Economic growth,financial market,and twin crises

In this study, we look not only to provide empirical evidence to investigate the direct impact of financial crises on economic growth, but also to examine the roles of insurance development, financial liberalization, financial institution, and crisis intervention policies on the relationship between the two. We employ a panel data framework from 50 countries by applying the dynamic panel generalized method of moments model. Our main empirical results show that financial crises do have a significantly negative impact on economic growth. In addition, governments or authorities are encouraged to further enhance their insurance sector in order to help spur economic growth when financial crises arise. The government intervention policy choice is also an important factor influencing economic growth during crises.     

A two‐sector neo‐Kaleckian model of growth and distribution: Investment allocation and evolutionary dynamics

This paper focuses on the two‐sector neo‐Kaleckian model of growth and distribution that was developed by Dutt (1990) and challenged by Park (1995). We develop a variant of this model, focusing on the supply‐side to solve the overdetermination problem that was raised by Park. Finally, we introduce evolutionary dynamics to model the investment flows between the capital and consumer goods sectors. In this setup, the sectoral profit rates and the size of capital stocks wield an essential role upon the entrepreneur’s decision on which sector to invest in. This model is perfectly determined and it generates a stable evolutionary equilibrium over the long term.     

Leading indicators of currency crises for emerging countries

This study identifies common features of currency crises in 15 emerging countries using quarterly data over the period 1980–1998. We use Fisher's linear discriminant analysis in order to build an early-warning system. Capital control and contagion dummies, as well as an indicator for problems in the banking sector, are included in the set of explanatory variables; the overvaluation of currencies is assessed by real effective exchange rates. We propose a ‘balancing’ approach to deal with the trade-off between good classifications and false alarms. The model yields a relatively good—and unbiased—ratio of correct predictions: four out of five crises are correctly predicted and only one out of five non-crises is predicted as a crisis.     

The macroeconomic role of currency reserve accumulation in emerging markets—The Asian experience

The impact of currency reserve accumulation is controversially discussed since reserve accumulation potentially destabilises the international financial system and causes crises due to higher systemic risk. The main aim of this paper is to put the macroeconomic role of currency reserve accumulation for four Asian economies under closer scrutiny. The key question is whether accumulating currency reserves is beneficial from a long‐run perspective. Based on a vector error correction approach, we start by analysing long‐run steady‐state relationships between currency reserves, exchange rates against the US dollar, real GDP and interest rates. Our findings show that cumulated currency reserve shocks significantly affect real GDP . A likely explanation for our finding is that accumulation of reserves has supported growth through providing liquidity and supporting the development of the financial sector for the economies under observation.     

Focus on practice service process innovation in the Brazilian electric energy sector

Service outsourcing has become widespread in the electric energy sector in Brazil. In this article, we present a case study of an innovative model for outsourcing management designed by a large electric energy distribution organization in Brazil, which outsources core and support business processes. This article reports how this company faced the challenges imposed after suffering serious operational problems with outsourcing companies and the innovative approach that was taken in order to improve performance and reduce safety risks. Post-implementation results corroborate the positive financial and operational consequences of the innovative model.     

The impact of banks and non-bank financial institutions on economic growth

Empirical studies examining the relationship between financial sector development and economic growth without including non-bank financial institutions (NBFIs) will likely generate biased empirical results. This study provides evidence that NBFIs can have a statistically significant negative impact on economic growth using cross-country data for both emerging and advanced countries. This finding suggests that these non-bank institutions, often loosely regulated, may introduce an excessive level of risk into the financial sector and the general economy. It is consistent with the current global financial crises where NBFIs, such as investment banks and insurance companies, introduced an excessive level of risk into the global economy. Hence, policy-makers may need to consider more timely and effective regulation of NBFIs and insure that adequate transparency and disclosure is provided to all financial markets participants.     

Innovation Economy,Productive Public Expenditure and Economic Growth

Multidisciplinary innovation is the main engine of growth for an increasing number of economies. Innovation requires the participation of and interaction between all economic agents. It also requires public spending on education, research and infrastructures. Our main goal is to emphasize the government's role in a growing innovation economy. Developing a non‐scale, idea‐based, one‐sector growth model with complementarities and productive public expenditure, we analyse theoretically the growth effects of an increase in productive public expenditure, which we find positive in the short, medium and long run.     

