Where Do Australians Invest?

In this article, we analyse the geography of Australia's international portfolio investment using the International Monetary Fund's Co‐ordinated Portfolio Investment Survey dataset. Preliminary results suggest that Australia's external holdings of equity and debt as a percentage of national income almost doubled between 1997 and 2001. However, Australia's international investment position as a percentage of national income is one of the lowest amongst the major OECD countries. In 2001 approximately two‐thirds of Australia's total investments were in the United States and the United Kingdom. By contrast Australia's trade share (exports plus imports as a percentage of Australia's total world trade) with these countries was approximately 20 per cent in the same year. The major determinants of Australia's geographical allocation of portfolio investment indicate a broad correspondence between stock market capitalisation of destination countries and the allocation of Australian financial investments but with some deviations from that baseline, where the deviations are correlated with Australian trade patterns.     

Capital Market Integration and National Wealth

This article examines the effects of increased capital market integration on Australia's external liabilities, total assets and national wealth using an inter-temporal approach. Stylised national balance sheets-then provide summary statements of how these aggregates changed following the unprecedented international financial liberalisation of the 1980s. Though the level of international debt was relatively high at the end of the 1980s compared to the 1970s, it was easily exceeded by growth in asset values, resulting in a sharp rise in wealth per head.     

The Sustainability of European External Debt: What have We Learned?

In this paper we aim to analyze the level of sustainability of external debt and, more importantly, how it has changed for a number of European economies. Given the severity of the crisis since 2008, we argue that the path of external debt burdens may have changed since the start of the crisis, given the concerns about debt accumulation in most countries. We analyze the reaction of present debt accumulation to past debt stock, incorporating the possibility of endogenously determined structural breaks in this reaction function. We find that structural breaks happen in most cases after 2008, highlighting the importance of the policy measures taken by most governments.     

Empirical studies of trade marks – The existing economic literature

This paper surveys empirical studies employing trade mark data that exist in the economic literature to date. In the introductory section we summarise the theory of trade marks. Section 2 documents the use of trade marks by firms of different size and industry and by firms in several advanced countries, including Australia, the UK, and the USA. Section 3 reviews various attempts to gauge the function of a trade mark as an indicator of innovation and product differentiation. Section 4 surveys studies that have demonstrated firms' incentives to use trade marks, including transferring information to consumers, realising synergies between different types of intellectual property rights, strategies to raise rivals' costs and using trade mark portfolios as debt collateral. In Section 5, we provide an overview of the importance of trade-mark-use for firm survival and the association of trade marks with several dimensions of firm performance, including productivity and their ability to generate well-paid jobs.     

Digital Privacy: GDPR and Its Lessons for Australia

Australia's Privacy Act 1988 is under review with a view to bringing Australia's privacy laws into the digital era, more in line with the European Union's General Data Protection Regulation (GDPR). This article discusses how the GDPR can be refined and standardised to be more effective in protecting privacy in the digital era while not adversely affecting the digital economy that relies heavily on data. We argue that an ideal data policy should be informative and transparent about potential privacy costs while giving consumers a menu of opt-in choices into which they can self-select.     

Currency devaluations,aggregate demand,and debt dynamics in economies with foreign currency liabilities

The article uses a post Kaleckian model to analyze how currency devaluations affect aggregate demand and capital accumulation in an economy with foreign currency liabilities in the short-run. In benchmark post Kaleckian open economy models, currency devaluations have two effects. First, they change international price competitiveness and thus affect net exports. Second, devaluations change income distribution and thereby affect consumption and investment demand. The overall effect on aggregate demand and investment is ambiguous and depends on parameter values. Existing models, however, disregard balance sheet effects that arise from foreign currency-denominated external debt. The article develops a novel post Kaleckian open economy model that introduces foreign currency-denominated external debt and balance sheet effects to examine the demand-effects of devaluations. Furthermore, the article models the dynamics of external and domestic corporate debt. It discusses how an economy may end up in a vicious cycle of foreign-currency indebtedness and derives the conditions under which indebtedness becomes stable or unstable. It shows that the existence of foreign currency-denominated debt means that contractionary devaluations are more likely, and that foreign interest rate hikes, and high illiquidity and risk premia compromise debt sustainability. Devaluations only stabilize debt ratios if they succeed in boosting domestic capital accumulation.     

