Capital mobility in the Caucasus

This paper examines the degree of capital mobility in the countries of the Caucasus. I estimate a simple model developed in the seminal paper by Feldstein and Horioka (1980). I construct a panel of 6 countries of the Caucasus – Armenia, Azerbaijan, Georgia, Kazakhstan, Russia, and Turkey – and employ a panel cointegration approach. To that end, I make use of the Dynamic OLS (DOLS), Fully Modified OLS (FMOLS), and Pooled Mean Group (PMG) techniques for heterogeneous panels. Preliminary cross-dependency tests reject the presence of cross-sectional dependence. Panel unit root and cointegration tests confirm that investment and saving are non-stationary and cointegrated. The estimated long-run saving retention ratios using DOLS, FMOLS, and PMG are 0.90, 0.73, and 0.83, respectively. These results suggest that capital mobility in the Caucasus is very low. I put these findings in an international context and confirm that the Caucasus is considerably financially restrained compared to other regions. I also look at the country ratings of the Index of Economic Freedom (IEF) and find that my results work well in predicting the IEF rank. Finally, I discuss some implications for the region's policy-relevant issues such as financial integration, human capital mobility, cross-border trading, fiscal and monetary policy, solvency management, responsive consumption smoothing, and recession resistance.     

The Feldstein-Horioka puzzle and capital mobility: The role of the recent financial crisis

The Feldstein-Horioka (FH) puzzle has long been debated as it relates to the important topics of capital mobility and how to determine levels of investment. Adopting a recursive approach and panel techniques, this paper explores the impacts of the recent financial crisis on the validity of the puzzle. The OECD’s saving-investment correlation dropped to a record low just before the 2008 crisis began, reflecting the perceived ‘end’ of the FH puzzle in some studies. But since the onset of the crisis, our results indicate that this correlation has increased, suggesting the puzzle’s return. The puzzle for net capital-importing and net capital-exporting countries differs, with the relationship being more significant for the exporters compared to the importers, reflecting the asymmetry in terms of the degree of shocks across countries.     

The Feldstein–Horioka puzzle in Latin American and Caribbean countries: a panel cointegration analysis

In this paper, the recently developed panel unit root and the Pedroni cointegration tests are applied to empirically examine the validity of the Feldstein–Horioka puzzle (F–H puzzle) for a heterogeneous panel of 14 Latin American and five Caribbean countries over the period, 1960–2002. The findings indicate that in these countries, the long-run solvency condition is maintained. Finally, employing the Pedroni panel group FM-OLS estimator (2000, 2001), it is found that the statistically significant estimated savings-retention coefficient for the panel is relatively small indicating that the F–H Puzzle is not valid and thus implying the prevalence of a moderate degree of capital mobility.

Location of industry, market size, and imperfect international capital mobility

This paper examines the impact of imperfect international capital mobility on an industrial location when increasing returns are present. When the international capital mobility is perfect, agglomeration of manufacturing firms progresses with a decline in transportation costs of manufactured goods, and full-agglomeration in a large-market country is observed at low transportation costs. In contrast, when international capital mobility is imperfect, agglomeration in a large-market country progresses with capital trade integration. When the transportation costs of manufactured goods are low, all capital holders in two countries invest their capital into a home market.     

多层次资本市场的产业内涵

资本市场已经成为人们关注的焦点。然而,我们需要什么样的资本市场是我们理论与实践中必须解决的问题。本文从资本市场的本质特征出发,研究资本市场长期选择功能发挥的前提在于建立多层次的资本市场;从理论上证明多层次资本市场在产业层面上所产生的巨大作用;从发达国家的经验上说明多层次资本市场对主导产业形成的影响;最后提出发展多层次资本市场的对策。     

Financial development and financial liberalization in Asia: Thresholds,institutions and the sequence of liberalization

This paper investigates whether financial openness leads to financial development after controlling for the level of legal/institutional development, and whether trade opening is a precondition for financial opening. The focus is on Asia. In a panel encompassing 87 less developed countries over the period 1980 to 2000, a higher level of financial openness is found to spur equity market development only if a threshold level of legal development has been attained, a condition which tends to prevail particularly among emerging market Asian countries. On the issue of sequencing, trade openness is found to be a prerequisite for successful inducement of financial development via capital account liberalization.     

Time to build capital: Revisiting investment-cash-flow sensitivities

A large body of empirical work has established the significance of cash flow in explaining investment dynamics. This finding is further taken as evidence of capital market imperfections. We show, using a perfect capital markets model, that time-to-build for capital projects creates an investment-cash-flow sensitivity as found in empirical studies that may not be indicative of capital market frictions. The result is due to mis-specification present in empirical investment-q equations under time-to-build investment. In addition, time aggregation error can give rise to cash-flow effects independently of the time-to-build effect. Importantly, both errors arise independently of potential measurement error in q. Evidence from a large panel of U.K. manufacturing firms confirms the validity of the time-to-build investment channel.     

