, which calls for imposing the higher of either D-SIB or G-SIB HLA requirements. Finally, (iii) the ?CoVaR methodology is extremely sensitive to the choice of the system. Journal: International Economics Pages:1–27 Issue: 138 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171300053X File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q2-138-1 Template-Type: ReDIF-Article 1.0 Title: The emergence of new entrepreneurs in Europe Author-Name: Emilio Congregado Author-Name: José María Millán Author-Name: Concepción Román Keywords: Entrepreneurship;Self-employment;Occupational choice;Europe Classification-JEL:J18;J24;J38;J44;J58 Abstract: This work tries to shed some light on the decision of becoming self-employed with and without employees, distinguishing between paid-employment and unemployment as starting status and exploring if the exposure to foreign competition also influences this decision. In doing so, we apply binary and multinomial logit models to data drawn from the European Community Household Panel for the EU-15 (ECHP, 1994–2001). Thus, we provide some evidence supporting the existence of different factors affecting each considered transition in terms of intensity of the causal relationship. Finally our study also suggests the existence of a negative relationship between the degree of openness and the probability of become entrepreneur, across the EU-15 countries, as some theoretical models suggest. Journal: International Economics Pages:28–48 Issue: 138 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000109 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q2-138-2 Template-Type: ReDIF-Article 1.0 Title: From mutual insurance to fiscal federalism: Rebuilding the Economic and Monetary Union after the demise of the Maastricht architecture Author-Name: Shahin Vallée Keywords: Monetary Union;Euro area;Fiscal federalism Classification-JEL:E63;F33;H77 Abstract: The policy response to the current European crisis has largely focused on its financial symptoms rather than on its deep economic and political causes. The aim of this paper is to contribute to the debate about the current architecture of the European Economic and Monetary Union. The crisis has cracked the intellectual consensus and the political compromise that underpins the architecture of the monetary union enshrined in the Maastricht Treaty. The inter-governmental insurance mechanism that has emerged in response to the crisis could offer a path to buttress the existing architecture, but it is economically limited and politically unsustainable. Indeed, the mutualisation of economic risks that has started tacitly through various mechanisms (European Stability Mechanism, interventions by the European Central Bank) cannot succeed without a more profound rebuilding of the monetary union that involves a move towards pooling of resources and a form of fiscal federalism. Journal: International Economics Pages:49–62 Issue: 138 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000516 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q2-138-3 Template-Type: ReDIF-Article 1.0 Title: Exchange rate pass-through to import prices in the Euro-area: A multi-currency investigation Author-Name: Olivier de Bandt Author-Name: Tovonony Razafindrabe Keywords: Pass-through;Currency invoicing;Global crisis of 2008 Classification-JEL:F31;C23;G01 Abstract: Using a new database of actual import price data rather than unit value indices, we analyze the impact of currency-invoicing decision of exporting firms on the extent of exchange rate pass-through (ERPT) for several Euro-area countries during the period of June 2005 to July 2013. Mainly, we use a multi-currency approach to distinguish between invoicing strategies across the most important currencies for Euro-area imports and make a distinction between bilateral and multilateral (or effective) ERPT. First, we show that the effective ERPT is primarily driven by the US Dollar bilateral ERPT. Second, in contrast to several papers in the empirical literature which argue that ERPT is low and incomplete, we find that short run effective ERPT is incomplete, while long run effective ERPT is complete. Third, estimating time-varying ERPT, we uncover that the 2008 global crisis triggered a temporary increase in the effective ERPT and find no evidence of declining value of the ERPT. Journal: International Economics Pages:63–77 Issue: 138 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000092 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q2-138-4 Template-Type: ReDIF-Article 1.0 Title: Monetary policy and the Dutch disease effect in an oil exporting economy Author-Name: Mohamed Tahar Benkhodja Keywords: Monetary policy;Dutch disease;Oil prices;Small open economy;DSGE Classification-JEL:E52;F41;Q40 Abstract: In this paper, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare. Journal: International Economics Pages:78–102 Issue: 138 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701714000110 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q2-138-5 Template-Type: ReDIF-Article 1.0 Title: Real exchange rate and competitiveness of an EU's ultra-peripheral region: La Reunion Island Author-Name: Fabien Candau Author-Name: Michaël Goujon Author-Name: Jean-François Hoarau Author-Name: Serge Rey Keywords: Real exchange rate;Ultra-peripheral region;La Reunion;Competitiveness;Euro;Misalignment Classification-JEL:F14;F31;C22 Abstract: This article aims at analyzing the problem of real exchange rate appreciation and competitiveness in the EU's ultra-peripheral regions by the case study of La Reunion Island. After describing economic characteristics of this French overseas department, such as the large deficit of the trade balance, this article looks for explanation by calculating and examining the statistical properties of the real effective exchange rate (REER). Our results show that this rate is stationary around a trend and provides evidence of (i) an appreciation of the REER, but (ii) no permanent overvaluation of the currency. These two results can be explained by the economic catch-up of La Reunion characterized by gains in relative productivity, and by the dynamics of the terms of trade and a permanent increase in the transfers from metropolis. Journal: International Economics Pages:1-21 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000395 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-1 Template-Type: ReDIF-Article 1.0 Title: The determinants of regional stock market integration in middle east: A conditional ICAPM approach Author-Name: Khaled Guesmi Author-Name: Frédéric Teulon Keywords: Multivariate GARCH;Intra-regional integration;CAPM Classification-JEL:F36;C32;G15 Abstract: Over recent years, several emerging market regions have actively taken part in globalisation movements and world market integration. However, the financial integration processes appear to vary over time, and differ considerably from one region to another. This paper investigates intra-regional integration in the Middle East region during the period 1996–2008 using an international conditional Capital Asset Pricing Model (ICAPM) version that allows for dynamic changes in the degree of regional market integration, global risk premium, currency risk premium and local market risk premium. Our findings show that inflation, exchange rate volatility, variations in interest rate spread and global market dividend yields are key intra-regional integration variables in the Middle East context. Moreover, despite the complex economic and political situation that characterises the Middle East, our results indicate that stock markets in this area are well integrated in the regional market. Journal: International Economics Pages:22-31 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000413 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-2 Template-Type: ReDIF-Article 1.0 Title: Solvency vs. liquidity. A decomposition of European banks' credit risk over the business cycle Author-Name: Guillaume Vuillemey Keywords: Solvency;Liquidity;Global games;Banking crises;Procyclicality Classification-JEL:G21;G17 Abstract: This paper provides evidence for the procyclicality of banks' credit risk by investigating the historical resilience of several European banking sectors before and after the 2008 banking crisis. It provides a decomposition of banks' probabilities of default between a solvency and a liquidity component. The results show a gradual build-up of fragilities before 2008 in most countries. Increased probabilities of default are shown to be mainly driven by a surge in liquidity risk, even when shocks of relatively low magnitude are imposed on the system. Journal: International Economics Pages:32-51 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000383 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-3 Template-Type: ReDIF-Article 1.0 Title: Energy prices and the real exchange rate of commodity-exporting countries Author-Name: Magali Dauvin Keywords: Energy prices;Terms-of-trade;Exchange rate;Commodity-exporting countries;Panel cointegration;Nonlinear model;PSTR Classification-JEL:C33;F31;O13;Q43 Abstract: This paper investigates the relationship between energy prices and the real effective exchange rate of commodity-exporting countries. We consider two sets of countries: 10 energy-exporting and 23 commodity-exporting countries over the period 1980–2011. Estimating a panel cointegrating relationship between the real exchange rate and its fundamentals, we provide evidence for the existence of “energy currencies”. Relying on the estimation of panel smooth transition regression (PSTR) models, we show that there exists a certain threshold beyond which the real effective exchange rate of both energy and commodity exporters reacts to oil prices, through the terms-of-trade. More specifically, when oil price variations are low, the real effective exchange rates are not determined by terms-of-trade but by other usual fundamentals. Nevertheless, when the oil market is highly volatile, currencies follow an “oil currency” regime, terms-of-trade becoming an important driver of the real exchange rate. Journal: International Economics Pages:52-72 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000401 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-4 Template-Type: ReDIF-Article 1.0 Title: Conventional and Islamic stock price performance: An empirical investigation Author-Name: Fredj Jawadi Author-Name: Nabila Jawadi Author-Name: Waël Louhichi Keywords: Financial performance;Islamic finance;Financial crisis Classification-JEL:G01;G10;C20 Abstract: The present paper studies the financial performance of Islamic and conventional indexes for three major regions: Europe, the USA and the World. The study covers the period 2000–2011, enabling us to capture the impact of the recent global financial crisis. To this end, we computed different performance ratios and estimated the CAPM-GARCH model to take into account the financial risk time-variation in order to provide precise performance evaluations. Our findings offer some interesting results and have diverse economic and policy implications. First, while conventional investments seemed promising before the crisis and during periods of calmness, Islamic funds have outperformed them since the subprime crisis began and in turbulent times, but this result is specific to the region under consideration and to the performance criterion. Second, the heterogeneous conclusions in terms of performance may reflect the different states of development of the Islamic finance industry in these regions. Third, we show that the impact of the 2008–2009 global financial crisis on Islamic markets is less significant than for conventional markets, suggesting that by keeping their eye on Islamic finance products, investors can expect some interesting investment opportunities. Journal: International Economics Pages:73-87 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000504 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-5 Template-Type: ReDIF-Article 1.0 Title: Predicting exchange rates using a novel “cointegration based neuro-fuzzy system” Author-Name: Behrooz Gharleghi Author-Name: Abu Hassan Shaari Author-Name: Najla Shafighi Keywords: Exchange rate;Error correction model;Intelligence systems;Neural networks;Unit root Classification-JEL:E47;F31;F37 Abstract: The present study focuses upon the applications of currently available intelligence techniques to forecast exchange rates in short and long horizons. The predictability of exchange rate returns is investigated through the use of a novel cointegration-based neuro-fuzzy system, which is a combination of a cointegration technique; a Fuzzy Inference System; and Artificial Neural Networks. The Relative Price Monetary Model for exchange rate determination is used to determine the inputs, consisting of macroeconomic variables and the type of interactions amongst the variables, in order to develop the system. Considering exchange rate returns of three ASEAN countries (Malaysia, the Philippines and Singapore), our results reveal that the cointegration-based neuro-fuzzy system model consistently outperforms the Vector Error Correction Model by successfully forecasting exchange rate monthly returns with a high level of accuracy. Journal: International Economics Pages:88-103 Issue: 137 Year: 2014 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000528 File-Format: text/html Handle: RePEc:cii:cepiie:2014-Q1-137-6 Template-Type: ReDIF-Article 1.0 Title: