Market integration and contagion: Evidence from Asian emerging stock and foreign exchange markets

This paper examines whether Asian emerging stock markets (India, Korea, Malaysia, Philippines, Taiwan, and Thailand) have become integrated into world capital markets since their official liberalization dates by estimating and testing a dynamic integrated international capital asset pricing model (ICAPM) in the absence of purchasing power parity (PPP) using an asymmetric multivariate GARCH(1,1)-in-Mean approach. Also examined in this paper is whether there are pure contagion effects between stock and foreign exchange markets for each Asian country during the 1997 Asian crisis. The empirical results show that first, both currency and world market risks are priced and time-varying, suggesting that an international asset pricing model under PPP and constant price of risk might give rise to model misspecification. Second, the stock markets for India, Korea, Malaysia, Philippines, and Thailand were segmented from the world capital markets before their liberalization dates, but all six markets have become fully integrated since then. Third, the market liberalization has reduced the cost of capital and price volatility for most of the countries. Finally, as for the contagion effects, strong positive impact of return shocks originating from the domestic stock market to its foreign exchange market during the crisis is found. This dynamic relationship between stock market and foreign exchange market is consistent with stock-oriented exchange rate models.     

Competing to be innovative: Foreign competition and imitative innovation of emerging economy firms

We examine the effect of increased competitive pressures within and outside the home market on the innovation of local firms. We argue that the relationship between exposure to foreign competition in domestic and international markets and firm innovation is better captured by imitative innovation than by radical innovation. We hypothesize that exposure to foreign competition inside and outside the home country is positively associated with local firms’ imitative innovation. Further, we argue that this relationship is contingent on institutional factors, including the role of the government, the legal system, and natural resource endowment. Using a dataset of 949 firm-year observations in the Middle East and North Africa (MENA) region, we find empirical support for the positive impact of competitive pressure on imitative innovation.     

Efficiency Sorting Among Foreign Affiliates: Evidence From China

This paper uses a large micro‐level data set to investigate the efficiency sorting pattern of foreign affiliates serving different markets. We find systematic differences among the attributes of foreign affiliates serving the local and overseas markets. Affiliates serving only the host country market are the most productive, the most capitalintensive and the most skill‐intensive. Affiliates serving only the international market are the most unskilled and labour‐intensive, the least efficient, pay the lowest wages and invest least in innovation and advertising. Affiliates serving both markets offer high wages and invest most in innovation and advertising. The results also suggest that the most productive affiliates choose to serve the host country market, whereas the least efficient affiliates target the international market.     

Foreign exchange and monetary policy in Mexico

The liberalization and reform of the Mexican economy has been headline material for several years. As Agustin Carstens explains in his article, one of the single most important factors in this turnaround has been sound fiscal policies and the recent moves to make the central bank independent. The foreign exchange rate policies and anti-inflation monetary policies have been the backbone of Banco de Mexico's efforts. These efforts, and their attendant effect upon Mexican financial markets serve as an illustration of current reform movements.     

The impacts of RMB internationalization on onshore and offshore RMB markets

Using the DCC-GARCH model, this study considers distinctive features of China's foreign exchange market to investigate the impacts of RMB internationalization on exchange rates in onshore and offshore markets in different stages during 2010–2017. The results show that policies concerning RMB internationalization, such as interest rate liberalization, exchange rate liberalization, and capital market internationalization, have different impacts on the central parity rate, onshore exchange rate, and offshore exchange rate. In terms of exchange rate liberalization, as the daily trading band was gradually widened in 2012–2015, the onshore exchange rate followed the offshore exchange rate more closely. The central parity rate functioned as a managed floating role. It stabilized onshore and offshore exchange rate fluctuations, while allowing partial marketization. After the exchange rate reform on August 11, 2015, the central parity rate plays a benchmark role based on a more market-oriented price formation mechanism. It makes the central parity rate regain pricing power in onshore and offshore markets. Further, it promotes exchange rate liberalization and RMB internationalization. Nevertheless, with the slowdown of China's economic growth and the narrowing of the interest rate differential between China and the US, the RMB is under pressure to depreciate, and its volatility increases significantly.     

International financial markets: Control or liberalization?

Exchange rates, interest rates and share prices are subject—at least occasionally—to great fluctuations. Diverse economists regard the volatility of international financial markets as a threat to the goods and labour markets. They blame the price turbulences on the speculative behaviour of a large section of market participants, and claim that the deregulation and liberalization of the international financial markets in the eighties has therefore already gone too far. Under discussion today are approaches to a re-regulation of the money, capital and foreign exchange markets. These proposals are evaluated in the following paper.     

Devaluation,Innovation, and Prices

We investigate the effects of exchange rate changes on innovation by a multinational corporation. The firm enjoys a monopoly in the home market but engages in Cournot competition with a domestic firm in the foreign market. Changes in currency values affect the multinational firm’s profits in domestic currency units, and thus influence the optimal level of process innovation as well as output and prices in the two markets. We find that a devaluation of the home currency will lead the home firm to increase its output in both the home and foreign markets, and increase its spending on R&D. We also find that currency devaluation in the home market leads to lower prices in both markets.     