Determinants of Capital Structure: United Kingdom Versus Continental European Countries

In this paper, we analyze how country‐specific differences influence capital structure indirectly through firm‐specific variables. We apply a system Generalized Method of Moments technique to a panel data sample of companies from five countries (France, Germany, Italy, Spain and the United Kingdom) during the period 1998–2008. As the different financial systems of European economies (bank‐oriented or market‐oriented) may influence capital structure differently through firm‐specific variables, we first examine the determinants of capital structure for each country separately and we then analyze whether the observed differences between the United Kingdom and the continental European countries are relevant. The results show that there are substantial differences in the capital structure choices of firms across five major European countries. These differences are motivated by the type of financial systems of the countries (bank‐oriented and market‐oriented) and influence the capital structure indirectly through the firm‐specific variables. Overall, our results support the relevance of the differences in the capital structure choices of firms across five major European countries, and in particular, the singularity of the United Kingdom (a market‐oriented economy) as opposed to continental European countries (bank‐oriented economies).     

Public education under capital mobility

The paper considers a two-country model of overlapping generations economies with intergenerational transfers motivated by altruism and investment in human capital. We examine in a non-stationary competitive equilibrium the optimal provision of education with and without capital market integration. First, we explore how regimes of education provision—public, private or mixed—arise and how they affect the dynamics of autarkic economies. Second, we study the effects of capital market integration, in equilibrium, on the optimal provision of education. Third, we show that capital market integration enhances government intervention in the provision of public education (to improve the welfare of its constituents) and consider various solutions to such a competition.     

西方资本结构理论的新发展:一个理论综述

资本结构理论是现代公司财务理论研究中十分重要的部分。西方资本结构理论研究的目的在于从理论上解释决定企业资本结构的主要因素,揭示企业资本结构与企业市场价值及企业财务行为的内在关系,为企业投融资决策提供理论基础。从20世纪70年代开始,以产权理论、代理理论、信息不对称理论及产业组织理论为核心的新资本结构理论,突破了MM定理研究框架的束缚,开拓了资本结构理论研究的一个更为广阔的领域。本文对自20世纪70年代中期以来西方资本结构理论的新发展作一综述,以期为转轨时期的我国公司的投融资决策提供一些有益的启示和借鉴。     

The effect of housing and stock market wealth on consumption in emerging and developed countries

This study examines the long- and short-run relationship between private consumption, housing wealth, stock market wealth and income. In order to asses this relationship empirically, we use pooled mean group estimators of dynamic heterogeneous panel data on a sample of 30 developed and emerging economies. The sample countries are segmented into three separate panels: a developed bank-based panel, a developed market-based panel, and an emerging bank-based panel. Empirical estimates support the existence of long- and short-run stock market wealth effects in both groups of developed countries, with the effect being particularly strong in the developed market-based countries. A moderate long-run housing wealth effect is confirmed only for the developed bank-based countries, while a very strong short-run housing wealth effect is present in the developed market-based countries. As far as the emerging countries are concerned, the evidence is somewhat inconclusive, but it does seem to suggest that both wealth effects are effective in the long run, with housing wealth being more dominant.     

From Bismarck to Maastricht: The March to European Union and the Labor Compact

This paper considers the likely impact that European Union (EU) will have on the labor compact. It is argued that, despite increased economic integration in Europe, countries will still be able to maintain distinct labor practices if they are willing to bear the cost of those practices. The incidence of many social protections probably already falls on workers. In addition, it is argued that imperfect mobility of capital, labor, goods and services will limit the pressure that integration will place on the labor compact. Evidence is presented suggesting that labor mobility among EU countries has not increased after the elimination of remaining restrictions on intra-EU labor mobility in 1993. Moreover, immigration from non-EU countries, which is much larger than intra-EU migration, has declined since 1993. Evidence is also reviewed suggesting that the demand for social protection rises when countries are more open, and therefore subject to more severe external shocks. This finding suggests that increased economic integration and European Monetary Union (EMU) could lead to greater demand for social protection. The U.S. experience with state workers' compensation insurance programs is offered as an example of enduring differences in labor market protections in highly integrated regional economies with a common currency.     