Economic policy, tourism trade and productive diversification Author-Name: Iza Lejárraga Author-Name: Peter Walkenhorst Keywords: Tourism linkages;Economic development;Business environment Classification-JEL:F14;L83;O24 Abstract: Over the past two decades, tourism exports have been a major driver of economic growth in many emerging and developing countries. Yet, increased tourism revenues do not automatically translate into structural transformation and broad-based economic development. Drawing on cross-sectional data, this paper gauges the extent to which tourism has contributed to economic diversification in a large sample of developing countries. An econometric model is used to assess the relative importance of a country's natural endowments, level of development, institutional maturity, business environment, and trade regulations in explaining cross-country differences in linkages between tourism and the general economy. The central findings contain encouraging lessons for developing countries: domains that are more amenable to policy interventions in the short term, such as the business environment or trade regulations, matter most in fostering productive linkages between tourism and the general economy. In contrast, fixed factors, such as land availability, or longer-terms goals, such as advances in the level of development, have less influence. Journal: International Economics Pages:1-12 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-1 Template-Type: ReDIF-Article 1.0 Title: Trade linkages and growth in Latin America: An SVAR analysis Author-Name: Miguel Ángel Saldarriaga Author-Name: Diego Winkelried Keywords: Latin America;China;Trade linkages;Time-varying impulse-response Classification-JEL:C32;C50;E32;F44;O54 Abstract: How do shocks originated in large economies around the globe have transmitted to the growth rates of Latin American countries? To answer this question, we propose a highly parsimonious structural VAR model, identified through bilateral trade linkages .Since trade weights evolve through time, the effects of shocks are time-varying and we are able to quantify how growth in the region has been affected by tighter trading linkages with fast-growing emerging economies, and how it has responded to a new world trade structure, featuring China as a major player. It is found that about half of the vigourous growth registered in Latin American countries by the end of the 2000s can be attributed to direct and especially indirect multiplier effects induced by the spectacular growth of the Chinese economy. Journal: International Economics Pages:13–28 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-2 Template-Type: ReDIF-Article 1.0 Title: Asymmetric effects of exchange rate variations: An empirical analysis for four advanced countries Author-Name: Hayet Jihene Elbejaoui Keywords: Exchange rate pass-through;Asymmetry;ARDL;Export price;Import price Classification-JEL:C33;E31;F31 Abstract: This paper investigates possible asymmetries in the reaction of export and import prices to changes in the exchange rate for 4 advanced countries between the 1981q1 and2011q2 period. This exercise is conducted using an asymmetric cointegrating autoregressive distributed lag (ARDL) model, with positive and negative partial sum decompositions of the nominal exchange rates. Our results show evidence of asymmetric ERPT to appreciations and depreciations, meaning that export and import prices respond differently depending on the direction of the exchange rate variation. In particular, we find that appreciations are more passed through to export and import prices than depreciations. This result has important implications in terms of monetary policy. Journal: International Economics Pages:29-46 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-3 Template-Type: ReDIF-Article 1.0 Title: Exchange rates, international trade and trade policies Author-Name: Alessandro Nicita Keywords: Trade Policy;International trade;Exchange rate Classification-JEL:F10;F31 Abstract: This paper investigates the importance of exchange rates on international trade by analyzing the impact that exchange rate volatility and misalignment have on trade and then by exploring whether exchange rate misalignments affect governments' decisions regarding trade policies. The methodology consists of estimating fixed effects models on a detailed panel dataset comprising about 100 countries and 10 years (2000–2009). The findings of this study are generally in line with those of the recent literature in supporting the importance of exchange rate misalignment while finding that short term exchange rate volatility is generally not a serious concern. This paper also shows evidence supporting the argument that trade policy is used to compensate for some of the consequences of an overvalued currency, especially with regard to antidumping interventions. Journal: International Economics Pages:47-61 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-4 Template-Type: ReDIF-Article 1.0 Title: Banking soundness and financial crises' predictability: a case study of Turkey Author-Name: Wajih Khallouli Author-Name: Mahmoud Sami Nab Keywords: Financial crises;Markov switching regime;Early warning system Classification-JEL:F31;F37;G01 Abstract: This paper develops an Early Warning System (EWS) based on third-generation mechanism of financial crises using the Markov switching model and a new twin-crisis index. We apply the EWS to Turkey using monthly data ranging between February 1992 and December 2007.We show that the mode captures the two major Turkish financial crises of April 1994 and November 2000/February 2001, and identifies the second one as a twin-crisis. Besides, the model reveals that the financial vulnerability of the Turkish banking system is significant in explaining the triggering of the two financial crises. Furthermore, we show that higher share of banks' assets receivable from the public sector and the interest rate mismatch have the best predictability ability of the twin-crisis over the horizon of 1month. Journal: International Economics Pages:62-78 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-5 Template-Type: ReDIF-Article 1.0 Title: Economic and employment impacts of climate change mitigation policies in OECD: a general-equilibrium perspective Author-Name: Jean Chateau Author-Name: Anne Saint-Martin Keywords: CGE model;Grenn growth;Unemployment;Carbon pricing Classification-JEL:D58;Q54;E24;H23 Abstract: Using a computable general equilibrium model, this paper aims at quantifying gross domestic product and labour impacts of an illustrative greenhouse gas emissions reduction policy. Labour markets are first assumed to be totally flexible, climate policies impact negatively GDP and show relatively limited labour sectoral reallocations compared to last20 years changes. The model is then modified to incorporate labour market imperfections in OECD countries. In this case, the production costs of mitigation policy are affected in two ways: first by introducing extra costs due to the increased unemployment that such policy may entail; second by creating the possibility of a double dividend effect when carbon taxes are recycled so as to reduce distorting taxes on labour income. Journal: International Economics Pages:79-103 Issue: 135-136 Year: 2013 File-URL: http://www.sciencedirect.com/science/journal/21107017/135 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q3-4-135-136-6 Template-Type: ReDIF-Article 1.0 Title: Consumer confidence as a predictor of consumption spending: Evidence for the United States and the Euro area Author-Name: Stephane Dees Author-Name: Pedro Soares Brinca Keywords: Consumer confidence;Consumption;International linkages;Non-linear modeling Classification-JEL:C32;E17;F37;F42 Abstract: For most academics and policy makers, the depth of the 2008–09 financial crisis, its longevity and its impacts on the real economy resulted from an erosion of confidence. This paper proposes to assess empirically the link between consumer sentiment and consumption expenditures for the United States and the euro area. It shows under which circumstances confidence indicators can be a good predictor of household consumption even after controlling for information in economic fundamentals. Overall, the results show that, the consumer confidence index can be in certain circumstances a good predictor of consumption. In particular, out-of-sample evidence shows that the contribution of confidence in explaining consumption expenditures increases when household survey indicators feature large changes, so that confidence indicators can have some increasing predictive power during such episodes. Moreover, there is some evidence of a “confidence channel” in the international transmission of shocks, as U.S. confidence indices help predicting consumer sentiment in the euro area. Journal: International Economics Pages:1-14 Issue: 134 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000085 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q2-134-1 Template-Type: ReDIF-Article 1.0 Title: Market effects of information requirements under the Biosafety Protocol Author-Name: Antoine Bouët Author-Name: Guillaume Gruère Author-Name: Laëtitia Leroy Keywords: Genetically modified food;International trade;Cartagena Protocol on Biosafety Classification-JEL:F14;F18;Q17;Q56 Abstract: This paper assesses the global economic implications of the proposed strict documentation requirements on traded shipments of potentially genetically modified (GM) commodities under the Cartagena Protocol on Biosafety. Using a spatial equilibrium model with 80 maize and 53 soybean trading countries, we show that information requirements would have a significant effect on the world market for maize and soybeans, distorting trade and generating welfare losses for all Protocol members and for non-members that produce GM maize and/or soybeans. While non-GM producers in Protocol member countries would benefit, the regulation would negatively impact consumers and producers in many developing countries. Journal: International Economics Pages:15-28 Issue: 134 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000097 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q2-134-2 Template-Type: ReDIF-Article 1.0 Title: Green growth: From intention to implementation Author-Name: Pierre-André Jouvet Author-Name: Christian de Perthuis Keywords: Green growth;Environmental economics;Political economics Classification-JEL:O44;P48;Q56 Abstract: The economic crises seems blinding the governments and major economic actors toward environmental troubles. Nevertheless, the impacts of population growth and economic expansion have now the potential to disrupt important regulatory functions of global ecological systems. Green growth involves transforming the production and consumption processes in order to maintain or restore these regulatory functions of the planet's natural capital. It requires that environmental facto rs be treated as an essential factor of production and not merely an externality. In practice, this transition depends on advances being made in four areas: widening the concept of efficiency; energy transitions; inclusion of the value of natural capital in economic life; and a revision of the scale of risks within the financial system whose innovations for allocating resources at low cost to green growth would be greatly facilitated by effective pricing of environmental pollution. Journal: International Economics Pages:29-55 Issue: 134 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000103 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q2-134-3 Template-Type: ReDIF-Article 1.0 Title: Monetary policy and capital regulation in the US and Europe Author-Name: Ethan Cohen-Cole Author-Name: Jonathan Morse Keywords: Monetary policy;Bank regulation;European Central Bank Classification-JEL:E51;E58;G18;G28 Abstract: The Federal Reserve and the European Central Bank aggressively lowered interest rates during the recent crisis. Both actions were at odds with an anti-inflationary policy stance: in August 2007, inflation expectations were high, particularly in the United States. To explain these actions, we model an economy with a leveraged and regulated financial sector. We find optional Taylor rules using simulated GMM, and find rules consistent with a pro-inflationary reaction during financial crises and a standard output-inflation mandate for the central bank. Our results support procyclical regulation not because of adequacy concerns, but instead due to the impact on monetary policy. Journal: International Economics Pages:56-77 Issue: 134 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000115 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q2-134-4 Template-Type: ReDIF-Article 1.0 Title: Impact of trade reforms in Tunisia on the elasticity of labour demand Author-Name: Rim Ben Ayed Mouelhi Author-Name: Monia Ghazali Keywords: Trade liberalisation;Trade and labour market interactions;Skills;Labour demand elasticities;Tunisia Classification-JEL:F16;J23 Abstract: The impact of trade reforms on the labour market may transit through many channels. One of these is the effect on labour demand elasticity. No consensus has been established yet in the empirical literature regarding this relationship. This paper decomposes labour into skilled and unskilled categories in order to analyse the effects of trade policies on labour demand elasticities by skill in Tunisia. We use dynamic panel techniques to estimate