Debt and corporate governance in emerging economiesEvidence from India1

We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. Using cross‐sectional data on listed manufacturing firms we estimate, simultaneously, the relation between Tobin's Q and leverage for three years, 1996, 2000 and 2003. Our analysis indicates that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions became more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. In general, our results highlight the role of ownership structures and institutions in debt governance.     

Budgetary institutions and fiscal discipline: Edmund Burke's insightful contribution

Recent developments in the political economy of public finance literature have focused on the features of budgetary institutions that facilitate budgetary discipline — a sub-discipline of constitutional economics. In this literature, there has been no attempt to trace the development of economic thought on the relationship between budgetary institutions and fiscal discipline. This may be because debt accumulation in peacetime is seen as a late twentieth-century phenomenon. As a result, Edmund Burke's contribution, in his speech ‘On Economical Reform’, seems to have been forgotten. This paper highlights Burke's contribution and identifies the extent to which it captures those features of budgetary institutions that are currently recognized as facilitating budgetary discipline.     

External shocks and persistence of external debt in open vulnerable economies: The case of Africa

We examine the extent to which two external shocks, the world interest rate shock and the commodity price shock, lead to external debt accumulation in Africa. We begin by estimating a dynamic stochastic general equilibrium model of external debt burden, and solve the linear equations using the quadratic method of undetermined coefficients. Consequently, we run simulations of 50 time periods. Our results show that both world commodity price and world interest rate shocks impact external debt accumulation in the majority of our sample African countries. Interestingly, world commodity price shocks lead to an increase in external debt while world interest rate shocks appear to discourage accumulation of external debt.     

Australia and the Pacific Economy*

The industrialization and growth of East Asian countries has shifted the centre of world trade and economic activity towards the Pacific. There has already been a huge redirection of Australia's trade and external economic interests towards the region, based importantly on the emergence of Japan as a major economic power. Australia's future economic prospects will be significantly determined by how it manages its trade policy interests in the context of continuing East Asian industrialization. The most promising Australian trade policy approach is one which allies Australia's trading interests to those of East Asian countries in seeking to maintain an open non-discriminatory trade regime, supportive of the transformation of trade specialization necessary to the industrialization of resource-deficient countries, and which marries that objective to the liberalization of her own and Pacific country markets.     

Current Account Imbalances or Too Much Bank Debt as the Main Driver of Gross Capital Inflows? Spain During the Great Financial Crisis

Abstract:

In contrast to the widespread view which posits that large current account deficits and net international debt were at the epicenter of the crisis in the Euro Zone, with diverging competitiveness playing a central role, this article points to the huge volume of bank credit that banks refinanced in international markets.

With a focus on the Spanish economy, we ground our view in an analysis linking gross—not net—capital flows, bank credit, and gross external debt, which provides more adequate information about a country’s international financing patterns and its external exposure.

The main conclusion of this article is that the principle driver of gross external debt in Spain was bank credit, with accumulated current account deficits accounting for less than 50 percent of gross external debt. Other consequences in keeping with this view are: the measures of economic policy required to sort out current account imbalances—particularly wage devaluation to improve competitiveness—may do more harm than good and they do not prevent the problem of too much bank credit from occurring again, and the residence of debt holders in the Euro Zone crisis is relevant for the understanding of the crisis as the result of a power imbalance     

Potential Growth and Inflation: Estimates for Australia, the United States and Canada

Estimates of potential output growth for Australia, the United States and Canada are presented and analysed in this article. We define potential growth as that growth rate consistent with a steady (domestic component of the) inflation rate (SIRG). At around 4 per cent per annum, Australia's SIRG has been relatively stable for the past 30 years, which seems inconsistent with the view that wide‐ranging microeconomic reform in the 1990s raised growth potential. However, we show that the reduction in employment growth in Australia from the 1980s to the 1990s may account for the absence of a rise in potential growth. In Canada and the United States the SIRGs are closer to 3 per cent, and we explore the reasons why potential growth estimates are higher for Australia than for North America. We also discuss why Australia's growth averaged less than its potential in the 1980s and 1990s and the possible use of our estimates for monetary policy purposes.     

School Performance in Australia: Is There a Role for Quasi‐Markets?

