The rise and demise of gedik markets in Istanbul, 1750–1860

Using new evidence uncovered from Istanbul court records, this paper shows that Ottoman markets were capable of spontaneous financial innovation before the introduction of modern financial instruments. At the same time, however, it demonstrates that the impact and sustainability of these innovations depended on the underlying political equilibrium. Gediks—entitlements to usufruct rights over the factors of production used in urban commercial and industrial activity—gradually transformed into liquid assets during the late eighteenth century. This transformation was enabled by the coercive power of Janissary‐infiltrated guilds in response to the financial needs of small‐ and medium‐scale actors operating within the confines of the domestic economy. The entry barriers, which enabled gedik markets to exist in the first place, also limited their use for growth‐promoting purposes and thus set them apart from similar financial instruments that emerged in the West. Gedik markets disappeared as the Janissary–guild coalition declined and better financial instruments emerged during the mid‐nineteenth century.     

The impact of economic fundamentals on stock markets in southern Africa

The issue of whether stock markets reflect economic fundamentals or speculative bubbles is an important one for their potential role in allocating capital, and relates to a policy issue of whether stock markets should be encouraged in developing countries. This article examines the impact of both domestic and foreign economic factors on real stock market returns in three southern African stock markets – South Africa, Zimbabwe and Botswana, from 1985-95 – using cointegration and error correction techniques. It finds that, while in all cases stock markets are influenced by domestic economic growth, there are no common patterns beyond this. The influence of other domestic and economic variables depends on the size, openness and market-orientation of the individual economies, as well as the size and liquidity of the various stock exchanges. Where foreign economic variables are important, they appear to be those related to trade, rather than international capital flows, indicating that there is little integration of these capital markets, whether regionally or internationally.     

Capital Markets and Capital Formation in Australia, 1945–1990

This survey article continues the author's examination of the interaction between domestic capital markets and capital formation by studying the 45 years after the end of World War II. (Part 1 appeared in AEHR 37 (3) 1997.) The significant rise and the sustained increase in the ratio of gross domestic capital formation to gross domestic product (GDP) posed challenges to local deposit taking institutions and capital markets to mobilize savings. The changing balance between public and private investment, and between investment by businesses and households, was reflected in the relative importance of government and private debt, and equity. The capital markets and financial institutions proved themselves to be adaptable enough to finance more than 90 per cent of postwar capital formation. However, the increasing inward and outward flows of foreign direct investment have weakened the nexus between the supply of domestic savings and capital formation.     

Determinants of bond market development in Asia

One of the major reasons behind the Asian financial crisis in 1997 was the excessive dependence of the Asian economies on commercial banks for domestic financing. The region failed to diversify its sources of corporate financing as it relied mainly on banks since its other types of financing, namely bond markets, were still underdeveloped and their sizes were quite small. On the other hand, the 2008 global financial crisis and the ongoing European debt crisis have led to constraints in acquiring local currency and foreign currency liquidity in the corporate sector in Asia as foreign banks withdrew investments from Asia. Furthermore, Asia needs large long term capital (US$ 750 billion per year for 2010–2020) for developing infrastructure connectivity within and across its economies. Local and regional capital can be channeled for long-term infrastructure projects and other productive investment through bond markets. Having a well-developed local currency bond markets can enhance the resilience of domestic financial sector to external shocks and it can facilitate better intermediation of savings into productive investments in Asia. To enhance corporate bond financing, it is important to examine factors that affect the effective development of bond markets in Asia. The study attempts to identify the determinants of bond market development in Asian economies through examining the relationship of bond issuance with selected key financial and economic factors. It also intends to provide policy recommendations for the further development of the Asian bond market. Major determinants for bond market development in Asia include the size of an economy, the stage of economic development, the openness of an economy, the exchange rate variability, the size of the banking system, and interest rate variability.     

Prospects and Challenges for Developing Securities Markets in Ethiopia: An Analytical Review

This paper is an analytical review of the prospects and challenges of developing securities markets in Ethiopia. With the fall of communism and the emergence of capitalism, many countries around the world are moving toward market‐oriented economies and securities markets are springing up on all continents around the globe. Securities markets have come to symbolize to many the essence of capitalistic economic relations. When studying the economies of developing countries, the first thing that becomes apparent is the existence of immense and, to a considerable extent, unemployed human resources as well as an acute shortage of capital. Shortage of capital is a major constraint in the realization of economic development. Recognizing the role that securities markets play in mobilizing capital, more than a dozen African countries have established stock markets. Ethiopia is not one of them. There is little current research which focuses on Africa's securities markets. This study helps to contribute to that effort by focusing on Ethiopia, the second largest country in sub‐Saharan Africa plagued with major economic problems. The paper concludes by recommending the establishment of a stock market and providing suggestions on how to do it.     