East German labour market in transition: segmentation and increasing disparity

The employment system of the former GDR–like that of other socialist countries–could be seen as an aggregation of ‘internal labour markets’ with long term employment, internal promotion and little external mobility. Consequently the rapid integration of the East German economy into the western market economy has led to structural problems of the labour market which combined with and intensified the general effects of the sharp decrease in the demand for labour.     

Natural resources and capital structure

This paper examines the effect of natural resources on the capital structure of firms. Using an extensive dataset of listed firms in 70 countries, we show that firms operating in resource extraction industries have less debt than other non-financial firms. Moreover, non-resource firms in resource-dependent countries are found to be less indebted than their counterparts in other countries. The results suggest that the very fact of a firm’s location in a resource-dependent country is an overlooked country-specific determinant of the firm’s capital structure and that financial institutions in resource-dependent countries may play a role in exacerbating a nation’s resource curse.     

A Non‐parametric Examination of Capital–Skill Complementarity*

This paper uses non‐parametric kernel methods to construct observation‐specific elasticities of substitution for a balanced panel of 73 developed and developing countries to examine the capital–skill complementarity hypothesis. The exercise shows some support for capital–skill complementarity, but the strength of the evidence depends upon the definition of skilled labour and the elasticity of substitution measure being used. The added flexibility of the non‐parametric procedure is also capable of uncover ing that the elasticities of substitution vary across countries, groups of countries and time periods.     

Trade and factor intensity,and the transmission of the global shock to labor: A panel analysis of the fall of the labor income share in the Mexican manufacturing sector

The paper studies the fall of the labor income share in Mexico, contrasting the role of trade and factor intensity as transmission channels of the China shock of 2001. It finds that, while the skill, technological and —more surprisingly— trade intensity of Mexican industries were largely irrelevant, capital intensity played a key role: in particular, the higher was the industries’ initial capital intensity, the more vulnerable they were to the transmission of the global shock to labor. The finding is consistent with the proposition that industrial integration, concentrated in industries that are capital-intensive from the perspective of developing countries, facilitated the transmission of the shock. Results come from the estimation of panel equations for the annual change in the labor share across Mexican manufacturing industries, where transmission is measured by the correlation between changes in the United States and Mexican industry labor shares.     

Product–market flexibility and capital structure

Many companies have the ability to adjust their product's price and/or quantity in response to changes in the marketplace. We show that this product–market flexibility or market power, hitherto ignored in the contingent-claim modeling literature, can potentially have a significant effect on the corporate capital structure decision. When the firm is operating at full capacity, product–market flexibility is not important, hence market power has a negligible effect on optimal capital structure. However, when operating below capacity, product–market flexibility becomes important and market power has, in general, a positive effect on optimal debt level and optimal leverage ratio. This is consistent with available empirical evidence. Numerical results indicate that the effect of product–market flexibility on optimal debt level and optimal leverage ratio can potentially be large enough to be economically significant, hence it should not be ignored as a determinant of capital structure.     

Impact of economic growth volatility on income inequality: ASEAN experience

The study attempts to examine the symmetric and the asymmetric impact of volatility of economic growth on the inequality of income in the major ASEAN economies over the period 1980–2015. Financial development, trade openness as a proxy of globalization, inflation, human capital formation, and fiscal policy are utilized as major control variables. The paper tries to explore the causal association between inequality of income distribution and economic growth volatility, exploring simultaneously the long-run association and the short-run dynamics in the time series structure. The study applied Clemente–Montanes–Reyes unit root test to identify the structural break in the time series. Further, the cointegrating relationship of the time series observations was explored by applying the ARDL (linear) bounds test approach along with the nonlinear ARDL for making fruitful comparisons in the long-run relationship among the variables. The countries chosen are Malaysia, Indonesia, Thailand, Singapore and The Philippines. The empirical findings strongly suggest a long-run cointegrating relationship between income inequality and growth volatility with a positive and statistically significant impact. Also, the causality analysis was explored using the Toda and Yamamoto (1995) method of Granger causality. The causality test shows that there exists bidirectional causality from inequality transmission to economic growth volatility. The implications that are developed from this study helps us to understand the various policy reforms in the ASEAN region, that are more transparent and can make these economies less susceptible to risks.     

Capital mobility, foreign aid, and openness: further panel data evidence from sub-Saharan Africa

This study uses several alternative panel data estimation techniques (pooled ordinary least squares, fixed effects, and random effects) to examine the effect of domestic savings, foreign aid, the evolution of capital mobility over time, and openness on investment rates for a sample of 29 sub-Saharan African countries over the time period 1980 to 2001. The empirical evidence suggests the presence of capital mobility in line with previous studies of developing economies and that capital mobility has gradually increased over time. Moreover, foreign aid and openness both have positive and significant impacts on investment rates.