Financial liberalization,prudential supervision,and the onset of banking crises

We examine what is perceived as one of the main culprits in the occurrence of banking crises: financial liberalization. As is typically argued, if liberalization is accompanied by insufficient prudential supervision of the banking sector, it will result in excessive risk taking by financial intermediaries and a subsequent crisis. Having evaluated the empirical validity of this hypothesis, we conclude that such a development is, at worse, only a medium run threat to the health of the banking sector. We find that a more immediate danger is the loss of monopoly power that liberalization typically entails. We base our conclusions on an empirical investigation of a panel-probit model of the occurrence of banking crises using macro-economic, institutional and political data.     

Macroprudential policies,economic growth and banking crises

Using a sample covering emerging market and advanced economies, we assess the impact of macroprudential policies on financial stability. Our empirical setup is designed to account for the potential direct and indirect effects that macroprudential policies can have on banking crises. We find that while macroprudential policies (MPPs) exert a direct stabilizing effect, they also have an indirect destabilizing effect, which works through the depressing of economic growth. It turns out that mitigating effects of MPPs on the likelihood of banking crises is more pronounced in emerging market economies relative to advanced economies.     

Sovereign defaults and liquidity crises

Sovereign debt crises in emerging markets are usually associated with liquidity and banking crises. The conventional view is that the domestic turmoil is the consequence of foreign retaliation, although there is no clear empirical evidence on “classic” default penalties. This paper emphasizes, instead, a direct link between sovereign defaults and liquidity crises building on two natural assumptions: (i) government bonds represent a source of liquidity for the domestic private sector and (ii) the government cannot discriminate between domestic and foreign creditors in the event of default. In this context, external debt emerges even in the absence of classic penalties, and government default is countercyclical, triggers a liquidity crunch, and amplifies output volatility. In addition, a reform that involves a substitution of government bonds with privately-sourced liquidity instruments could backfire by restricting governments' access to foreign credit.     

What drives financial crises in emerging markets?

The study examines the causes of financial crises in 31 emerging market countries during 1980–2001. It estimates a probit model using 23 macroeconomic and financial sector variables. Traditional variables such as unemployment and inflation, as well as several indicators of indebtedness such as private sector liabilities and the foreign liabilities of banks explain currency crises rather well, and it appears currency crises occur in tandem with banking crises. Indeed, in emerging market countries the vulnerability to crisis is exacerbated by situations involving large liabilities that permit sudden capital outflows. Increases in indebtedness followed the liberalization of capital flows and domestic financial sectors.     

The role of entrepreneurial orientation in service firms: empirical evidence from Austria

Entrepreneurial behaviour is becoming increasingly important for all firms, regardless of size, age, or industry sector. It is increasingly seen as one of the most important drivers for economic growth and corporate success. Nevertheless, no empirical research has so far concentrated on the role of entrepreneurial behaviour in service firms, although the service sector has become the most important (and the only growing) industry sector. This article therefore investigates the relationship between entrepreneurial orientation (EO) and corporate performance on the basis of an empirical survey of 310 service firms in Austria. Here, a significant positive relationship between EO and corporate performance could be identified, with a clear emphasis on innovative behaviour as the most important sub-dimension.     

Unconventional economic policies and sentiment: An international assessment

This paper estimates, using Bayesian and global VARs, the spillover effects of unconventional fiscal and monetary policies implemented in the United States and in the Eurozone during the last decade. Consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis. Our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass-through of economic policies to the real sector in times of crisis and zero lower bound interest rates. In particular, the signalling channel plays an important role in successful unconventional economic policies. Moreover, if unconventional economic policies have an impact abroad, the effects are similar to those measured in the domestic country/region. Consequently, coordination and transparency are a prerequisite for ensuring short-term growth after a global financial crisis.     

Book Reviews

The relevance of innovation as an engine of economic growth has never been denied, but the main emphasis has typically been placed on the manufacturing sector. A key step in this direction is the carrying out of innovation surveys that include the tertiary sector. Along these lines, the aim of this article is to provide evidence about the innovative character of services in Spain. Drawing on the Third Community Innovation Survey (CIS 3) for Spain, we use factor and cluster analyses to demonstrate that services do innovate, and to locate these activities in the production system.     

