Impulse response analysis and Orcutt’s hypothesis in trade: evidence from developing countries

Orcutt’s hypothesis in international economics implies that trade flows respond to exchange rate changes faster than to changes in relative prices. Most previous studies used import and export demand models and tested the hypothesis by imposing and comparing lag lengths on the exchange rate and relative prices. One recent study, however, employed impulse response of trade flows to one SD shock to the nominal exchange rate and one SD shock to relative prices and tested the Orcutt’s hypothesis for several industrial countries. In this article we follow this study and test the hypothesis for six developing countries using impulse response analysis. Like the other study for industrial countries, we do not find much support for the hypothesis.     

Portugal’s banking and financial crises: unexpected consequences of monetary integration?

Portugal’s current financial crisis might be related to a banking crisis resulting from joining the Euro. The new-currency eliminated the exchange rate risk, but not the credit or liquidity risks within the Euroarea. However, Portuguese banks acted as if all of these risks had disappeared. They began pumping money in Portugal, by borrowing intensively in Euros abroad at low interest rates. The ensuing liquidity generated a capital-flow bonanza boom that culminated in a bust phase. Private and sovereign debt dramatically increased, which further soared when the government rescued banks. Portugal was then compelled to take extreme measures to address extraordinary debt-levels.     

Minsky’s financial fragility: an empirical analysis of electricity distribution firms in Brazil (2007–2015)

This article applies Hyman P. Minsky’s insights on financial fragility to analyze the behavior of electricity distribution firms in Brazil from 2007 to 2015. More specifically, it builds an analytical framework to classify these firms into Minskyan risk categories and assess how financial fragility evolved over time, in each firm and in the sector as a whole. This work adapts Minsky’s financial fragility indicators and taxonomy to the conditions of the electricity distribution sector and applies them to regulatory accounting data for more than 60 firms. This empirical application of Minsky’s theory for analyzing firms engaged in the provision of public goods and services is a novelty. The results show an increase in the financial fragility of those firms as well as of the sector throughout the period, especially between 2008 and 2013.     

Do domestic bond markets participation help reduce financial dollarization in developing countries?

In this paper, I analyze the effect of domestic sovereign bond market (BM) participation on financial dollarization using a large panel of 114 developing countries over the period 1984–2009. Building on entropy balancing, my results reveal strong evidence that domestic BM participation significantly reduces financial dollarization in domestic BM countries compared to their non-domestic BM peers. Moreover, I find that the favorable impact of domestic BM on financial dollarization (i) is larger for inflation targeting countries compared to non-inflation targeting countries, (ii) is apparent exclusively in a non-pegged exchange rate regime, (iii) and is larger when there are fiscal rules that constrain the discretion of fiscal policy makers. Finally, I show that the induced drop in inflation rate and its variability, nominal exchange rate variability, and seigniorage revenue are potential transmission mechanisms through which the presence of domestic BM reduces financial dollarization in domestic BM countries.     

Financial sector opening and financial constraints: an empirical study based on China’s experiences

ABSTRACT

The paper investigates the effect of financial sector opening on financial constraints based on the experiences in China. We firstly review the policy of China’s financial sector opening and set up exogenous policy measures. Then based on the panel data of listed firms from 2010 to 2015, we calculate four indices to measure China’s firm-level financial constraints through internal and external finance channels. We find that China’s financial sector opening alleviates financial constraints and upgrades the financing structure for China’s listed firms. Financial sector opening also eliminates ownership discrimination and promotes financing efficiency, to alleviate financial constraints of private enterprises and profitable enterprises. The mechanism of the effects of financial sector opening on financial constrain is mainly through the collateral channels and the elimination of information asymmetry.     

Can fiscal rules improve financial market access for developing countries?

A number of countries have introduced fiscal rules to deter fiscal profligacy, enhance the credibility of fiscal policy, and reduce borrowing costs. In this paper, we examine the outcome of fiscal rules in terms of improving financial market access for developing countries. We use entropy balancing and various propensity score matching. We find that the adoption of fiscal rules reduces sovereign bond spreads and increases sovereign debt ratings for a sample of 36 developing countries, which are part of the JP Morgan Emerging Markets Bond Index Global (EMBIG), for the period 1993-2014. We explain this finding by the effect of fiscal rules on the credibility of a country's fiscal policy: more credible governments are rewarded in the international financial markets by low sovereign bond spreads and high sovereign debt ratings. These results are robust to a wide set of alternative specifications. We also show that this favorable effect is sensitive to several country structural characteristics. Our findings confirm that the adoption and sound implementation of fiscal rules is an instrument for policy makers to improve developing countries’ financial market access.     

