Investment in emerging market economies

This article empirically models investment in emerging economies. Using dynamic panel estimation methods and quarterly data for 31 emerging economies for the period 1990:1?C2008:3, we show that (i) the GDP and the cost of capital are the key fundamental determinants of investment; (ii) financial factors (such as equity prices, credit and lending rate) play a relevant role on the dynamics of investment, in particular, for Asian and Latin American countries; (iii) investment growth exhibits substantial persistence and (iv) crises episodes magnify the negative response of investment.     

Real exchange rates in emerging economies

We analyse the role of various investment margins in explaining the real exchange rate appreciation recorded in European transition countries. We present a model that introduces a quality investment margin and show that the margin is needed for replicating the observed pace of real exchange rate appreciation.     

The global effects of productivity gains in Asian emerging economies

This paper investigates international responses of key macroeconomic variables to simultaneous shocks to productivity in the traded sector in eight Asian emerging and developing countries. We use panel estimation techniques to construct component sub-models in a thirty country global vector autoregressive (GVAR) model. We identify the shocks by using sign restricted impulse responses. We find that increases in traded-sector productivity in Asian emerging and developing countries have a positive effect on economic growth and international trade for most countries.     

The happiness gap in Eastern Europe

Citizens in Eastern Europe are less satisfied with life than their peers in other countries. This happiness gap has persisted over time, despite predictions to the contrary by earlier scholars. It holds after controlling for a variety of covariates, such as the standard of living, life expectancy and Eastern Orthodox religion. Armed with a battery of surveys from the early 1990s to 2014, we argue that the happiness gap is explained by how citizens in post-communist countries perceive their governments. Eastern Europeans link their life satisfaction to higher perceived corruption and weaker government performance. Our results suggest that the transition from central planning is still incomplete, at least in the psychology of people.     

Foreign ownership wage premia in emerging economies

In this article we examine the relationship between wages, labour productivity and ownership using a linked employer–employee dataset covering a large fraction of the Czech labour market in 2006. We distinguish between different origins of ownership and study wage and productivity differences. The raw wage differential between foreign and domestically‐owned firms is about 23 percent. The empirical analysis is carried out on both firm‐ and individual‐level data. A key finding is that industry, region and notably human capital explain only a small part of the foreign–domestic ownership wage differential. Both white and blue collar workers as well as skilled and unskilled employees obtain a foreign ownership wage premium. Foreign ownership premia are more prevalent in older and less technologically advanced firms. Joint estimation of productivity and wage equations show that, controlling for human capital, the difference in productivity is about twice as large as the wage differential. Overall, results indicate that the international firms share their rents with their employees.     

The effect of remittances on the current account in developing and emerging economies

This paper presents an analysis of the effect of remittances on the current account in developing and emerging economies, incorporating an assessment of the extent to which exchange rate regimes impact the relationship. The main findings suggest that there is a positive effect of remittances on the current account contemporaneously, but that the lagged effect is negative, which could be indicative of the existence of some underlying mechanisms characteristic of the Dutch disease phenomenon. In addition, the results show that a more flexible exchange regime dampens the contemporaneous positive effect that remittances have on the current account. The paper, therefore, asserts that policymakers face trade‐offs pertaining to the use of exchange rate policy in managing the effects of remittances on the current account, which should be given due consideration when such policy choices are made.     

Private information for foreign investment in emerging economies

In previous studies it has been found that new foreign investment is significantly related to the stock of existing investment in the country/region. This paper's contribution is the finding that a Japanese firm's new investment in an emerging economy is positively correlated with its own previous investment in that economy and also with the current/planned investments by competitors. These two channels are primarily substitutes; that is, investment by competitors becomes less salient when the firm has experience in the market. The correlated behaviour is not explained by industrial agglomerations but appears to reflect the value of private information to investment in emerging economies.
Information privée et investissement étranger dans les économies en émergence. Des travaux antérieurs ont montré que les nouveaux investissements à l'étranger sont co-reliés de manière significative à la taille du stock d'investissement étranger dans le pays ou la région. La contribution de ce mémoire porte sur le fait qu'un nouvel investissement d'une entreprise japonaise dans une économie en émergence est co-relié positivement avec son propre niveau antérieur d'investissement dans cette économie mais aussi avec le niveau des investissements présents et anticipés de ses concurrents. Ces deux canaux d'information sont des substituts: le niveau d'investissement par les concurrents devient moins important à proportion que l'entreprise a acquis de l'expérience dans ce marché. Ce comportement co-relié n'est pas expliqué par les effets d'agglomération industrielle mais semble refléter la valeur de l'information privée quand on investit dans des économies en émergence.     