a model of employment determination which incorporates the effects of trade and takes into account the delay of labour adjustment. Our database covers 529 Tunisian firms from 6 manufacturing sectors over the period 1997–2002. Results suggest that a decrease in trade protection in Tunisia increases the elasticity of unskilled labour demand while it contributes to reduce the elasticity of skilled labour demand. Journal: International Economics Pages:78-96 Issue: 134 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000127 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q2-134-5 Template-Type: ReDIF-Article 1.0 Title: Introduction: Recent international macroeconomic and financial issues Author-Name: Jean-Pierre Allegret Author-Name: Cécile Couharde Author-Name: Valérie Mignon Keywords: Classification-JEL: Abstract: Journal: International Economics Pages:1-7 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000073 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-1 Template-Type: ReDIF-Article 1.0 Title: Currency undervaluation and growth: Is there a productivity channel? Author-Name: Samba Mbaye Keywords: Real exchange rate;Currency;Misalignment;Undervaluation;Growth;Productivity;China Classification-JEL:F31;O47 Abstract: Undervaluation of the currency is generally believed to affect growth through two main transmission channels: the “capital accumulation channel” and the “total factor productivity (TFP) growth channel”. This paper carries out the first empirical investigation on the TFP growth channel. More specifically, we provide answers to the three following questions: does undervaluation of the currency boost the overall productivity level in the economy? If so, does this “undervaluation-induced” productivity improvement significantly enhance growth? And finally, what is the magnitude of the TFP growth channel compared to the capital accumulation channel? The analysis is conducted on a panel of 72 countries over 1970–2008. The results give strong support to the TFP growth channel: a 10% increase in undervaluation enhances growth on average by 0.14% via an improvement in productivity. Most interestingly, our estimates suggest that this channel conveys the most important part of the growth-enhancing effect of undervaluation. The model has been subject to various robustness checks to support these findings. Journal: International Economics Pages:8-28 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171300005X File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-2 Template-Type: ReDIF-Article 1.0 Title: Financial versus demand shocks in stock price returns of U.S. non-financial firms in the crisis of 2007 Author-Name: Varvara Isyuk Keywords: Stock price returns;Financial constraints;Liquidity shortage;Shock on demand expectations Classification-JEL:E44;G01;G12 Abstract: In the aftermath of the recent bank-centred financial crisis it is still unclear how much of the decline in non-financial firms' stock prices was due to liquidit0y shortage, and how much of this decline was due to lower expected consumer demand. The stock returns are examined over nine periods between July 31, 2007 and March 31, 2010. The near-collapse of Bear Stearns and the failure of Lehman Brothers can be both characterised as liquidity shocks that had a greater impact on financially fragile non-financial firms. It was mostly improvement in demand expectations that positively affected the performance of U.S. non-financial firms in the first months of recovery. In the later periods, however, neither amelioration in demand expectations nor improvement of financial conditions can explain the performance of U.S. non-financial firms. Journal: International Economics Pages:29-49 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000048 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-3 Template-Type: ReDIF-Article 1.0 Title: Does modern banking lead to money privatization? Author-Name: Thomas Grjebine Keywords: Money;Private money;Payment interdependencies;Monetary policy Classification-JEL:E42;E52;E58 Abstract: Money privatization is seen as one of the main features of modern banking. The development of private payment arrangements and the globalization of banking have indeed led to a growing questioning of central banks' monopoly on the provision of money. This paper analyzes empirically the reality of such a phenomenon and renews the attention on the role of central banks in money creation mechanisms. I adopt a novel approach to determine the weight of private money in modern banking. I first calculate orders of magnitude of the share of transactions made with central bank money in a sample of 15 countries. To investigate the evolution of this variable, I focus on the United States, and I construct new datasets on the total value of transactions in retail and large-value payment systems over the last 40 years. Thanks to this empirical novelty, I get a precise estimate of the share of transactions settled in central bank money (over the total value of transactions) in the US. I then analyze the nature of the assets used for the remaining share of transactions. To do so, I study exhaustively all the arrangements and systems in my sample of countries where settlement potentially involves private money. Empirical evidence questions the existence of a privatization of money and shows the monopoly of central bank money in modern banking. Journal: International Economics Pages:50-71 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000061 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-4 Template-Type: ReDIF-Article 1.0 Title: Coping with the recent financial crisis: Did inflation targeting make any difference? Author-Name: Armand Fouejieu A. Keywords: Inflation targeting;Financial crisis;Macroeconomic performances;Difference in difference Classification-JEL:E00;E4;E6 Abstract: The effects of the 2008/2009 financial crisis went largely among financial markets and hit the real economy, generating one of the greatest global economic shocks. The purpose of this study is to investigate whether inflation targeting has made a difference during this crisis. First, we put forward some arguments suggesting that inflation targeters can be expected to perform better when facing a global shock. Applying difference in difference in the spirit of Ball and Sheridan (2005), we assess the difference between targeters and non-targeters and find that there is no significant difference as regards inflation rate and GDP growth. However, the rise in real interest rate and inflation volatility during the crisis has been significantly less pronounced for targeters. Journal: International Economics Pages:72-92 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000024 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-5 Template-Type: ReDIF-Article 1.0 Title: Forecasting value-at-risk using time varying copulas and EVT return distributions Author-Name: Theo Berger Keywords: Portfolio value-at-risk;Elliptical copulas;Dynamic conditional correlations;Extreme value theory Classification-JEL:C58;G01;G11 Abstract: Forecasting portfolio risk requires both, estimation of marginal return distributions for individual assets and the dependence structure of returns as well. In this paper, we concentrate on Value at Risk as a popular risk measure and combine elliptical copulas with time varying Dynamic Conditional Correlation (DCC) matrices and Extreme Value Theory (EVT) based models for the marginal return distributions. The approach leads to reliable Value-at-Risk figures with respect to several backtesting criteria. Feasibility and accuracy of the approach is corroborated by an extensive empirical application to different financial portfolios consisting of stocks, market indices and FX-rates. Journal: International Economics Pages:93-106 Issue: 133 Year: 2013 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713000036 File-Format: text/html Handle: RePEc:cii:cepiie:2013-Q1-133-6 Template-Type: ReDIF-Article 1.0 Title: The Composition and Cyclical Behavior of Trade Flows in Emerging Economies Author-Name: Reinout De Bock Keywords: International Real Business Cycles;Small Open Economy;Emerging Economy;Trade Balance Classification-JEL:E32;F32;F41 Abstract: The composition and cyclical properties of imports are similar in developed economies and emerging economies (EM) but this is not the case for exports. Unlike developed economies, (i) EM export few or only a selective set of capital goods and (ii) capital good and overall exports tend to be acyclical. The lack of procyclicality in exports helps to explain the strong countercyclicality of EM trade balances observed in previous studies. A quantitative exercise demonstrates how the standard small open economy business cycle model could be improved upon by incorporating some of these features. Journal: International Economics Pages:5-33 Issue: 132 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600578 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q4-132-1 Template-Type: ReDIF-Article 1.0 Title: The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity Author-Name: Jean-Pierre Allegret Author-Name: Cécile Couharde Author-Name: Cyriac Guillaumin Keywords: External Shocks;East Asia;SVARX Model Classification-JEL:F32;F33;F42 Abstract: Dans cet article, nous examinons l’importance des chocs externes sur les fluctuations domestiques des pays d’Asie de l’Est et vérifions si ces chocs conduisent à des réactions symétriques ou asymétriques des pays étudiés. Pour cela, nous estimons, sur la période 1990T1-2012T2, un modèle VAR structurel avec contrainte d’exogénéité (modèle SVARX) intégrant plusieurs types de chocs externes. Nous montrons un impact croissant de ces chocs externes sur les variables domestiques depuis le milieu des années 1990. Nous montrons également que les chocs sur le prix réel du pétrole et sur le PIB américain ont un impact significatif sur l’activité domestique et conduisent à des réactions davantage symétriques, en comparaison au choc monétaire américain et aux chocs financiers. Journal: International Economics Pages:35-89 Issue: 132 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360058X File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q4-132-2 Template-Type: ReDIF-Article 1.0 Title: Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons Author-Name: Vincent Bouvatier Author-Name: Laetitia Lepetit Keywords: Bank Lending;Loan loss Provisions;Procyclicality Classification-JEL:G21 Abstract: A dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential effectiveness of such instrument depends on how far actual backward-looking provisioning practices exacerbate growth in bank lending. We therefore investigate whether backward-looking provisioning practices amplify growth in bank lending and, if such an effect exists, whether there are differences in its magnitude across countries. Our results show that backwardlooking provisioning systems exacerbate banks' lending fluctuations in both developed and emerging countries, but with a stronger impact for emerging countries. Journal: International Economics Pages:91-116 Issue: 132 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600591 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q4-132-3 Template-Type: ReDIF-Article 1.0 Title: Foreign Ownership and Firm Survival: First Evidence for Enterprises in Germany Author-Name: Joachim Wagner Author-Name: John Philipp Weche Gelübcke Keywords: Foreign Ownership;Firm Survival;Germany Classification-JEL:F23;L60 Abstract: This paper documents the relationship between foreign ownership and firm survival for enterprises in Germany using unique tailor-made new representative data that merge information from surveys performed by the Statistical Offices, from administrative data collected by the Tax Authorities and from a commercial data provider. It contributes to the literature by providing the first evidence on the role of foreign ownership for the survival of enterprises in Germany, one of the most important destination countries for foreign direct investments. Our micro-econometric analysis reveals a ceteris paribus higher risk of exit for foreign-owned firms. Journal: International Economics Pages:117-139 Issue: 132 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600608 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q4-132-4 Template-Type: ReDIF-Article 1.0 Title: Tax Reform and Coordination in a Currency Union Author-Name: Benjamin Carton Keywords: Fiscal Policy;Monetary Policy;DSGE;Value added Tax;Monetary Union Classification-JEL:F56;C12 Abstract: We propose a two-country DSGE model to analyze short-term and long-term impact of a modification of consumption and labor tax rate in one country in a currency union. The model embodies the fact that firms differ in their pricing behavior after a VAT tax increase. Due to the common monetary policy, national tax policies have large spill-overs on the rest of the currency union. Furthermore, a fiscal devaluation is different from a nominal devaluation due to the common monetary policy. Journal: International Economics Pages:141-158 Issue: 132 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360061X File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q4-132-5 Template-Type: ReDIF-Article 1.0 Title: The Task Composition of Offshoring by U.S. Multinationals Author-Name: Lindsay Oldenski Keywords: Multinational Firms;Offshoring;International Trade Classification-JEL:F10;F21;L21 Abstract: Recent advances in communications technology