Modelling spillovers between stock market and FX market: evidence for Nigeria

Abstract

The need to capture the foreign exchange (FX) and stock markets nexus in Nigeria is underscored by the rapidly expanding financial markets integration due to trade and financial liberalization policies which seem to have enhanced the inflow of capital as well as accelerated investment/business interactions. Using variants of the VARMA-AMGARCH model of McAleer, Hoti, and Chan (2009), we find that volatility persistence in the stock market is accentuated by bad news in the market and moderated by good news in the FX market. Finally, we establish that ignoring the asymmetric effects may exaggerate the spillover results.     

To liberalize or not to liberalize: Political and economic determinants of financial liberalization

Using a sample of 70 emerging market and developing countries, we examine the political and economic factors which affect the government's decision to liberalize the domestic equity markets. We document that the levels of industrialization and financial development, the quality of investor protection, and the level of the government's involvement in the economy are closely associated with the stock market liberalization decision. Furthermore, we find a positive and significant relation between the amount of foreign financial aid received by the governments in emerging market countries and the probability of stock market liberalization.     

Flying under the radar: Foreign firm visibility and the efficacy of political strategies in emerging economies

Although emerging markets hold great potential, foreign firms operating in those markets are exposed to a comparatively higher level of risk as compared to developed markets. We examine the role of foreign firms’ visibility in shaping the effect of the strategies they deploy to reduce their exposure to environmental risk. Building on and extending research on political strategies we develop hypotheses and test them against data from 173 MNE subsidiaries operating in six emerging economies. We find that visibility affects not only the strength, but also the direction of the association between political strategies and foreign firms’ exposure to risk. Our findings enhance understanding of the use of different political strategies for reducing their exposure to risk and of the moderating role of their visibility in emerging markets.     

Globalization, regional wage differentials and the Stolper-Samuelson Theorem: Evidence from Mexico

In this paper, I study what factors determined the changes in Mexico's regional wage differentials during the nineties. I exploit the regional variation in exposure to international markets to identify the effects of NAFTA on wages and the skill premium. The results support the presence of Stolper-Samuelson type of responses during Mexico's trade liberalization: regions more exposed to globalization appear to have exhibited an increase in overall wage levels, but a decrease in the skill premium, relative to other regions of the country. The results suggest that trade liberalization has a spatial dimension that is usually neglected in traditional models.     

“双循环”理论综合及其在我国的应用实践

“双循环”新发展格局的提出是中国特色社会主义政治经济学的重大理论创新,本文致力于综合国民经济循环理论演进脉络和现有马克思主义政治经济学观点的新发展格局研究,构建包括循环内容、循环机制、内外循环依存关系的双循环分析框架,并以此分析框架系统梳理我国发展实践和国内国际循环现状特征。研究发现,我国经历了封闭失衡的国内循环、国内国际循环初步发展、国际大循环驱动、做大国内循环等多个发展阶段;2008以来我国国内循环比例大幅提升,以国内大循环为主体具备实践基础,但国际循环仍是重要牵引力,促进循环的创新动力和需求动力不足,国内国际循环的主导关系仍有待转换。因此,构建“双循环”新发展格局,关键是通过改革破除堵点,强化创新和扩大内需双向发力,以国内引力场集聚全球要素资源,形成以我为主、内外协同的国内国际循环互动新格局。     

How does stock market liberalization influence corporate innovation? Evidence from Stock Connect scheme in China

Using China's Stock Connect program as a quasi-natural experiment, we assess the impact of stock market liberalization on corporate innovation. The baseline result based on a difference-in-differences (DID) estimation suggests that allowing foreign investors to buy domestic stocks has a beneficial effect on Chinese firms' innovative outputs. Specifically, eligible firms affected by the Stock Connect scheme generate more and higher quality patents than other unaffected firms subsequently. Furthermore, we explore potential channels that may explain this beneficial effect in terms of improving corporate governance, reducing information asymmetry, and mitigating financial constraints. In addition, the effect is more pronounced for firms in high-tech industries. However, we find that the influence of stock market liberalization is insignificant in state-owned firms. Besides, the findings are generally robust to different measures of innovation and different methods of estimation. Overall, this paper provides new insights into understanding the positive effect of stock market liberalization in emerging market economies.     

