Capital Account Liberalization and Aggregate Productivity: The Role of Firm Capital Allocation

We study the effects of capital account liberalization on firm capital allocation and aggregate productivity in 10 Eastern European countries. Using a large firm‐level data set, we show that capital account liberalization decreases the dispersion in the return to capital across firms, particularly in sectors more dependent on external finance. We provide evidence that capital account liberalization improves capital allocation by allowing financially constrained firms to demand more capital and produce at a more efficient level. Finally, using a model of misallocation we document that capital account liberalization increases aggregate productivity through more efficient capital allocation by 10% to 16%.     

Do Managers of U.S. Defined Benefit Pension Plan Sponsors Use Regulatory Freedom Strategically?

We use historical particularities of pension funding law to investigate whether managers of U.S. corporate defined benefit pension plan sponsors strategically use regulatory freedom to lower the reported value of pension liabilities, and hence required cash contributions. For some years, pension plans were required to estimate two liabilities—one with mandated discount rates and mortality assumptions, and another where these could be chosen freely. Using a sample of 11,963 plans, we find that the regulated liability exceeds the unregulated measure by 10% and the difference further increases for underfunded pension plans. Underfunded plans tend to assume substantially higher discount rates and lower life expectancy. The effect persists both in the cross‐section of plans and over time and it serves to reduce cash contributions. We further show that plan sponsor managers use the freed‐up cash for corporate investment and that credit risk is unlikely to explain the finding.     

Do Banks Affect the Level and Composition of Industrial Volatility?

In theory, better access to bank credit can reduce or increase output volatility depending on whether firms are more financially constrained during contractions or expansions. This paper finds that the volatility of industrial output is lower in countries with more bank credit. Most of the reduction in volatility is idiosyncratic, which follows from the ability of banks to pool and diversify shocks. Systematic volatility is reduced less strongly. Volatility dampening is achieved via countercyclical borrowing: At the firm level, short‐term borrowing is less (or more negatively) correlated with sales and inventories in countries with high levels of bank credit.     

DOES COMPULSORY VOTING HELP EQUALIZE INCOMES?

This paper explores the link between compulsory voting and income distribution using a cross‐section of countries around the world. Our empirical cross‐country analysis for 91 countries during the period 1960–2000 shows that when compulsory voting can be strongly enforced the distribution of income improves as measured by the Gini coefficient and the bottom income quintiles of the population. Our findings are robust to changes and additions to our benchmark specification. Because poorer countries are the ones with relatively more unequal distribution of income it might make sense to promote such voting schemes in developing regions, such as Latin America. This, under the assumption that bureaucratic costs related with design and implementation are not excessive.     

Energy as an indicator of modernization in Latin America, 1890–1925

In the absence of comparable macroeconomic indicators for most of the Latin American economies before the 1930s, the apparent consumption of energy is used in this paper as a proxy of the degree of modernization of Latin America and the Caribbean. This paper presents an estimate of the apparent consumption per head of modern energies (coal, petroleum, and hydroelectricity) for 30 countries of the region, 1890 to 1925. As a result, it provides the basis for a quantitative comparative analysis of modernization performance beyond the few countries for which historical national accounts are available in Latin America.     

Finance and the Business Cycle: International, Inter-Industry Evidence

By considering yearly production growth rates for several manufacturing industries in more than 100 countries during (roughly) the last 40 years, we show that industries that are more dependent on external finance are hit harder during recessions. The observed difference in the behavior of industries is larger when financial frictions are thought to be more prevalent, linking the result directly to the financial mechanism hypothesis. In particular, more dependent industries are more strongly affected in recessions when they are located in countries with poor financial contractibility, and when their assets are softer or less protective of financiers.     

What Moves Investment Growth?

We use accounting identities to decompose unexpected changes in investment growth into surprises to current cash‐flow growth and stock returns, and revisions of expectations about future cash‐flow growth and future discount rates. Using a vector autoregressive model we find that current cash‐flow surprises account for the largest element of the variance decomposition. Investment growth and current cash‐flow surprises are negatively correlated with news about future cash‐flow growth, which can be expected from persistent productivity shocks and decreasing returns to scale. We find little evidence of a discount rate channel for investment since return terms are small and have unintuitive signs.