Evidence on inflation–output trade-off in developing and industrial countries

This paper subjects Lucas's output–inflation trade-off study to further empirical investigation. The cross-country study divides the 111 countries covered into 90 developing countries and 21 advanced countries. Lucas's proposition is that volatility of aggregate demand growth should reduce the impact of aggregate demand growth on the cyclical output and the implication of this is that there is no output–inflation trade-off in line with the natural rate theory. We employ annual data over periods that fall between 1958 and 1985 in order to conduct the test. Our findings suggest that Lucas's proposition is valid for developed economies but not for developing economies.     

Is there an export or import-led productivity growth in rapidly developing Asian countries? a multivariate VAR analysis

In contrast to cross-country studies, the paper investigates the relationships between trade and labour productivity for nine rapidly developing Asian countries in a time-series framework using a vector error-correction model. Independent tests on the long-run and short-run relationship between trade variables of exports and imports and productivity are conducted. The results suggest that trade has an important impact on productivity and output growth in the economy, however it is imports that provide the important?‘virtuous’?link between trade and output growth. The results indicate that exports and imports have qualitatively different impacts on labour productivity. The long-run result shows that there is no causal effect from exports to labour productivity growth for Hong Kong, Indonesia, Japan, Taiwan and Thailand; thereby suggesting that there is no export-led productivity growth in these countries. However, significant causal effects were found from imports to productivity growth, suggesting import-led productivity growth in India, Indonesia, Malaysia, Philippines, Singapore and Taiwan. In addition, the results indicate that imports tend to have greater positive impact on productivity growth in the long run.     

Remittances and output growth volatility in developing countries: Does financial development dampen or magnify the effects?

The paper empirically investigated the relationship between remittance flows and output growth volatility for an extensive sample predominated by emerging     

Measuring the degree of competition in Pakistan’s banking industry: an empirical analysis

Pakistan’s banking industry has gone through significant transformation from being in a heavily state regulated and controlled environment to a more liberalized market structure in recent years. This liberalization of banking industry in Pakistan has raised concerns over the dominant banks’ exercise of market power on account of increase in market concentration due to mergers and acquisitions, high profitability in banking sector and increasing interest rate spread. Present study therefore explicitly tests the market conduct of banks using quarterly panel data of 30 banks from 2004 to 2012 and employing Panzar–Rosse, Bresnahan–Lau, Hall–Roeger and Boone’s approaches to study market power. Our findings suggest that Pakistan’s banking industry is working in a competitive environment and we find little evidence for the exercise of market power by the dominant banks. Our results remain robust across all these approaches to measure market power. These findings indicate that the liberalization and deregulation of Pakistan’s banking industry has been successful in improving the competitive conditions in the market.     

Heterogeneity in dentists’ activity in Taiwan: an application of quantile regression

The purpose of this paper is to provide new evidence on heterogeneity in dentists’ activity. The heterogeneity is of particular importance because dentists’ responses are likely to differ widely from high to low activity dentists. Quantile regressions provide an alternative and useful method to investigate the differential responses of dentists to various observable explanatory variables. The results reject the null hypothesis of homoskedasticity of individual dentists’ responses. It is shown that time trends for dentists at higher quantiles have greater fluctuations than those at lower quantiles. The clinic–hospital gap in activity at higher quantiles is greater than at low quantiles. Clinic dentists at higher quantiles have much higher numbers of visits and numbers of treatments than those at lower quantiles, but they provide less intensity of care. Dentists in deprived areas have higher activity than those in non-deprived areas, only when they are located at higher quantiles. The results may help policy makers to focus on responsive targets in order to improve the effectiveness of their recent policy of global budgeting.

Industrialisation as an engine of growth in developing countries, 1950–2005

This paper examines the emergence of manufacturing in developing countries in the period 1950–2005. It presents new data on structural change in a sample of 67 developing countries and 21 advanced economies. The paper examines the theoretical and empirical evidence for the proposition that industrialisation acts as an engine of growth in developing countries and attempts to quantify different aspects of this debate. The statistical evidence is not completely straightforward. Manufacturing has been important for growth in developing countries, but not all expectations of the ‘engine of growth hypothesis’ are borne out by the data. The more general historical evidence provides more support for the industrialisation thesis.     