Exchange Rate Regimes: Middling Through

Abstract

The appropriate exchange rate regime, in the context of integration of currency markets with financial markets and of large international capital flows, continues to be a policy dilemma. It is found that the majority of countries are moving towards somewhat higher exchange and lower interest rate volatility. Features of foreign exchange (forex) markets could be partly motivating these choices. A model with noise trading, non-traded goods and price rigidities shows that bounds on the volatility of the exchange rate can lower noise trading in forex markets; decrease fundamental variance and improve real fundamentals in an emerging market economy (EME); and give more monetary policy autonomy. Central banks prefer secret interventions where they have an information advantage or fear destabilizing speculation. But in the model discussed in this article, short-term pre-announced interventions can control exchange rate volatility, pre-empt deviations in prices and real exchange rates, and allow markets to help central banks achieve their targets. The long-term crawl need not be announced. In conclusion, the regime's applicability to an EME is explored.     

Multinational corporations and domestic market structure: The case of Greek manufacturing industries

Conclusions In this paper we examined the potential of MNCs to give rise or to promote concentrated markets in a host country. Foreign presence in the form of MNCs affectsdirectly the market structure of the economy by in-creasing both the relative inequalities in the size distributions of firms (entropy) and the level of absolute concentration (Herfindahl-CR4). MNCs tend to populate capital intensive sectors and may also account for a potentialindirect stimulation on the concentration process through their effects on domestic barriers to entry. Industries characterised by such horizontal FDI are likely to be able to earn and maintain supra-normal profits in the domestic market. However, the effective curb of competition caused by MNCs did not show uneven distribution of gains in profitability to be present in the market for a sample of 100 large MNCs and local firms. We should suggest that concentration and other market imperfections may be the basic factor determining profitability in Greece,not multinationality per se. Moreover, the potential indirect influence of MNCs on domestic barriers may act as an agent for promoting structural changes, especially in the capital intensive sector.     

我国商业银行整体操作风险评估分析 ——基于损失分布的蒙特卡罗模拟方法

金融业的全球化竞争和金融管制的放松,使商业银行面临的操作风险不断上升。我国商业银行操作风险形成的内因和外因有很多,通过利用损失分布法对我国商业银行操作风险进行实证分析认为,目前,我国商业银行操作风险还处在可控的范围之中。但随着商业银行业务的快速增长,资本金不够的隐忧仍然存在。在未来要加强数据搜集整理,建立我国自身的操作风险损失数据库;要选择适合自身的操作风险度量方法;建立有效、科学、实时的商业银行操作风险预警系统。     

China and the world financial markets 1870–1939: Modern lessons from historical globalization1

In this article we review the development of Chinese capital markets over a crucial period in the history of markets worldwide, and place that development in context. Despite fundamental differences between China today and China 100 years ago, it is still important to consider the effects of an imbalance between domestic and international investor markets, and the mismatch between domestic and foreign expectations about investor protection. The lessons of the last century suggest that China today should consider opening Chinese investor access to foreign capital markets in order to equilibrate the level of diversification between foreign and domestic investors. In addition, our analysis suggests that protecting of domestic corporate investor rights is at least as important as protecting foreign investor rights.     

Promoting of Investment in Africa*

Abstract: This paper examines the trend, constraints, promotion, and prospects of investment – domestic investment, foreign direct investment, and private portfolio investment – in Africa. After identifying the importance of investment in Africa's economic development, it was shown that all forms of investment are low in Africa and hence inadequate for the attainment of the MDGs and poverty reduction in the continent. The constraining factors include: low resources mobilization; high degree of uncertainty; poor governance, corruption, and low human capital development; unfavorable regulatory environment and poor infrastructure, small individual country sizes; high dependence on primary commodities exports and increased competition; poor image abroad; shortage of foreign exchange and the burden of huge domestic and external debt; and undeveloped capital markets, their high volatility, and home bias by foreign investors. The paper recommends that successful promotion of both domestic, foreign direct and portfolio investment in Africa will require actions and measures at the national, regional, and international levels. It concludes that the prospects are bright. New and attractive investment opportunities are emerging in infrastructure, particularly as most African countries now encourage public/private partnerships for investments in this sector. In addition to privatization, renewed interest within Africa in undertaking regionally based projects and joint exploitation of natural resources is creating other investment opportunities. Apart from the fact that investment in Africa yields the highest returns, investment risk in the continent is declining. In addition, much progress has been made in recent years to improve the investment climate in Africa. All this is of course is not to deny that obstacles do remain hence economic reforms to enhance domestic investment would need to be complemented by measures to attract increased foreign capital. Critical in such endeavors must be efforts to improve governance in some countries as well as to eliminate socio‐political violence in others and development of domestic capital markets, while government institutions must be modernized and upgraded.     