allow for greater fragmentation of production across borders in both goods and services. However, this fragmentation is difficult to observe in the existing trade data. To get around this lack of data, several recent papers have used the task content of occupations as a proxy for offshorabilty. Up until this point, that relationship between tasks and offshorabilty has been based on intuition, rather than empirical evidence. In this paper, I use conSdential data from Srm-level surveys to offer the Srst empirical evidence on the link between tasks and offshoring. The results show that US multinationals are signiScantly more likely to perform a stage of production at a foreign afSliate the more intensively that input uses routine tasks, and the less intensively it uses communication tasks. Journal: International Economics Pages:5-21 Issue: 131 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600529 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q3-131-1 Template-Type: ReDIF-Article 1.0 Title: Regional Integration and Natural Resources: who benefits? Evidence from MENA Author-Name: Céline Carrère Author-Name: Julien Gourdon Author-Name: Marcelo Olarreaga Keywords: Regionalism;MENA;PAFTA Classification-JEL:F15 Abstract: This paper is built on Venables (2011) theoretical predictions which show that gains from regional integration are unevenly distributed between resource rich and poor countries. We explore the effects of different integration schemes inMiddle East and North Africa. Results suggest that within Pan Arab Free Trade Agreement (PAFTA), there is significant trade creation for resource poor countries associated with regional integration, and no evidence of trade diversion. In resource rich countries, however, there is evidence of pure trade diversion in both resource-rich/labor-abundant countries and resource-rich/labor-importing countries. This underscores the idea that regional integration can help to spread benefits of unevenly distributed resource wealth among the region’s economies. Journal: International Economics Pages:23-41 Issue: 131 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600530 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q3-131-2 Template-Type: ReDIF-Article 1.0 Title: Macroeconomic Transmission of Eurozone Shocks to Emerging Economies Author-Name: Bilge Erten Keywords: Eurozone Recession;Transmission of Shocks;Bayesian vector Autoregression;Emerging Economies;Growth Spillovers Classification-JEL:F43;F44;F47 Abstract: This paper analyzes the robustness of emerging economies growth performance to a number of external demand shocks using a Bayesian vector autoregressive (BVAR) model with informative priors on the steady state. We show that more than Vfty percent of the variation in real GDP growth of Latin American emerging economies is explained by external factors, while it is slightly less than Vfty percent for emerging Asia and China. Conditional forecasts of different scenarios indicate that a deepening of the Eurozone recession would create a severe and persistent contraction for emerging economies, depending on the response of the U.S. growth to this shock. Finally, forecasts suggest that a sharp slowdown in China’s growth would have a signiVcant negative impact on emerging economies’ growth, and that the Latin American countries would be more severely hit than the Asian ones. Journal: International Economics Pages:43-70 Issue: 131 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600542 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q3-131-3 Template-Type: ReDIF-Article 1.0 Title: Oil Price Shocks and Gold Returns Author-Name: Thai-Ha Le Author-Name: Youngho Chang Keywords: Oil Price;Gold Price;Nonlinearity;Asymmetry;VAR Classification-JEL:E3;F3;G1 Abstract: This study investigates the impact of oil price fluctuations on gold market returns using monthly data from May 1994 to April 2011. A structural vector autoregressive approach is employed to examine the dynamics between oil price shocks and gold returns. Various oil price proxies are used in the empirical examination to capture potential nonlinearities in the dynamics between oil price shocks and gold returns. Oil price shocks appear to have a statistically significant and positive impact on real gold returns contemporaneously. The impact is found to be symmetric but nonlinear. These findings imply that observing oil price fluctuations can help predict movements in gold price, which would significantly help monetary authorities and policymakers in monitoring the price of major commodities, as well as investors and managers in optimizing portfolios. Journal: International Economics Pages:71-104 Issue: 131 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600554 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q3-131-4 Template-Type: ReDIF-Article 1.0 Title: Assessing the Financial Integration of Central and Eastern European Countries with the Euro Area: Evidence from Panel Data Cointegration Tests Author-Name: Salem Boubakri Author-Name: Cécile Couharde Author-Name: Cyriac Guillaumin Keywords: CEECs;Feldstein–Horioka Approach;Financial Integration;Panel Data Cointegration Classification-JEL:C23;F31;F41 Abstract: The aim of this paper is to assess the financial integration degree of the Central and Eastern European Countries (CEECs) with the euro area in the prospect of their integration in the Economic and Monetary Union (EMU). To this end, we test the Feldstein-Horioka regression for a non-stationary and heterogeneous panel of 10 CEECs and the euro area. In order to overcome some empirical shortcomings of this approach, we employ the recently developed panel data unit root tests and cointegration techniques. The empirical findings reveal that the financial integration process of the CEECs with the euro area is not yet complete. Another contribution of this paper is to show that this process is linked to the institutional monetary arrangement of these countries. Journal: International Economics Pages:105-120 Issue: 131 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600566 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q3-131-5 Template-Type: ReDIF-Article 1.0 Title: Europe and the World Economy at the Tipping Point Author-Name: Michel Aglietta Keywords: Deleveraging;Bank Recapitalization;Macro Interdependencies;Euro Bonds;Banking Union Classification-JEL:E44;E58 Abstract: In late 2011 the twin sovereign and bank crises worsened substantially. The very existence of the euro was getting jeopardized by both a creeping fragmentation of the European financial system and by a recession in Southern Europe dragging down the whole EMU. In this paper, we show why there was such urgency to act for the sake of the euro, and that the impact of an eventual Euro zone recession might be significant above all if the US is affected. Putting the financial rescue decisions taken in the June summit in a broader perspective, we show that three brands of reform must be compounded: cap interest rates on public debts at level compatible with reasonable fiscal adjustment, design an insurance-linked Eurobond scheme, and initiate banking union with centralized prudential regulation. Journal: International Economics Pages:5-31 Issue: 130 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600426 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q2-130-1 Template-Type: ReDIF-Article 1.0 Title: Does Greater Economic Openness Grasp the Elements of Inflation 'Surprise'? New Evidence Using Panel Data Techniques Author-Name: Sarfaraz Ali Shah Syed Keywords: Inflation;Globalization;Trade Openness Classification-JEL:C23;E61;F15 Abstract: This study brings new evidence on the relationship between openness and inflation. We estimate the impact of globalization on inflation in both developed and developing countries, and going further for different regional clusters. The results show that increased openness has without doubt the elements of inflation surprise.We find a negative opennessinflation relationship in developed economies, and confirm the earlier results from the literature. However, studying this relationship for developing economies we find evidence of the surprise, although it is meagre. In this case, African economies appear to be the outlier. Nonetheless, despite the mixed impact of globalization on inflation, it does not allow for inflation-targeting central banks to enjoy any escape clause. A pre-commitment by the central banks would redesign the loss function in a way, which besides directly gauging the determinants of inflation, would also act as a warning for a potential over-heating of the economy. Journal: International Economics Pages:33-58 Issue: 130 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600438 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q2-130-2 Template-Type: ReDIF-Article 1.0 Title: Foreign exchange reserves in a credit constrained economy Author-Name: Kurma? Akdogan Keywords: Foreign Exchange Reserves;Credit Constraints Classification-JEL:F32;F34 Abstract: We discuss the role of foreign exchange reserves as precautionary savings under an imperfect market framework due to the presence of endogenously determined borrowing constraints. We show that cost of holding reserves is higher in borrowin constrained economies than unconstrained ones as a result of the leverage effect of the debt. Journal: International Economics Pages:59-79 Issue: 130 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360044X File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q2-130-3 Template-Type: ReDIF-Article 1.0 Title: Misalignment Under Different Exchange Rate Regimes: the Case of Turkey Author-Name: Sengül Dagdeviren Author-Name: Ayla Ogu? Binatli Author-Name: Niloufer Sohrabji Keywords: Cointegration;Exchange Rate Misalignment;Structural Breaks;S2S Estimator;Turkey Classification-JEL:C32;F31;F32;F41 Abstract: The paper examines misalignment of the Turkish lira between 1998 and 2011. We first estimate the equilibrium real exchange rate for Turkey, then compute misalignment and finally test for structural breaks in the misalignment series. Through our tests we find three structural regimes. Our results show that the lira was considerably overvalued in the first regime, which is when Turkey had a fixed exchange rate regime. This was not the case for the periods that had a floating exchange rate. Thus, we confirm that overvalued currencies that have been linked to financial crises are a more serious concern for fixed exchange rate regimes. More importantly, we find that volatility which is a bigger concern in floating regimes is a significant problem for Turkey in the last few years. In fact, the recent dangerously large and rising current account deficits may be a result of volatility rather than overvaluation. Journal: International Economics Pages:81-98 Issue: 130 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600451 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q2-130-4 Template-Type: ReDIF-Article 1.0 Title: MAcMap-HS6 2007, an Exhaustive and Consistent Measure of Applied Protection in 2007 Author-Name: Houssein Guimbard Author-Name: Sébastien Jean Author-Name: Mondher Mimouni Author-Name: Xavier Pichot Keywords: Protectionism;Tariffs;Trade policies;Databases Classification-JEL:F02;F13;F15;F18 Abstract: The third version of the MAcMap-HS6 database, built as a result of a joint effort of CEPII (Centre d'Études Prospectives et d’Informations Internationales, Paris) and ITC (International Trade Centre, Geneva), based on ITC’s MAcMap raw data, proposes an exhaustive and consistent measure of applied, preferential tariff protection in 2007. The methodology, similar to the one used for previous versions, relies on reference groups of countries to limit the endogeneity bias faced when computing ad valorem equivalents of tariff protection, and when computing averages at aggregate levels. The world average applied protection level in 2007 is estimated to be 4.4%. Compared to 2004, this is a decline by nearly 0.7 percentage point, mainly due to unilateral liberalizations and to new preferential trade agreements. The decline in the ad valorem equivalent of specific tariffs of some agricultural products, linked to the surge in world prices, lowers the average protection. In the opposite way, the increasing share of developing countries, where protection is higher, tends to raise the world average. Journal: International Economics Pages:99-122 Issue: 130 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600463 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q2-130-5 Template-Type: ReDIF-Article 1.0 Title: Fiscal asymmetries and the survival of the euro zone Author-Name: Paul R. Masson Keywords: ECB;Fiscal Asymmetries;Euro Zone;Central Bank Independence Classification-JEL:F15;F33 Abstract: A model of a dependent central bank that internalizes the government’s budget constraint is used to examine the optimal composition of the euro zone. The model embodies the desire to stimulate output and to provide monetary financing to governments. Unable to pre-commit to first-best policies, the central bank produces excess inflation — a tendency partially reduced in a monetary union. On the basis of this framework, calibrated to euro zone data, the current membership is shown not to be optimal: other members would benefit from the expulsion of several countries, notably Greece, Italy, and France. A narrow monetary union centered around Germany might be able to guarantee central bank independence, but