Wage inequality in developing countries: South–South trade matters

The relationship between trade liberalization and inequality has received considerable attention in recent years. The major purpose of this study is to present new results on the sources of wage inequalities in manufacturing taking into account South–South (S–S) trade. Globalization has not only lead to increasing North–South (N–S) trade, but it has also changed the direction and composition of trade as more trade is carried out among developing countries. In this study, we find that increasing wage inequality is associated more with the South–South trade liberalization than with the classical trade liberalization with northern countries. A part of this increasing wage inequality due to S–S trade comes from the development of N–S trade relationship in S–S trade that increases wage inequality in middle-income developing countries. This study also seeks to shed some light on the link between the direction of trade and technological change. We explore the fact that S–S trade leads to a technological change biased toward skill-intensive sectors more than N–S trade. This indirect effect increases wage inequality for all developing countries, but it is more important in low-income countries.     

Developing countries’ financial vulnerability to the eurozone crisis: an event study of equity and bond markets

The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis period and eurozone crisis news. Overall, we find that whereas global crisis period had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of eurozone crisis news was more mixed and limited.     

Individual’s financial investment decision-making in reward-based crowdfunding: evidence from China

This article extends the work of Cecere et al. (Appl. Econ., 49(57): 5802–5813, 2017) and explores the antecedents of backers’ decision to invest in projects from eight categories on a reward-based crowdfunding platform in China. We extract data from 2011 to 2016 from the pioneer Chinese reward-based crowdfunding site ‘Demohour’. Our empirical investigation using OLS reveals that feedback score, social capital (followers on Weibo, project sharing on social media) and project quality (number of updates) are key motivating factors in investment decision and subsequently, project success or failure. Robustness tests also confirm the findings.     

Evaluation of elderly households’ financial standing in Central and Eastern European countries

The purpose of the paper is to analyse and evaluate the financial situation of elderly households in Central and Eastern European (CEE) countries. Current demographic trends simultaneously with reforms of pension systems in the CEE region may lead to an increasing number of elderly households being exposed to poverty risk. In this study, Ward’s method and the method of standardised sums were applied to classify and order the examined countries according to the financial standing of elderly households. The obtained results allow us to identify countries with similar financial situations for elderly households in 2007, 2010 and 2013, and changes in clusters and ranking over the analysed period. The main findings show that the financial situation of the elderly in CEE countries is very differentiated and changeable, however over the analysed period the financial standing of the elderly seems to be most similar in Poland and Slovakia as well as Estonia, Latvia and Lithuania.     

Unemployment and output dynamics in CIS countries: Okun’s law revisited

Okun’s law is a well-known relationship between the change in the unemployment rate and output growth. The main objective of this article is to provide a rigorous econometric analysis of Okun’s law for several CIS countries using different models and theoretically justified econometric methods. The traditional approach to Okun’s law estimation using OLS regressions does not account for possible endogeneity of regressors and the implied inconsistency of the estimates obtained. These problems point out to incorrectness of applications of the standard OLS estimation techniques. Our study addresses these issues by using econometrically justified instrumental variable regression methods. The article provides the results and discussions on practical use of Okun’s relationships for evaluation of average effects of economic growth on the unemployment rate, and vice versa; importance of accounting for confidence intervals in applications of Okun’s models to economic development analysis and cross-country comparisons and evaluation of effects of crises and other structural shocks on the economies considered. We also discuss in detail the results of formal econometric tests and economic motivation for validity of instrumental variables used in the study. The formal econometric tests, together with economic arguments, allow us to determine the most appropriate Okun-type models for each of the CIS countries under consideration.     

Main banks’ influence on financial reporting quality in Japan

This study investigated main banks’ influence on the quality of accounting firms’ audits and corporate firms’ earnings, focusing on companies on Japan’s Nikkei 500 index. We posed three questions in this research study about main banks’ influence on corporate clients’ earnings management. First, does a weakened main bank relationship influence corporate clients’ financial reporting quality? Second, does Japan’s firewall deregulation influence firms’ earnings quality? Finally, does the relationship between accounting firms and main banks affect client firms’ earnings quality? Our main findings were that main banks are not related to client firms’ earnings management; however, main banks mitigate client firms’ earnings management after firewall deregulation. On the other hand, firewall deregulation does motivate firms to manipulate their earnings management. Finally, using Pong and Kita’s (2006) study as a framework, we found that main banks and client firms using the same accounting firms had no influence on earnings management. Based on these evidences presented, our findings suggest that the quality of corporate clients’ financial reporting changes before and after firewall deregulation.