Inflation targeting in emerging economies: Panel evidence

This paper shows there is no evidence that the inflation targeting regime (IT) improves economic performance as measured by the behavior of inflation and output growth in developing countries. The control of common time effects results in less negative and less significant IT impacts on inflation, inflation volatility and output growth volatility than previously found in the literature. Additionally, our analysis shows robust evidence of lower output growth during IT adoption. On balance, although lower long-run mean inflation signals that the central banks of emerging economies with inflation targeting are more inflation-averse, the costs of disinflation have not been lower than under other monetary regimes.     

Financial globalization and debt maturity in emerging economies

This paper studies how financial globalization affects debt structure in emerging economies. We find that by accessing international markets, firms increase their long-term debt and extend their debt maturity. In contrast, with financial liberalization, long-term debt decreases and the maturity structure shifts to the short term for the average firm. These effects are stronger in economies with less developed domestic financial systems. The evidence is consistent with financial integration having opposite effects on the firms that are able to integrate with world markets and obtain financing globally, relative to the firms that rely on domestic financing only.     

The great transformation of Central Eastern Europe

The study examines the changes of the Central Eastern European region first in the context of world history. It confirms by comparative historical analyses that the transformation was indeed unique. This has been the only total transformation that took place peacefully, without violence, and at the same time astonishingly fast, in the main direction of the economic and the political changes of Western civilization. From that perspective it is an exceptional success story. However, from the perspective of everyday life, the result is different. Deep economic troubles are experienced by a considerable portion of the population. The perception of losses is intensified by various cognitive problems. Based on the experience of today's generation, evaluating the change as an unequivocal success would be unwarranted. Both approaches are justified: it would be wrong to blend the two and to weigh them by the same scale.     

The impact of economic and monetary uncertainty on the demand for money in emerging economies

By introducing uncertainty, monetary volatility and economic volatility are said to make the public cautious, hence increase their cash holdings or their demand for money. On the other hand, because of monetary and economic uncertainty if the public seek safer assets than money, they may hold less cash. In the absence of any paper testing for the impact of economic and monetary uncertainty on the demand for money in emerging economies, this article fills the gap by considering the experiences of six Central and Eastern European emerging economies and four other emerging economies. We found that the impact is transitory in most countries. Moreover, money demand is found correctly specified and stable in most countries, suggesting that policy based on monetary targeting could still be effective despite significant output and monetary uncertainty.     

Remittances and bond yield spreads in emerging market economies

This paper tests whether remittances reduce bond yield spreads in emerging market economies. Drawing upon instrumental variable techniques, our paper reveals that remittance inflows significantly reduce bond yield spreads. This result is robust to different specifications, alternative instrumentation techniques, additional control variables, and the use of credit default swap spreads in place of bond spreads. In addition, we find that the effect of remittances on spreads (i) is larger in (more) poorly developed financial systems, (ii) increases with the degree of trade openness, (iii) is larger in low fiscal space regimes, and (iv) is larger in nonremittance‐dependent countries. The paper concludes that policies that improve the measurement of remittance inflows and reduce their transfer costs or that enable countries to develop securitization of remittances and diaspora bonds could help emerging market economies to leverage remittances for international capital market access.     

Fiscal decentralization and fiscal consolidations in emerging market economies

Results using event study analysis based on a data panel of expenditure and revenue developments in emerging market economies during 1972–2001 indicate that subnational governments supported fiscal consolidation efforts by cutting their capital expenditure and increasing their revenues.     

Oil shocks and monetary policy rules in emerging economies

We examine the effects of shocks in the oil market on key macroeconomic variables in small open economies using a dynamic stochastic general equilibrium model with sticky prices and imperfect competition under different monetary policy rules. The numerical solutions show that the types of exchange rate regimes and monetary policies could partly explain the trends in macroeconomic volatilities considering negative shocks to oil supply (Hamilton, 1983) and positive shocks to oil demand (Kilian, 2009). These findings are confirmed in vector autoregressive responses for Chile and Israel with inflation targeting under flexible exchange regimes and Hong Kong with fixed regime.