simulation results suggest that such a narrow monetary union would not be in Germany’s interest relative to a return to the deutsche mark. Journal: International Economics Pages:5–29 Issue: 129 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600475 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q1-129-1 Template-Type: ReDIF-Article 1.0 Title: Learning from international activities? A microeconometric analysis of first-time innovators Author-Name: Alexandre Gazaniol Keywords: Exporters;Innovation;R&D;Knowledge Production;Learning-by-exporting;Multinational Firms;Asset-seeking Classification-JEL:D22;F23;O31 Abstract: This paper investigates to which extent exporters, importers and multinational firms have a greater propensity to start innovation activities. We merge two consecutive French Community Innovation Surveys (CIS), and apply the model of Crépon et al. (1998) to a sample of first-time innovators (“switchers”), which are compared to firms that do not engage in innovation activities. We estimate the probability of becoming an innovative firm depending on past international experience, which allows us to test the idea that firms learn from foreign markets. It appears that firms that both export and import are more likely to start investing in R&D, but international activities do not affect R&D intensity. Regardless of size, industry, ownership and R&D intensity, firms that both export and import and multinational firms are found more likely to become innovators, by introducing new products for their markets and/or new patents. Finally, knowledge production is found to increase productivity in the next period. These findings are consistent with the existence of learning effects through international activities. This study also contributes to comparing the innovation process of longtime innovators and switchers, and suggests that the latter less depend on R&D expenses, market power and size in order to produce knowledge. Journal: International Economics Pages:31-61 Issue: 129 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600487 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q1-129-2 Template-Type: ReDIF-Article 1.0 Title: Bilateral trade, colonial heritage and common currency arrangement: An Oceanian perspective Author-Name: Laïsa Ro'i Author-Name: Marc-Alexandre Sénégas Keywords: Oceania;Colonialism;Trade and Monetary Integration;Gravity Equation Classification-JEL:F15;F33;F54 Abstract: We reassess the trade impact of common currency arrangements – the Rose effect – on the basis of new empirical evidence stemming from the Oceanian Island Countries. In particular, we investigate how the conjunction of a common colonial heritage and membership in a common currency arrangement can impact bilateral trade. To do this, we use different specifications of the gravity equation over an original panel dataset covering the period from 1980 to 2009. Our results first show that the trade impact of common currency arrangements is much more prominent and significant for country pairs that share a common colonial heritage than for country pairs with distinct former colonizers. Second, while a common colonial heritage does significantly and positively affect trade, whether the underlying country pair is in a common currency arrangement or not, the pro-trade effect of a common colonial heritage is nonetheless enhanced by the existence of such a common currency arrangement. These results suggest, more generally, that further steps towards monetary integration in the zone could not be contemplated without taking historical factors into account. Journal: International Economics Pages:63–98 Issue: 129 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600499 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q1-129-3 Template-Type: ReDIF-Article 1.0 Title: Energy consumption and economic growth in sub-Saharan Africa: An asymmetric cointegration analysis Author-Name: Olayeni Olaolu Richard Keywords: Energy;Growth;Asymmetric Cointegration;Sub-Saharan Africa Classification-JEL:Q43;C54;C22 Abstract: This paper investigates the asymmetric effect in the energy-growth nexus. Using the data for real GDP per capita and energy consumption per capita over the period 1971-2008, we examine the relationship for 12 sub-Saharan African countries employing hidden cointegration approach. For Gabon, Nigeria and Côte d’Ivoire, the results show that their growth rates could be adversely affected by conservation policies. However, for Benin, Kenya and Sudan the results show that conservation policies could enhance the growth process in these countries. We also find instances of policy dilemma for Nigeria and Benin that conform to both the growth and the conservation hypotheses. Journal: International Economics Pages:99–118 Issue: 129 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600505 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q1-129-4 Template-Type: ReDIF-Article 1.0 Title: Crude oil market efficiency: An empirical investigation via the Shannon entropy Author-Name: Walid Mensi Author-Name: Chaker Alaoui Author-Name: Khuong Nguyen Keywords: Oil Prices;Information Theory;Shannon Entropy;Market Efficiency Classification-JEL:G14;G15;C87 Abstract: This paper evaluates the time-varying degrees of weak-form efficiency of the crude oil markets using the Modified Shannon Entropy (MSE) and the Symbolic Time Series Analysis (STSA) approach. Using daily data from May 20, 1987 to March 6, 2012 for two worldwide crude oil benchmarks (West Texas Intermediate and Europe Brent), our findings reveal that the weak-form market efficiency of two oil markets evolves through time, but with different time trends. Moreover, the WTI market appears to be less efficient than the Europe Brent. These results have several implications for commodity portfolio hedgers and policymakers. Journal: International Economics Pages:119–137 Issue: 129 Year: 2012 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600517 File-Format: text/html Handle: RePEc:cii:cepiie:2012-Q1-129-5 Template-Type: ReDIF-Article 1.0 Title: Corporate disclosure: A review of its (direct and indirect) benefits and costs Author-Name: Etienne Farvaque Author-Name: Catherine Refait-Alexandre Author-Name: Dhafer Saïdane Keywords: Disclosure;Governance;Financial Stability Classification-JEL:G10;G30 Abstract: This paper reviews the literature on corporate disclosure. Policymakers often support corporate disclosure but more contrasted views have emerged in the academic literature, showing that even if disclosure can actually benefits to shareholders, it is costly and it may trigger pernicious effects. Disclosing information is expensive (communication and audit costs, competitors access strategic information, and induced managers’ suboptimal behavior). It also generates informational costs, as firms can disclose false, manipulated, too complex or too extensive information. And disclosure can reduce actors’ incentives to look for information about the firm, and therefore can lead to an (potentially destabilizing) illusion of knowledge Journal: International Economics Pages:5–31 Issue: 128 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600013 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q4-128-1 Template-Type: ReDIF-Article 1.0 Title: A re-assessment of credit development in European transition economies Author-Name: Aleksandra Zdzienicka Keywords: Bank Credit;Dynamic Panel;CEECs Classification-JEL:C2;G21 Abstract: The aim of the paper is to assess the dynamics of credit development in the aftermath of the 2008 international crisis for a group of 11 European transition economies. Specifically, using filtering methods and dynamic panel estimations, the paper analyzes whether the expansion in banking credit before the recent financial crisis could be considered as “excessive” and whether its recent slowdown could be seen as a “credit crunch”. Our results suggest that the countries that had been characterized by a larger and more protracted excessive credit before the onset of 2008 crisis have experienced the largest credit contraction. Journal: International Economics Pages:33–51 Issue: 128 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600025 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q4-128-2 Template-Type: ReDIF-Article 1.0 Title: How does religion bias the allocation of Foreign Direct Investment? The role of institutions Author-Name: Jérôme Hergueux Keywords: Culture;Religion;Institutions;Trust;Foreign Direct Investment Classification-JEL:F21;F23;O50;Z12 Abstract: We construct a gravity model of worldwide foreign direct investment stock (FDI) in order to study the effect of religion on FDI allocation. We establish empirically that both bilateral religious similarity and bilateral religious diversity foster FDI at the country pair level. These apparently contradicting results confirm an empirical puzzle that has already emerged in the literature, particularly in the case of trade in goods. We investigate whether the answer to this puzzle could lie on the fact that the effect of these two variables play for different types of countries, depending on the level of efficiency of their institutions. Journal: International Economics Pages:53–76 Issue: 128 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600037 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q4-128-3 Template-Type: ReDIF-Article 1.0 Title: Pro-development economic growth and international income mobility: Evidence worldwide Author-Name: Jalal El ouardighi Keywords: Pro-development Growth;Worldwide Growth;Income Mobility;Countries Classification-JEL:F0;O10;O47;O50 Abstract: This paper suggests a new methodology which allows to show whether worldwide growth has been favourable to developing economies, and a new measure to assess international income mobility across countries. The empirical illustration considers a panel of 123 countries observed over the years 1989-2008. The results point out that worldwide income growth was not pro-development, they show rather an impoverishment of the low-income countries over the last two decades. The results also reveal that income mobility induced by countries reranking within the income distribution decreased between the 1990s and the 2000s, and the bulk of positional mobility took place in the middle-income economies. Journal: International Economics Pages:77–96 Issue: 128 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600049 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q4-128-4 Template-Type: ReDIF-Article 1.0 Title: The Trade Unit Values database Author-Name: Antoine Berthou Author-Name: Charlotte Emlinger Keywords: Unit Value;Trade Price;International Trade Classification-JEL:E3;F1;F4 Abstract: Trade unit values are commonly used as proxies for trade prices in empirical research in international economics. Existing datasets providing international trade unit values for a large number of countries typically suffer from a number of statistical biases, due to the aggregation of unit values and the harmonization of quantity information. These biases reduce the reliability of unit values as a proxy for trade prices. This paper presents the Trade Unit Values dataset, a new database developed to circumvent these statistical issues. Bilateral trade unit values are computed at a very high level of disaggregation before aggregation into Harmonized-System 6-digits categories to allow for cross-country comparability. Our processing strategy improves the differentiation of trade prices within product categories, as compared to existing worldwide datasets. A simple econometric analysis shows that unit values in our database are well explained by economic aggregates. Journal: International Economics Pages:97–117 Issue: 128 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600050 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q4-128-5 Template-Type: ReDIF-Article 1.0 Title: Recent developments on commodity, energy and carbon markets: an introduction Author-Name: Valérie Mignon Keywords: ENERGY Classification-JEL:C22;C32;G15;E17 Abstract: The importance linked to the economic effects of raw materials prices movements has led the G20 to address for the first time the issue of excessive fluctuations and volatility of commodity prices. Thus, during the September 2009 Pittsburgh summit, the commitment was taken to improve the functioning, regulation and transparency of financial and raw materials markets. Face to the crucial role played by commodities in the world economy, International Economics/Économie Internationale is pleased to publish eight articles dealing with this hot-debated topic. Journal: International Economics Pages:5–12 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600335 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-1 Template-Type: ReDIF-Article 1.0 Title: Macro factors in oil futures returns Author-Name: Yannick Le Pen Author-Name: Benoît Sévi Keywords: Crude Oil Futures;Large Approximate Factor Models;Macro Determinants Classification-JEL:C22;C32;G15;E17 Abstract: We investigate the macro factors that can explain the monthly oil futures return for the NYMEX WTI futures contract for the time period 1993:11 to 2010:03. We build a new database of 187 real and nominal macroeconomic variables from developed and emerging countries and resort to the large factor approximate model to extract 9 factors from this dataset. We then regress crude oil return on several combinations of these factors. Our best model explains around 38% of the