应对重大突发公共危机事件的多元治理探究

公共危机频频爆发，已成为当前中国社会发展面临的现实而严峻的问题。正确认识和应对这些突发公共危机事件，已成为当务之急，治理的核心在于主体应多元化并相互配合，强化政府的主体地位，培育企业或者营利组织的参与意识，提高第三部门或非营利组织参与的积极性以及加强社区和志愿者的基础作用等。     

Validity of unbalanced growth theory and sectoral investment priorities in Indonesia: Application of feature ranking methods

This study develops a new approach for testing the validity of unbalanced growth theory as well as determining the sectoral priorities for investment in Indonesia over the period 1995–2015. To this end, the high linkage sector(s) is identified through the input–output framework. Afterward, two different approaches, multiple linear regression and multi-layered perceptron (MLP) artificial neural network, are applied to capture the linear and nonlinear relationships between the extracted engine sectors and gross domestic product growth. Given that the detection of sector ranking is crucial for preparing a proper development plan, in the same vein we apply two types of feature-ranking methods (namely, stepwise regression and ant colony optimization (ACO-MLP based). The findings suggest a consistent relationship between the theory and economic growth in both linear and nonlinear models. However, the nonlinear model outperforms its competitor. In general, we find that the manufacturing sector is the most strategic sector in Indonesia, as it has been ranked first in both linear and nonlinear forms. Hence, its development path could be reinforced by more investment in this leading sector and then followed by investment in construction, hotels and restaurants, and agriculture.     

A division of the capitalist class and the market for money capital

In a one‐commodity economy populated by capitalists equipped with equal endowment but with heterogeneous linear production technology, a division of the capitalist class emerges endogenously. The capitalists with relatively weak technology, yielding the profit rate lower than the interest rate, become a money capitalist (lender), whereas the capitalists with relatively strong technology, yielding the profit rate greater than the interest rate, become an industrial capitalist (borrower). The equilibrium interest rate is derived by the associated demand and supply relation. From this setup of the model follow two essential relationships Marx establishes between the average profit rate and the interest rate: (a) that the profit (rate) sets a maximum limit of interest (rate), and (b) that the two rates are correlated in the long‐run. Lastly, the profit rate of financial sector is less than that of industrial sector due to the basic setup of the model where the industrial sector uses leverage to amplify the underlying capital profit rate, whereas the financial sector lacks intermediation technology, which would have enabled it to borrow profitably.     

Immediate responses to financial crises: A focus on US MNE subsidiaries

This paper provides evidence for the immediate or short-term responses to financial crises of US multinational firm (MNE) subsidiaries. Using a real options perspective, we hypothesize that financial crises change the relative value of ‘within-country’ versus ‘across-country’ options for MNE subsidiaries. We suggest that relocating subsidiary output is an effective short-term response to local financial crises. We examine the effects of 83 financial crises (banking, debt and currency crises) on longitudinal data of US MNEs’ subsidiary sales in over 50 countries in the period 1983–2005. Our results show market-switching effects. Particularly in the case of local currency crises we observe a refocus of the MNE's subsidiary local sales toward export markets. The effect is maintained in the occurrence of twin financial crises. These results confirm our expectation that financial crises cause an increase in the value of ‘across-country’ option relative to ‘within-country’ option.     

Product Innovation and Small Business Growth: A Comparison of the Strategies of German,U.K. and Irish Companies

Innovation in small firms is important both because of its direct contribution to the competitiveness of those companies but also because of the potential for the small firm sector to act as the initiator, catalyst and medium for wider technical change. In this paper data from the Product Development Survey, a new international survey of firms' product innovation activity and strategy, is used to examine the relationship between product innovation and growth in German, Irish and U.K. small firms. In each country the output of innovative small firms was found to grow significantly faster than that of non-innovators. In Germany, output growth was achieved by a product innovation strategy which sharply increased productivity but reduced employment. U.K. and Irish small firms adopted a more balanced approach with increases in both employment and productivity associated with innovative behaviour. Comparison of the organisation of product innovation indicated that German small firms adopted a less market-oriented, less risky, and more formally organised approach than their U.K. and Irish counterparts. The revealed characteristics of U.K. and Irish small firms suggested that they may be the most effective initiators and catalysts for wider technological change. The larger proportion of German small firms which were innovating, however, suggested that the German small firm sector may be the more effective technology transfer medium.     

Sectoral FDI,absorptive capacity and economic growth – empirical evidence from Egyptian governorates

Using a novel panel dataset of Egyptian governorates for the period 1992–2007, we investigate the effects of aggregate and sectoral foreign direct investment (FDI) on Egypt’s economic growth. We distinguish between FDI in the manufacturing, agriculture and service sector. The similarity of governorates in terms of institutional characteristics like culture, language and legal framework and the consistency of the data collection process enables an effective estimation of the effect of FDI on Egypt’s economic growth. Employing General Methods of Moments (GMM) panel estimations, we find that neither aggregate nor sectoral FDI has an unconditional effect on economic growth. We also reject human capital as a channel of absorptive capacity, but reveal an interesting effect of FDI in the service sector on economic growth in interaction with domestic private investment (DPI). Service FDI promotes economic growth only if the host governorate has a minimum threshold of DPI to absorb foreign knowledge and technology.