外资进入自由化对劳动者健康的影响——来自中国健康与营养调查的经验证据

本文以中国2002年外资管制放松作为准自然实验,通过匹配中国健康与营养调查数据、中国工业企业数据和城市统计年鉴,探究中国外资进入自由化对劳动力健康的影响及其内在作用机制。研究发现外资进入自由化会改善劳动者健康水平,对疾病种类、受教育水平和性别差异的异质性分析显示,外资进入自由化对发烧、喉咙痛、咳嗽有显著的改善作用,给高学历劳动者或男性劳动者带来的好处更显著。机制检验证明,外资进入自由化一方面通过增加劳动者工作时长和加剧环境污染对中国劳动者健康状况产生了负向影响,另一方面通过提高劳动者收入使健康状况得到了显著改善,且正向作用大于负向作用。本文研究有助于客观准确地评估外资进入自由化的健康效应,同时对发展中国家引资调整具有重要的政策启示。     

Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries

This paper explores a period of substantial variation in trade policy across industries in Colombia (1977-1991) to examine whether increased exposure to foreign competition generates productivity gains for manufacturing plants. Using an estimation methodology that addresses the shortcomings of previous studies, we find a strong positive impact of tariff liberalization on plant productivity, even after controlling for plant and industry heterogeneity, real exchange rates, and cyclical effects. The impact of liberalization is stronger for larger plants and plants in less competitive industries. Our findings are not driven by the endogeneity of protection. Similar results are obtained when using effective rates of protection and import penetration ratios as measures of protection. Productivity gains under trade liberalization are linked to increases in intermediate inputs' imports, skill intensity, and machinery investments, and to output reallocations from less to more productive plants.     

Learning by exporting: Lessons from high-technology SMEs

We investigate the learning by exporting hypothesis by examining the effect of exporting on the subsequent innovation performance of a sample of high-technology SMEs based in the UK. We find evidence of learning by exporting, but the pattern of this effect is complex. Exporting helps high-tech SMEs innovate subsequently, but does not make them more innovation intensive. There is evidence that consistent exposure to export markets helps firms overcome the innovation hurdle, but that there is a positive scale effect of exposure to export markets which allows innovative firms to sell more of their new-to-market products on entering export markets. Service sector firms are able to reap the benefits of exposure to export markets at an earlier (entry) stage of the internationalization process than are manufacturing firms. Innovation-intensive firms exhibit a different pattern of entry to and exit from export markets from low-intensity innovators, and this is reflected in different effects of exporting.     

Exchange Rate Effects on Domestic Prices in Bulgaria and Poland: Progress in Making Markets?

The economic liberalization which has occurred in Central and Eastern Europe (CEE) over the past 15 years generally has involved establishing domestic markets and privatizing state‐owned firms, both with the intention of integrating the CEE economies into the global economy and allowing the benefits of competition to be realized. We explore how well this has been accomplished in two countries, Poland and Bulgaria, and the domestic conditions that contribute to its accomplishment. The sensitivity of domestic markets to international shocks, as reflected in exchange rate effects on domestic prices, may be viewed as an indicator of how integrated a country’s markets are into the global economy, and a proxy for competition in those markets. In explaining variation in exchange‐rate pass‐through, we examine the impact of market structure, economic liberalization and infrastructure as factors contributing to the development of competitive markets. We find that although integration into global markets can significantly increase market competitiveness, domestic factors also play a significant role.     

Brakes to organic market enlargement in Spain: consumers’ and retailers’ attitudes and willingness to pay

In Spain, consumption of organic products has not kept pace with production. Up till now, foreign markets have been a natural destination for excess supply. However, world trade liberalization might cause important commercial problems to Spanish producers that could be partially solved by enlarging the domestic market. The goal of this paper is to assess the opportunity for such enlargement focusing on two main aspects: consumers’ and retailers’ attitudes and willingness to pay for organic products. Concerns about health, natural diets or environmental issues could stimulate consumption, while retailing dynamism and competition to gain new market segments might favour distribution. Both aspects are investigated through two surveys addressed to consumers and retailers in two Spanish towns. The results confirm that only a small proportion of consumers and distributors show attitudes that might favour demand expansion. The most sensitized segments are willing to pay more for organic products, but this premium is still very far from the prevailing gap between conventional and organic food products.     

Second Generation Electricity Reforms in Latin America and the California Paradigm

In this paper we discuss second-generation electricity reforms being formulated in Latin America and how they are being reshaped by the California crisis, which had stood as a paradigm, at least in theory, for fully competitive markets. We argue that the main lesson policy makers in Latin America should draw from the experience in California and other electricity markets around the world is that the liberalization of wholesale markets will not result in more competitive outcomes where market concentration is significant, final consumers are isolated from actual marginal production costs and capacity is tight. At least in the case of Argentina and Chile, the California crisis has had a “positive externality” by persuading policy makers, at least momentarily, to postpone liberalization reforms and make them realize the complexities in implementing competitive markets.     

Does services liberalization benefit manufacturing firms?: Evidence from the Czech Republic

While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. This study examines the link between services sector reforms and the productivity of manufacturing industries relying on services inputs. Several aspects of services liberalization are considered, namely, the presence of foreign providers, privatization and the level of competition. The results, based on firm-level data from the Czech Republic, show a positive relationship between services sector reform and the performance of domestic firms in downstream manufacturing sectors. Allowing foreign entry into services industries appears to be the key channel through which services liberalization contributes to improved performance of manufacturing sectors. This finding is supported by evidence that foreign acquisitions of Czech services providers result in profound changes in the labor productivity and sales of acquired firms. As most barriers to foreign investment today are not in goods but in services sectors, the findings of this study may strengthen the argument for reform in this area.