variability of oil futures return. More interestingly, the factor which has the largest influence on crude oil price is related to real variables from emerging countries. This result confirms the latest finding in the literature that the recent evolution in oil price is attributable to change in supply and demand conditions and not to the large increase in trading activity from speculators Journal: International Economics Pages:13–38 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600347 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-2 Template-Type: ReDIF-Article 1.0 Title: On the relationship between forward prices of crude oil and domestic fuel: A panel data cointegration approach Author-Name: Marc Joëts Keywords: ENERGY;Forward Energy Prices;Oil;Domestic Fuel;Panel Cointegration Classification-JEL:c23;q40 Abstract: The aim of this paper is to investigate the existence of a long-term relationship between the forward prices of crude oil and domestic fuel (FOD) on the period from August 2003 to April 2010. To this end, we rely on a panel data setting by considering a sample of 36 maturities for the forward prices. Using panel cointegration tests, our results show that oil and fuel prices are characterized by a strong homogeneous long-term equilibrium relationship for several maturities. Estimating a panel error correction model, we find that FOD prices are influenced by oil prices variations on both the short and the long run. The existence of a unique equilibrium model for all maturities may have important implications for financial arbitrage strategies based on energy prices relationships, industrial product plan and calculating consumer prices. Journal: International Economics Pages:39–49 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600359 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-3 Template-Type: ReDIF-Article 1.0 Title: Index trading and agricultural commodity prices: A panel Granger causality analysis Author-Name: Gunther Capelle-Blancard Author-Name: Dramane Coulibaly Keywords: Speculation;Financialization;Food Crisis;Soft Commodities;Index Funds;Panel Granger Causality Classification-JEL:G10;Q10 Abstract: This paper investigates the causality between prices and index-based trading activity for twelve grain, livestock, and other soft commodity futures markets. We use panel Granger causality estimations based on SUR systems and Wald tests with market-specific bootstrap critical values in order to take into account the possible contemporaneous dependence across markets. Our results confirm that there is no causality between index-based positions and commodity futures prices. Journal: International Economics Pages:51–71 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600360 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-4 Template-Type: ReDIF-Article 1.0 Title: The speculative efficiency of the aluminum market: A nonlinear Investigation Author-Name: Mohamed El Hedi Arouri Author-Name: Fredj Jawadi Author-Name: Prosper Mouak Keywords: Speculative Efficiency;Aluminum Market;London Metal Exchange Classification-JEL:C3;C5;G1 Abstract: This paper studies the speculative efficiency of the aluminum contract traded in the London Metal Exchange over the last three decades. We investigate both short and long-run efficiency using linear and nonlinear cointegration approaches and Error Correction Models (ECM). Our findings point out the following points. First, futures aluminum prices are found to be cointegrated with spot prices and they do not constitute unbiased predictors of future spot prices. Second, the hypothesis of risk neutrality is rejected. Finally, the short-run efficiency hypothesis is rejected and using past futures price returns improves the modeling and forecast of future spot price. Our findings have important implications for producers, arbitrageurs, speculators as well as policymakers. As far as our knowledge allows to remember, this paper is the first attempt to test both linear and nonlinear efficiency for the aluminum market. Journal: International Economics Pages:73–89 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600372 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-5 Template-Type: ReDIF-Article 1.0 Title: Environmental regulation in the presence of unrecorded economy Author-Name: Fatih Karanfil Keywords: Environmental Taxation;Unrecorded Economy;Duopolistic Competition Classification-JEL:D43;H32;Q58 Abstract: Both theoretical and empirical studies which do not take into account the existence of unrecorded economy may not provide a complete insight on the effects of fiscal and environmental enforcement policies in developing countries, where unrecorded economic activities have an important weight. This study attempts to fill that void. Two different cases are considered: first, firms’ production and emissions are audited with different exogenous probabilities; second, a unique probability-to-audit function is determined to audit both emission and production levels of firms, whether in recorded or unrecorded economy. The paper determines the conditions under which environmental regulations may increase the size of unrecorded economy. Journal: International Economics Pages:91–108 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600384 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-6 Template-Type: ReDIF-Article 1.0 Title: Price versus quantities in the coordination of international environmental policy Author-Name: Anna Creti Author-Name: Maria-Eugenia Sanin Keywords: Regulation;Uncertainty;Emissions Tax;Tradable Permits Classification-JEL: H23;L51;Q28;Q58 Abstract: This work contributes to the debate on coordination of international environmental policy by revisiting Mandell (2008)’s result who, on the ground of Weitzman (1974)’s model, is in favor of a decentralized regulation at the sectorial or country level instead of a unified one. We show that whether different countries should optimally set their own environmental regulation instead of entering a common framework crucially depends on the combination between firms’ heterogeneity in abatement costs, size of the regulated sectors at the national level, as well as uncertainty on aggregate marginal abatement benefits and costs. Journal: International Economics Pages:109-130 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600396 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-7 Template-Type: ReDIF-Article 1.0 Title: The impact of nonlinearities for carbon markets analyses Author-Name: Julien Chevallier Keywords: Carbon Prices;Energy Prices;Nonlinearity;TVAR;MSVAR Classification-JEL:C32;C51;Q40;Q54 Abstract: This paper examines empirically whether nonlinearities play a significant role in the modeling of the carbon price. We highlight the limits of previous carbon markets analyses based essentially on a linear econometric framework. Instead, we propose to revisit the main results on carbon pricing and the inter-relationships with energy markets and CERs based on nonlinear techniques (threshold vector autoregressive and Markov regime-switching models). While we are able to confirm most of the findings present in the literature, we show interestingly that these results seem to vary (and may even fade) depending on the regimes considered. Thereby, we illustrate the importance of including threshold effects in future studies of the relationships between CO2 and energy prices, which have been neglected so far. Journal: International Economics Pages:131-150 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600402 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-8 Template-Type: ReDIF-Article 1.0 Title: Air traffic energy efficiency differs from place to place: New results from a macro-level approach Author-Name: Benoît Chèze Author-Name: Pascal Gastineau Author-Name: Julien Chevallier Keywords: Air Transport;Technological Innovation;Energy Efficiency;Carbon Intensity;Macro-Level Methodology Classification-JEL:L93;Q54;Q55 Abstract: This article analyses energy efficiency coefficients and their evolution in the air transport sector. The proposed ‘macro-level’ methodology allows obtaining energy efficiency coefficients and their growth rates (corresponding to the evolution of energy gains) from 1983 to 2006 for eight distinct geographical regions and at the world level. During the whole period, energy efficiency improvements have been equal to 2.88% per year at the world level, with strong differences between regions. Moreover, our results indicate that domestic air travels are less energy efficient (i.e. more carbon intensive) than international air travels. This result applies in all regions. Journal: International Economics Pages:151–177 Issue: 126-127 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600414 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q2-3-126-127-9 Template-Type: ReDIF-Article 1.0 Title: Trade liberalization, rent sharing and wage inequality in Tunisia, 1998-2002 Author-Name: Monia Ghazali Keywords: TRADE OPENNESS;RENT SHARING;SKILLED WORKERS;UNSKILLED WORKERS;TUNISIA;MEDITERRANEAN;NORTH AFRICA Classification-JEL:F16;J31 Abstract: This paper attempts to empirically explore the effects of trade liberalization process in Tunisia on average real wages and wage inequality, via industry rents. For this purpose, we adopt, following Revenga (1997), a flexible model of wage setting that can accommodate both the presence of rent- sharing behavior and competitive wage determination. Results suggest that the quasi-rent reduction is one of the adjustment mechanisms used by Tunisian manufacturing firms to face trade policy changes. Two more inter-related findings deserve interest: skilled labor was more able than unskilled labor to capture rents before trade reforms. Hence, the reduction of rents appears to have reduced wage inequality between skilled and unskilled labor, over the period 1998-2002. Journal: International Economics Pages:5–39 Issue: 125 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600232 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q1-125-1 Template-Type: ReDIF-Article 1.0 Title: Anti-dumping with heterogeneous firms Author-Name: Christian Gormsen Keywords: TRADE POLICY;ANTI-DUMPING;MONOPOLISTIC COMPETITION;HETEROGENEOUS FIRMS Classification-JEL:F12;F13 Abstract: This paper analyzes antidumping (AD) policies in a two- country model with heterogeneous firms. One country enforces AD so harshly that firms exporting to the country choose not to dump. In the short run, the country enforcing AD experiences reduced competition to the benefit of local firm and detriment of local consumers, but in the long run AD protection attracts new firms, increasing competition and consumer welfare. In the country’s trading partner, competition initially increases: Some firms give up exporting, but those that remain will lower their domestic prices. Consumers therefore benefit in the short run. In the long run, however, fewer firms will enter the unprotected country, and competition will eventually decrease, resulting in welfare losses. Journal: International Economics Pages:41–64 Issue: 125 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600244 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q1-125-2 Template-Type: ReDIF-Article 1.0 Title: The interrelationship between exchange-rate uncertainty and unemployment for South Korea and Taiwan: Evidence from a vector autoregressive approach Author-Name: Shu-Chen Chang Keywords: EXCHANGE-RATE UNCERTAINTY;UNEMPLOYMENT;GARCH Classification-JEL:J64;F31 Abstract: The goal of this paper is to estimate the effect between exchange-rate uncertainty and unemployment in South Korea and Taiwan. We use a vector autoregressive model to provide an efficient estimation between exchange-rate uncertainty and unemployment. We found that a long-run equilibrium relationship between exchange-rate uncertainty and unemployment exists in both Taiwan and South Korea when exchange-rate uncertainty is generated by two different measures. The exchange-rate uncertainly has a short-run impact on unemployment and vice versa, no matter which measure of uncertainty is used. Journal: International Economics Pages:65–82 Issue: 125 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600256 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q1-125-3 Template-Type: ReDIF-Article 1.0 Title: Corporate drivers of market liquidity on the Warsaw stock exchange Author-Name: Renaud Beaupain Author-Name: Robert Joliet Keywords: MARKET LIQUIDITY;TRANSACTION COSTS;MARKET DEPTH;CORPORATE FINANCIAL SIGNALS;WARSAW STOCK EXCHANGE Classification-JEL:C21;G15;G30 Abstract: Following the adoption of a liquidity support programme by the Warsaw Stock Exchange in June 2008, this paper investigates the corporate financial signals on which firms can rely in their communication to investors to enhance the liquidity of their securities in the market. More specifically, this paper takes a new look at the corporate determinants of the liquidity of the shares of Polish firms listed on the WSE. Our analysis notably confirms the role played by corporate financial signals in explaining the cost of transacting and the depth of this market. The reported evidence further identifies the price- to-book ratio as a discriminating variable affecting liquidity in the equity segment of the Exchange. Journal: International Economics Pages:83–104 Issue: 125 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600268 File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q1-125-4 