Financial Liberalization and Foreign Bank Entry on the Domestic Banking Performance in MENA Countries

Abstract: This study examines the impact of financial liberalization and foreign bank entry on the domestic banking sector from 1996 to 2007, and builds upon and expands the work of Lee (2002). We find that foreign bank entry, financial liberalization, ownership structure and degree of openness of foreign bank entry positively impact domestic banking system operating efficiency, capitalization, risk management, long‐term soundness, financial performance as well as economic and financial development. However, foreign bank entry is associated with reduced profit margins and increased operating costs of domestic banks in countries with less developed capital markets. Empirical evidence seems to support the argument that foreign bank presence leads to better allocation of capital and eliminates connected lending practices.     

China's Great Ascendancy and structural risks: consequences of asymmetric market liberalisation

China's great ascendancy from a poor agrarian economy to an economic superpower is unprecedented. But in the process, structural imbalances, resource inefficiency, and income inequality worsened rapidly. It is argued that the coexistence of China's extraordinary growth and serious structural risks are two sides of the same coin: asymmetric liberalisation of product and factor markets. Distortions in markets for labour, capital, land, energy, and the environment lower production costs, increase corporate profits, raise investment returns, improve the international competitiveness of Chinese goods, and therefore lift China's growth. But they also depress consumption. China needs to accelerate factor market liberalisation in order to complete the transition to a market economy and to lock the economy onto a more sustainable path.     

Policy Choices and Resilience to International Monetary Shocks

Abstract

The well-known trilemma theory states that the nominal exchange rate regime plays a crucial role in a country's ability to pursue monetary policy that is for its domestic objectives independent from other countries' influences. In particular, a flexible exchange rate is required for an independent monetary policy. Capital controls may help a country with a fixed exchange rate to gain some policy space but the effect of capital controls is leaky and often short-lived. We revisit these conventional wisdoms and find no strong evidence supporting them in practice. In particular, a flexible exchange rate does not reliably deliver monetary policy independence, but capital controls do. This is consistent with the view that most (developing) countries dislike either depreciation or appreciation of their currencies, and therefore would choose to follow US monetary policy moves even if they are on a flexible exchange rate regime. In other words, to build resilience to international monetary policy shocks, capital controls are a necessarily component.     

Capital Markets and Capital Formation in Australia 1890–1945

This survey article examines the interaction between the domestic capital markets and capital formation in Australia from the 1890s up to the end of World War II. The disenchantment of the City of London with Australian securities in the 1890s opened a window for the development of domestic capital markets. It was the demands of the government for funds, especially during both wars, that transformed the scale and character of local markets. Local deposit taking institutions and stock exchanges handled a sufficient volume of domestic savings to fund the lion's share of both public and private sector capital formation.     

金砖四国国际金融实力提升对国际金融及其治理的影响

近年来,金砖四国金融开放度提高,国际金融实力有所提升,有利于为国际市场提供低成本资金,维护国际金融稳定,推动国际金融体系改革。但受制于金融发展滞后,四国在国际分工中仍处于劣势,其国际金融实力的上升与实体经济及对外贸易的发展不相称,难以在国际金融治理和国际经济不平衡的调整中发挥重大作用。未来四国应加快国内金融改革,大力发展金融市场;进一步密切四国之间以及四国与其他新兴经济体的贸易投资联系;加强政策协调,推动国际货币金融体系改革。     

Foreign Holding Companies and the US Taxation of Foreign Earnings: Evidence from the Tax Increase Prevention and Reconciliation Act of 2005*

I analyze US multinationals' (MNCs) use of foreign holding companies in their organizational structures and the impact of holding companies on internal capital markets. The look-thru rule in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) reduces the after-tax cost of foreign intercompany financing transactions. I use TIPRA as a natural experimental setting to test whether a shift in US tax policy that reduces the cost of moving foreign capital increased firms' reliance on foreign holding company subsidiaries. I find that MNCs responded to TIPRA by creating more foreign holding companies. Furthermore, consistent with the policy objectives of TIPRA, I document that MNCs that rely on holding companies gained tax efficiencies in their post-TIPRA foreign internal capital markets, reducing domestic taxation on foreign earnings and easing financial constraints. Overall, my results expand our understanding of foreign organizational structure decisions and their internal financing benefits. I contribute to the tax literature by documenting a response to TIPRA that sheds light on the growing complexity of foreign subsidiary ownership structures.     