Recent changes to the organisation of Australia's education system have raised the possibility of implementing wide‐ranging market reforms. In this article we discuss the scope for introducing reforms similar to the United Kingdom's ‘quasi‐market’ model. We discuss the role of school league tables in providing signals and incentives in a quasi‐market. Specifically, we compare a range of unadjusted and model‐based league tables of primary school performance in Queensland's public education system. These comparisons indicate that model‐based tables which account for socio‐economic status and student intake quality vary significantly from the unadjusted tables.     

The Perverse Effect of Debt Tax Benefits on Firm Investment Decisions

In this paper we question the idea that the deduction of debt interest is always an effective policy instrument to spur firm investment. We analyse the investment decision in presence of a borrowing constraint on the amount of debt that the firm can raise. We show that if the debt interest rate is decreasing in the firm's capital accumulation and another financial resource more expensive than debt is available (at least for levels of debt lower than the upper bound), then the deduction of the debt interest from taxes on capital income may reduce firm investment. This theoretical result is relevant for economic policy decisions when financial intermediaries are not willing to finance beyond a certain threshold but firms have access to other sources of finance.     

PARTIALLY DISAGGREGATED HOUSEHOLD‐LEVEL DEBT SERVICE RATIOS: CONSTRUCTION,VALIDATION, AND RELATIONSHIP TO BANKRUPTCY RATES

Using individual‐level debt payments data from a credit bureau, we estimate debt service ratios by debt type for the United States. While highly correlated with the Board of Governors' national debt service ratio, we identify some required payments categories that vary substantively from the aggregate assumptions used in the Board's published data series. Estimating novel state and metropolitan statistical area (MSA)‐level debt service ratios, we show that debt service ratios rose dramatically during the 2000s housing boom in several of the most impacted states and MSAs. Our state‐level debt service ratios are shown to be useful in predicting state bankruptcy rates. (JEL D14, C8, E50)     

Political economy of taxation,debt ceilings,and growth

This study presents voting on policies, including labor and capital income taxes and public debt, in an overlapping-generations model with physical and human capital accumulation, and analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The results show that the debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner and lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.     

External sustainability in Spanish economy: Bubbles and crises, 1970–2020

We address the issue of the sustainability Spain's external debt, using data for the period 1970–2020. To detect episodes of potentially explosive behavior of the Spanish net foreign assets over GDP ratio and the current account balance over GDP ratio, as well as episodes of external adjustments over this long period, we employ a recursive unit root test approach. Our empirical analysis leads us to conclude that there is some evidence of bubbles in the ratio between Spanish net foreign assets and the GDP. In contrast, the evidence that the ratio between the Spanish current account balance and the GDP had explosive subperiods is very weak. The episode of explosive behavior identified in the position of net foreign assets during the period 2002–2015 was the result of the country's economic expansion 1995–2007. The results also show an external adjustment during the period 2008–2019 after the start of a cyclical economic recession.     

Internal debt and welfare

This paper analyzes how multinational firms' internal debt financing affects high-tax countries. It uses a dynamic small open economy model and takes into account that internal debt impacts both the multinational firms' investment decisions and the government's tax policy. The government has incentives to redistribute income from firm owners to workers. If the government's redistributive motive is not too strong, internal debt reduces welfare in the short term by decreasing tax revenues. However, debt financing stimulates capital accumulation and exerts a positive long-term welfare impact.     

Not Leverage but Change in Leverage Matters for Firms’ Future Growth: Evidence from Turkey's Top 1000

In the financial literature it is generally assumed that a firm's financial leverage is a good measure (proxy) of the firm's access to financing. In this study, it is argued that it is not the firm's debt (leverage), but the change in leverage that more accurately mirrors the firm's true likelihood to have access to external sources of financing. Applying a firm-type analysis and panel data techniques to data on the top 1000 private industrial companies of Turkey for the period 1997–2012, it is shown that it is the change in leverage ratio, not the level of leverage ratio itself that matters for the future firm growth, controlling for profitability, leverage and firm size.     

Hamiltonian Approaches to The Analysis of External Debt

This paper investigates the borrowing aspect of LDC's debt problems from a short run and a borrower's perspective, taking “Hamiltonian” approaches. In analyzing a dynamic external debt problem, other studies have adopted a single-objective of maximizing intertemporal utility. This paper explores the optimum rate of external borrowing with different objectives and assumptions that may be more realistic for the economic planners of the developing countries. Altogether four cases are analyzed. The important finding is that even though all four cases exhibit the so called “bang-bang” phenomena, all four cases produce a different optimum rate of external borrowing with different policy implications. [400]