Template-Type: ReDIF-Article 1.0 Title: The transfer effect: A comparative perspective between the European monetary union regime and fixed and floating regimes Author-Name: Meriem Bouchoucha Keywords: EXCHANGE RATE;REAL EFFECTIVE EXCHANGE RATE;PANEL DATA;EXCHANGE RATE REGIME;COINTEGRATION Classification-JEL:C33;F36;F41 Abstract: We examine the determinants of the real effective exchange-rate for several countries over the 1980-2007 period according to their exchange-rate regime. Based on panel cointegration techniques, we estimate the long run relationship between the exchange rate and a number of fundamental variables, often considered by the theoretical and empirical literature as important exchange-rate determinants, namely relative productivity, net foreign assets and terms of trade. Our results show that the exchange-rate regime influences the real exchange rates determinants, and that the “European Monetary Union” fixed exchange-rate regime type differs substantially from the “traditional” fixed exchange-rate regime and the floating one. Journal: International Economics Pages:105–131 Issue: 125 Year: 2011 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360027X File-Format: text/html Handle: RePEc:cii:cepiie:2011-Q1-125-5 Template-Type: ReDIF-Article 1.0 Title: How much fiscal backing must the ECB have? The euro area is not (yet) the Philippines Author-Name: Ansgar Belke Author-Name: Thorsten Polleit Keywords: Central Bank Independence;Central Bank Capital;Counterparty Risk;Repurchase Agreements;Collateral;Fiscal Backing;Liquidity;Haircuts Classification-JEL:G32;E42;E51;E58;E63 Abstract: This paper gives a detailed explanation of why a central bank without fiscal backing can lose control of inflation. Moreover, it argues that such danger emerged only recently for the ECB due to its increasing quasi-fiscal activities. Finally we argue that it might not generally be a good idea to provide fiscal backing for the ECB. That said, the backing of the central bank’s equity capital by fiscal policy (“fiscal backing”) appears to be a viable strategy if and when the central bank’s accounting losses are not related to the state of public finances. If, however, central bank portfolio losses are a direct outcome of deteriorating public finances, preserving the central bank’s equity capital may lead to a policy of high inflation, possibly above the ECB’s target level. Journal: International Economics Pages:5-30 Issue: 124 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600189 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q4-124-1 Template-Type: ReDIF-Article 1.0 Title: Exchange Rate Misalignments and International Imbalances a FEER Approach for Emerging Countries Author-Name: Nabil Aflouk Author-Name: Se-Eun Jeong Author-Name: Jacques Mazier Author-Name: Jamel Saadaoui Keywords: Equilibrium Exchange Rate;Current Account Balance;Macroeconomic Balance;Emerging Countries Classification-JEL:F31;F32;O11 Abstract: The objective of this paper is to examine the exchange rate misalignments (ERM) of the main emerging countries in Asia and Latin America since the 1980s, so as to shed light on the 2000s by a long term analysis and compare with the industrialized countries’ case. Our results confirm that ERM have been reduced since the mid-2000s at the world level, but the dollar remained overvalued against the East Asian countries, except the yen. Journal: International Economics Pages:31-74 Issue: 124 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600190 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q4-124-2 Template-Type: ReDIF-Article 1.0 Title: Exchange rate pass-through: new evidence from German micro data Author-Name: Eike Berner Keywords: Exchange Rate;Pass-through;Import Prices;Germany Classification-JEL:F42;F31;F14 Abstract: This paper examines exchange rate pass-through into German import unit values over the last 20 years. I find incomplete pass-through to be the predominant characteristic for German imports with an average rate of 42% over three months. This result holds when considering monthly 8-digit data, the most disaggregated German import data available. Furthermore, I distinguish 16 German trading partners and estimate substantial cross-country differences in the pass-through to import unit values. Imports coming from European countries generally exhibit statistically zero pass-through. By contrast, non-European trading partners are characterized by statistically significant incomplete pass-through rates. I also study whether there are differences in the pass-through rates for appreciations and depreciations, as well as for small and large exchange rate shocks. Moreover, I test for a negative correlation between the goods’ quality and its pass-through rate. Journal: International Economics Pages:75-100 Issue: 124 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600207 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q4-124-3 Template-Type: ReDIF-Article 1.0 Title: Is there a medical brain drain? Author-Name: Xavier Chojnicki Author-Name: Cécily Oden-Defoort Keywords: Medical brain drain;International migration;Convergence. Classification-JEL:O15;F22;J61;I10 Abstract: This paper offers initial insights on the general circumstances under which a beneficial or a detrimental brain drain is obtained in the medical sector. For that purpose, we use an original dataset so as to analyze determinants of the evolution in the relative number of medical doctors in the world since the beginning of the 1990s. More precisely, we ask whether countries are converging or diverging in terms of the number of medical doctors and whether migration perspective gives an incentive to undergo medical studies. Our econometrics results show that (i) countries experience a (conditional) convergence process in their long-run equilibrium in terms of medical doctors per capita; (ii) the emigration rate of medical doctors has a positive and significant impact on education decision in the poorest countries. Some counterfactual experiments reveal that some African countries can benefit from the departure of their medical workers if emigration rates but under very restrictive conditions on medical doctors’ emigration rates Journal: International Economics Pages:101-126 Issue: 124 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600219 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q4-124-4 Template-Type: ReDIF-Article 1.0 Title: Market power in the russian banking industry Author-Name: Zuzana Fungácová Author-Name: Laura Solanko Author-Name: Laurent Weill Keywords: Market Power;Bank Competition;Russia Classification-JEL:G21;P34 Abstract: The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2006 with the Lerner index. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size. Journal: International Economics Pages:127-146 Issue: 124 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600220 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q4-124-5 Template-Type: ReDIF-Article 1.0 Title: On-Going Issues on the Global Financial Crisis. Introduction Author-Name: Virginie Coudert Author-Name: Hélène Raymond Author-Name: Laurence Scialom Keywords: Financial crisis;Regulation;Derivative markets;Sovereign wealth funds;Hedge funds Classification-JEL:G01;G18;G21;G33 Abstract: The primary functions of a financial system are to supply clearing and settlement of payments, to ensure resource pooling and to transfer those economic resources through time and space, as well as to provide price information on assets by correctly assessing and managing risks. A financial crisis is a market failure which destroys or dramatically impairs these fundamental functions, especially the financial intermediation process and the function of liquidity transformation, which results in substantial social costs. Unquestionably, the recent dramatic collapse of the banking and financial system fits this definition. Almost all the fundamental functions of a financial system were altered abruptly and globally... Journal: International Economics Pages:5–12 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600116 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-1 Template-Type: ReDIF-Article 1.0 Title: Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: the Big Three in Turmoil Author-Name: Jezabel Couppey-Soubeyran Keywords: Prudential supervision;Market discipline;Internal control;Financial regulation Classification-JEL:G01;G18;G21;G38 Abstract: The financial crisis has revealed the dysfunction of all banking and financial regulatory mechanisms. Prudential regulation failed to prevent the meltdown. Market discipline neglected to send any warning signals. Internal control was seriously undermined by doubtful dealings, in France as elsewhere. Does the crisis call the big three into question? No regulation mechanism is omniscient, whether it be state, market or self-regulation. As such, none of three can operate without the other two, with the corollary that they can only function together. It means that splitting up the big three can therefore not be the answer to the crisis. By contrast, since each one of them has shown its weaknesses, the only solution is to work on reinforcing each one. Unfortunately there is no guarantee that the reforms go far enough. Journal: International Economics Pages:13–29 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600128 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-2 Template-Type: ReDIF-Article 1.0 Title: A Systemic Approach to Financial Regulation: a European Perspective Author-Name: Michel Aglietta Author-Name: Laurence Scialom Keywords: Financial crisis;Macro-prudential policy;Financial regulation Classification-JEL:G01;G28;E58 Abstract: The global financial crisis has pinpointed the relevance and the virulence of systemic risk in modern innovative finance. It is grounded in the propensity of credit markets to drift to extremes in close correlation with asset price spikes and slumps. In turn, such a propensity is nurtured by the heuristic behaviour of market participants under severe uncertainty. While plagued by disaster myopia, market participants spread systemic risk. Such adverse conditions have been magnified by financial innovations that have made finance predatory and capable of capturing regulators to annihilate prudential policies. Malfunctioning in finance is so deep and disorders are so widespread that sweeping reforms are the order of the day, if financial stability is viewed as a primary public concern. In this paper we argue that macro prudential policy should be the linchpin of relevant reforms. Being a top-down approach, it impinges both upon monetary policy and micro prudential policy. Journal: International Economics Pages:31–65 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360013X File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-3 Template-Type: ReDIF-Article 1.0 Title: Are Derivatives Dangerous? A Literature Survey Author-Name: Gunther Capelle-Blancard Keywords: Derivatives;Forwards;Futures;Financial innovation;Speculation;OTC markets;Financial instability Classification-JEL:A1;D8;G1 Abstract: In this paper, we propose a survey of the academic literature that has addressed the threats raised by derivatives. An initial issue is the impact of derivatives on the volatility of the underlying assets, but empirical findings do not suggest any significant effect. The recent literature on the dangers of derivatives is more concerned by systemic risks. Several studies suggest that the sophistication of the products and the concentration of risks are potential sources of instability because of the increasing uncertainty, the repeated occurrence of extreme losses, and finally the greater possibility of global crisis. Among the solutions that have been proposed to mitigate risk, beyond strengthening internal control, putting clearinghouses into general use and limiting naked-transactions seem to be the most promising avenues. Journal: International Economics Pages:67–89 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600141 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-4 Template-Type: ReDIF-Article 1.0 Title: The Credit Default Swap Market and the Settlement of Large Defaults Author-Name: Virginie Coudert Author-Name: Mathieu Gex Keywords: Credit derivatives;Bankruptcy;Credit default Swap;Auction Classification-JEL:D44;G01;G15;G33 Abstract: The huge positions on the credit default swaps (CDS) have raised concerns about the ability of the market to settle major entities’ defaults. The near-failure of AIG and the bankruptcy of Lehman Brothers in 2008 have revealed the exposure of CDS’s buyers to counterparty risk and hence highlighted the necessity of organizing the market, which triggered a large reform process. First we analyse the vulnerabilities of the market at the bursting of this crisis. Second, we unravel the auction process implemented to settle defaults, the strategies of buyers and sellers and the links with the bond market. We then study the way it worked for key defaults, such as Lehman Brothers, Washington Mutual, CIT and Thomson, as well as for the Government Sponsored Enterprises, which reveals some oddities in the final prices. Third, we discuss the ongoing reforms aimed at strengthening the market resilience. Journal: International Economics Pages:91–120 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600153 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-5 Template-Type: ReDIF-Article 1.0 Title: Sovereign Wealth Funds as Domestic Investors