Endogenous Growth and External Balance in a Small Open Economy

This paper puts forward an intertemporal model of a small open economy which allows for the simultaneous analysis of the determination of endogenous growth and external balance. The model assumes infinitely lived, overlapping generations that maximize lifetime utility, and competitive firms that maximize their net present value in the presence of adjustment costs for investment. Domestic securities are assumed perfect substitutes for foreign securities and the economy is assumed small in the sense of being a price taker in international goods and assets markets. It is shown that the endogenous growth rate is determined solely as a function of the determinants of domestic investment, such as the world real interest rate, the technology of domestic production and adjustment costs for investment and is independent of the preferences of domestic households and budgetary policies. The preferences of consumers and budgetary policies determine the savings rate. The current account and external balance are functions of the difference between the savings and the investment rates. The world real interest rate affects growth negatively but has a positive impact on external balance. The productivity of domestic capital affects growth positively but causes a deterioration in external balance. Population growth, government consumption and government debt affect the current account and external balance negatively, but do not affect the endogenous growth rate.     

Privatization and the private sector

From the perspective of someone who has observed the private and public sectors in emerging economies for many years, it is interesting to recall that in the past it was the World Bank that supported the development of state-owned utilities and industrial enterprises in developing countries, especially Latin America. It is also in Latin America that the World Bank became a convert to and promoter of privatization. A key lesson of privatization in emerging markets is the importance of competition, not only in the sale process but in the subsequent operation of privatized enterprises. Protective devices, such as core shareholders and areas off-limits to foreign investors, are counterproductive. Privatization has spawned a new generation of entrepreneurs and been especially beneficial to the development of domestic capital markets.     

Economics: Friend or Foe of Politics to Support Strategically Important Domestic Industries?

Strategic goods (e.g., food and energy) are defined as necessary prerequisites for the consumption of all other goods in the economy. Private markets fail to provide efficient domestic supply because of externalities. Individuals do not consider that the consumption of a domestically produced strategic good increases domestic supply available to society if international supply is disrupted in a future crisis. Hence, there is a purely economic rationale for government support to domestic strategic industries. But political factors, such as lobbying and political short-termism, also critically influence the actual provision of strategic goods and the case for support.     

The Entrepreneur: Real and Imagined

Ludwig von Mises, Friedrich Hayek, and Murray Rothbard were the main architects of the distinctly Austrian theory of production as it exists today. All three conceived the entrepreneurial function in the actual market economy as presupposing the ownership of property, specifically capital. Yet, many, if not most, contemporary Austrian economists conceive the entrepreneur as a pure decision-maker possessing superior “alertness” but owning no resources. This pure entrepreneur earns profits by “discovering” and seizing objectively existing but previously unperceived opportunities to arbitrage price discrepancies between a bundle of complementary inputs and the output it yields. That this is the essence of “the” Austrian theory of the entrepreneur and profit is accepted as a matter of course by those among the broader economics profession who are sympathetic to the Austrian approach. It is the goal of this paper to demonstrate that there is in the Austrian tradition traceable back to Carl Menger, a very definite and prominent strand of thought that conceives property ownership as central to the tasks that the entrepreneur characteristically performs in the real-world market economy. The managerial function . . . can never evolve into a substitute for entrepreneurship. The fallacy to the contrary is due to the error confusing the category of entrepreneurship as it is defined in the imaginary construction of functional distribution with conditions in a living and operating market economy. The function of the entrepreneur cannot be separated from the direction of the employment of factors of production for the accomplishment of definite tasks. The entrepreneur controls the factors of production; it is this control that brings him either entrepreneurial profit or loss. (Mises 1998, p. 302) Mr. Keynes obviously arrives at this view by an artificial separation of the function of the entrepreneurs as owners of capital and their function as entrepreneurs in the narrow sense. But these two functions cannot be absolutely separated even in theory, because the essential function of the entrepreneurs, that of assuming risks, necessarily implies the ownership of capital. Moreover, any new chance to make entrepreneurs’ profits is identical with a change in the opportunities to invest capital, and will always be reflected in the earnings (and value) of capital invested. (Hayek 1931, p. 277; emphasis in original) It is clear, therefore, that the process of equalization of rate of return throughout the economy, one that results in a uniform rate of interest, is the very same process that brings about the abolition of profits and losses in the ERE. . . . [I]f the . . . entrepreneur owns no assets, then how in the world does he earn profits? Profits, after all, are simply the other side of the coin of an increase in the value of one’s capital; losses are the reflection of a loss in capital assets. (Rothbard 2004, pp. 513–14; 1997, 2:247; emphasis in original)