of Last Resort During Crises Author-Name: Hélène Raymond Keywords: Sovereign wealth fund;Crises;Investor of last resort;Shareholder of last resort;Lender of last resort;Insurer of last resort;Emergency intervention Classification-JEL:G01;G14;G28;G29 Abstract: Usual definitions of Sovereign Wealth Funds (SWFs) put emphasis on their foreign investments. But after September 2008, some Sovereign Wealth Funds refrained from foreign investments and turned to the support of their home economies. We show that these interventions of Sovereign Wealth Funds as domestic “investors of last resort” are far from marginal and that they are not a passing innovation of the last global crisis. We review first the cases of interventions of SWFs as “shareholders of last resort” and differentiate interventions targeted on banks, from more general interventions designed to support non financial firms. We then turn to the interventions of SWFs as “lenders of last resort” and insurance funds against major crises. Journal: International Economics Pages:121–159 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600165 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-6 Template-Type: ReDIF-Article 1.0 Title: Emergence of a New Regulation: Informational Disclosure Modalities in the Hedge Fund Opacity World Author-Name: Sandra Rigot Author-Name: Yamina Tadjeddine Keywords: Informational asymmetry;Disclosure;Financial regulation;Hedge funds Classification-JEL:D43;G23;G28 Abstract: The 2007-2008 crisis has highlighted the tensions related to lack of transparency and asymmetrical information in the hedge fund industry. Damage can be estimated at a micro level by a misallocation induced by a double (ex ante and ex post) asymmetry and at a macro level by increasing financial and banking instability. One way to resolve market failures is to require hedge funds to disclose more information, but information can be revealed in different ways. We propose an original typology of disclosure modalities by distinguishing the aim of informational disclosure (macro/ micro allocation) and the modality (by free bargaining, by a standardized contract, by an obligation toward the regulatory authorities, by publicity). We use Kohonen maps to classify issued proposals and reports. We define two typologies: one of informational disclosure modalities and of financial regulation policy. Journal: International Economics Pages:161–195 Issue: 123 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600177 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q3-123-7 Template-Type: ReDIF-Article 1.0 Title: China’s High Saving Rate: Myth and Reality Author-Name: Guonan Ma Author-Name: Wang Yi Keywords: Saving;Corporate;Household and government saving;Chinese economy Classification-JEL:E20;E21;O11;O16;O53 Abstract: China’s saving rate is high from many perspectives – historical experience, international standards and model predictions. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s. What sets China apart from the rest of the world is that its rising aggregate saving has reflected high savings rates in all three sectors – corporate, household and government. Our evidence casts doubt on the proposition that distortions and subsidies account for China’s high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewis-model transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. Such structural factors suggest that the Chinese saving rate may peak in the medium term. Journal: International Economics Pages:5–39 Issue: 122 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600281 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q2-122-1 Template-Type: ReDIF-Article 1.0 Title: Oil Prices and Stock Markets: What Drives What in the Gulf Corporation Council Countries Author-Name: Mohamed Arouri Author-Name: Christophe Rault Keywords: GCC stock markets;oil prices Classification-JEL:G12;F3;Q43 Abstract: The aim of this paper is to investigate the relationship between oil prices and stock markets in Gulf Corporation Council (GCC) countries. Using a weekly dataset covering the period from 7 June 2005 to 25 May 2010, we show strong statistical evidence that the causal relationship is consistently bi-directional for Saudi Arabia. Stock market price changes in the other GCC member countries do not Granger cause oil price changes, whereas oil price shocks Granger cause stock price changes. Therefore, investors in GCC stock markets should look at the changes in oil prices, whereas investors in oil markets should look at changes in the Saudi stock market. Journal: International Economics Pages:41–56 Issue: 122 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600293 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q2-122-2 Template-Type: ReDIF-Article 1.0 Title: Is There a Link Between the American S&L Crisis of the 80s and the Subprime Crisis? An Analysis of Bank Returns Author-Name: Loredana Ureche-Rangau Author-Name: Aurore Burietz Keywords: Subprimes;savings and loans;securitization;bank returns;credit risk Classification-JEL:G22;G30;G32;G38 Abstract: Between 2000 and 2002, the American Federal Open Market Committee has strongly decreased its target rate. This decrease, associated with external economic factors as well as innovative financial practices has influenced investors’ behaviour. In this paper, we analyze the financial causes of the subprime crisis, in comparison with the American S&Ls crisis of the 1980s. We perform an event study on banks returns and show that only the monetary policy of the FED, i.e. interest rates, seems to have influenced, to some extent, these returns. Our analysis also stresses how securitization practices may explain one of the noticeable differences between the S&L crisis and the subprime crisis’ consequences while their origins seem to be similar. Journal: International Economics Pages:57–88 Issue: 122 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S211070171360030X File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q2-122-3 Template-Type: ReDIF-Article 1.0 Title: Evaluating the Environmental Cost of Biofuels Policy: an Illustration with Bioethanol Author-Name: Hugo Valin Author-Name: Betina Dimaranan Author-Name: Antoine Bouët Keywords: Biofuels;indirect land use change;carbon balance Classification-JEL:F11;F18;Q15;Q56 Abstract: In this article we develop an innovative methodology for assessing indirect land use change effects related to biofuels policies in a Computable General equilibrium framework. We apply this methodology in looking at the impacts of ethanol policies in the United States and in the European Union under different trade policy options. Our results show that ethanol production has environmental benefits only under certain restrictive assumptions: in four from our five sets of parameters tests, the payback time for ethanol production was found to be at least 10 years in 2020. The results should be interpreted with some caution as there are many assumptions involved in such an assessment. Journal: International Economics Pages:89–120 Issue: 122 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600311 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q2-122-4 Template-Type: ReDIF-Article 1.0 Title: Trade-FDI Linkages in a Simultaneous Equations System of Gravity Models for German Regional Data Author-Name: Timo Mitze Author-Name: Alecke Björn Author-Name: Untiedt Gerhard Keywords: Trade;FDI;panel data;simultaneous equations Classification-JEL:C33;F14;F21 Abstract: Using regional data, we analyze the nature of German trade-FDI linkages within the EU27 for a system of gravity equations. Starting from a macroeconomic perspective, our analysis supports earlier empirical evidence for Germany in finding substitutive links between trade and outward FDI. However, switching to a (macro-)regional perspective, we reveal additional complementary correlations, which can be motivated by recent theoretical approaches. We also find regional heterogeneity, which emphasizes the need to take into account the regional dimension in analyzing cross-variable linkages between trade and FDI. Journal: International Economics Pages:121–162 Issue: 122 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600323 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q2-122-5 Template-Type: ReDIF-Article 1.0 Title: The Introduction of Emerging Currencies into a Portfolio: Towards a more Complete Diversification Model Author-Name: Stéphanie Prat Author-Name: Sophie Brana Keywords: International Portfolio Diversification;Original Sin;Emerging Countries;Downside Risk Classification-JEL:G11;E44;F34 Abstract: Journal: International Economics Pages:5-24 Issue: 121 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600062 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q1-121-1 Template-Type: ReDIF-Article 1.0 Title: Exchange Rate Misalignments at World and European Levels: a FEER Approach Author-Name: Se-Eun Jeong Author-Name: Jacques Mazier Author-Name: Jamel Saadaoui Keywords: Equilibrium Exchange Rate;Current Account Balance;Macroeconomic Balance Classification-JEL:F31;F32 Abstract: Since the mid-1990s, we observe an increase of world current account imbalances. These imbalances have only been partially reduced since the burst of the crisis in 2007. They reflect, to some extent, exchange rate misalignments, an issue which has been frequently studied in the literature. However, these imbalances, which have reinforced in the 2000s, are also important inside the Euro area. This analysis cannot be reduced to simple estimates of euro misalignment at the world level because of specific constraints that exist for each member of the Euro area. This article aims to examine to what extent intra-European imbalances reflect exchange rate misalignments for each “national euro”. Journal: International Economics Pages:25-58 Issue: 121 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600074 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q1-121-2 Template-Type: ReDIF-Article 1.0 Title: Real Exchange Rate Misalignments and Economic Performance for the G20 Countries Author-Name: Audrey Sallenave Keywords: Equilibrium Real Effective Exchange Rate;Group of Twenty;Growth;Misalignments;Panel Cointegration Classification-JEL:C23;F31;O47 Abstract: We evaluate the growth effects of real effective exchange rate misalignments for the G20 countries over the period 1980-2006. To this end, we first estimate real effective equilibrium exchange rates relying on the behavioral approach BEER, from which misalignments are derived. Second, we estimate a dynamic panel growth model in which among the traditional determinants of growth, our measure of misalignments is included. Our findings put forward some important differences between developed and emerging economies. The magnitude of the misalignments is more pronounced in the case of emerging countries, and the speed of convergence towards the estimated equilibrium exchange rate is slower for industrialized ones. Turning to our growth regression analysis, we find that misalignments have a negative effect on the economic growth. As a consequence, an appropriate exchange rate policy would close the gap between real exchange rates and their equilibrium level. Journal: International Economics Pages:59-80 Issue: 121 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600086 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q1-121-3 Template-Type: ReDIF-Article 1.0 Title: Geographic distance and remittances in Romania: Out of sight, out of mind? Author-Name: José De Sousa Author-Name: Laetitia Duval Keywords: International migration;Remittances;Bilateral Data;Romania Classification-JEL:F24;J61;O15 Abstract: We analyse the role of geographic distance for bilateral remittances. We use a new data set on bilateral remittance flows from OECD countries to Romania over the period 2005-2009. Contrasting with existing literature, we find that remittances increase with distance but in a non-linear way. Journal: International Economics Pages:81-98 Issue: 121 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600098 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q1-121-4 Template-Type: ReDIF-Article 1.0 Title: The petroleum market: The ongoing oil price “shock” and the next “counter-shock” Author-Name: François Lescaroux Keywords: Oil Prices;Supply and demand equilibrium;Forecasting and simulation Classification-JEL:D4;E37;Q41 Abstract: This paper documents that the oil market has a natural tendency to experience an alternation of periods of turbulence and stability because of weak price-elasticities of supply and demand, responsible for the fact that “there is always too much or too little oil” (Watkins, 1937). In particular, it proposes a simple “Econ 101” explanation for the surge in both the level and the volatility of oil prices over the last few years. The analysis shows that despite the 2009 global recession, there still is “too little oil”, therefore the energy crisis is not yet over and the price should rise to new record levels in the mid-term. On the other hand, simulations provide evidence that spare capacities should be built up again in the long-term—that is, there might be “too much oil” again—and hence the nominal price could correct downward and enter a new steady period once sufficient investment is made. Journal: International Economics Pages:99-130 Issue: 121 Year: 2010 File-URL: http://www.sciencedirect.com/science/article/pii/S2110701713600104 File-Format: text/html Handle: RePEc:cii:cepiie:2010-Q1-121-5