Capital Markets and Capital Formation in Australia, 1945–1990

This survey article continues the author's examination of the interaction between domestic capital markets and capital formation by studying the 45 years after the end of World War II. (Part 1 appeared in AEHR 37 (3) 1997.) The significant rise and the sustained increase in the ratio of gross domestic capital formation to gross domestic product (GDP) posed challenges to local deposit taking institutions and capital markets to mobilize savings. The changing balance between public and private investment, and between investment by businesses and households, was reflected in the relative importance of government and private debt, and equity. The capital markets and financial institutions proved themselves to be adaptable enough to finance more than 90 per cent of postwar capital formation. However, the increasing inward and outward flows of foreign direct investment have weakened the nexus between the supply of domestic savings and capital formation.     

Public capital and small firm performance

Previous research on the role of public capital (infrastructure) in private production has emphasized potential complementarities between public and private capital at an aggregate level. Presumably such effects, if they exist, arise from benefits enjoyed by individual units of production. Because of the potential for them to be location-specific or capital constrained, it is conceivable that small businesses may benefit disproportionately from public capital. Tests using financial data for 871 small firms from 1992–96 indicate a positive and statistically significant elasticity between private labor productivity and the level of public capital in the area where the firms are located. Such a positive elasticity provides further evidence that public and private capital are complementary inputs into production and has important policy implications.This research has been supported through a grant from the Kauffman Center for Entrepreneurial Leadership, the support for which the authors gratefully acknowledge.     

The New International Financial Architecture: Progress and Challenges

Recent economic crises have affected different countries in the last decade. Crises shook not only countries that were directly affected but also other more developed countries. Part of the risk of crises derives from the considerable negative effects imposed on economies by the volatility and reversibility of short-term capital flow. International financial reforms should consider (1) regulation and supervision, (2) statistical standards, (3) the goods and services trade, (4) liquidity and lender of last resort, (5) unified action, (6) private-sector involvement, and (7) other contingency measures. The Venezuelan experience suggests some other domestic reforms, but reforming the international financial system, in the direction of globalization, has to be the principle goal of international organizations.     

民间借贷存在的法律问题与对策研究

近年来,在货币政策收紧的大背景下,我国民间借贷以其灵活、快捷等优势空前活跃,但由于缺乏相关强行性法律规范,民间借贷容易产生债务纠纷,引发高利贷等违法犯罪现象,影响国家宏观调空政策的效果,引发债务人资金使用的恶性循环,导致社会动荡。为此,国家应当加强对民间借贷的立法规范,使民间借贷阳光化、被监管化、去高利化,应加快银行利率市场化改革,拓宽民间资本的投资渠道,发挥民间借贷对正规金融的补充作用。     

Foreign direct investment by Japanese firms and corporate governance: in relation to the monetary policies of China, Korea and Japan

Reflecting upon the lessons from the Asian currency crises, more attention is being paid to the importance of consolidation for the domestic financial and capital markets, as well as international cooperation to avoid disturbing factors from abroad, such as massive inflows of speculative capital. The aim of financial reforms being executed in the East Asian countries, such as Japan, Korea, and China, is to improve the managerial efficiency of the business corporations and financial institutions.Recently, foreign direct investment by Japanese firms in the rest of the East Asia has been recovering. However, the existence of a financial system to realize optimal corporate governance is indispensable for the enhancement of direct investment. Namely, it is necessary to improve corporate profitability, and to distribute the increment of such profits between the host and the investor countries, in order to boost the welfare of the respective citizens, notwithstanding the type of foreign direct investment.     

The Effect of Public Infrastructure on Cost Structure and Performance of Chinese Provinces*

This paper estimates a translog cost function for 29 Chinese provinces between 1979 and 2018. The results imply that investment in public infrastructure reduces costs in all provinces. Comparing the estimated rate of return to infrastructure with the rate of return to private capital, our results indicate underinvestment for the initial period after the economic reforms; however, after 2010 our results show overinvestment in infrastructure. Infrastructure capital is a substitute input to labor, private capital and intermediate inputs. Finally, public infrastructure growth contributes positively to labor and total factor productivity growth, but the effect is small. The growth of private capital and intermediate inputs are the most important factors that boost the growth of labor productivity.     

Capital Flow Management Policies and Riskiness of External Liability Structures: the Role of Local Financial Markets

This paper investigates the role domestic financial systems play in the effectiveness of capital flow management policies (CFMs) on the risk of over-reliance on debt. Using data from 44 emerging market countries over the period 1995—2008, we investigate the relationship between financial development, CFMs, and the share of debt in external liabilities as the measure of financial stability risks. We find that financial sector development is an important channel for the effectiveness of CFMs, and enhances the impact of different policy measures on the reduction of external debt liabilities. Our results show that CFMs are significantly more effective in curbing debt inflows in a bank-based economy but, to a lesser extent, in a market-based economy. Our findings remain robust to alternative measures of external liability structures, CFMs and financial development, and consideration of potential endogeneity.     

Going multilateral? Financial markets' access and the League of Nations loans, 1923–8

Why are international financial institutions important? This article reassesses the role of the loans issued with the support of the League of Nations. These long‐term loans constituted the financial basis of the League's strategy to restore the productive basis of countries in central and eastern Europe in the aftermath of the First World War. In this article, it is argued that the League's loans accomplished the task for which they were conceived because they allowed countries in financial distress to access capital markets. The League adopted an innovative system of funds management and monitoring that ensured the compliance of borrowing countries with its programmes. Empirical evidence is provided to show that financial markets had a positive view of the League's role as an external, multilateral agent, solving the credibility problem of borrowing countries and allowing them to engage in economic and institutional reforms. This success was achieved despite the League's own lack of lending resources. It is also demonstrated that this multilateral solution performed better than the bilateral arrangements adopted by other governments in eastern Europe because of its lower borrowing and transaction costs.     

澜湄流域制造业生产阶段数测算及其影响因素研究

在全球投入产出模型框架下,测算澜湄流域制造业生产阶段数,并对影响澜湄流域制造业生产分割程度的因素进行实证分析。结论为:澜湄流域制造业生产阶段数整体上呈上升趋势,生产结构复杂度明显增加,国际和国内外包呈互补关系;经济规模、研发强度及劳动力水平对澜湄流域制造业生产分割长度具有显著促进作用,资本化率、服务业增加值比重、FDI流入及私营部门的国内信贷量占GDP的比重,对澜湄流域制造业生产分割长度具有负面影响。因此,澜湄流域国家应积极改变参与全球分工的方式,提高金融市场开放程度,吸引外资的同时注重外资质量,并加大教育经费投入,增加研发创新和人才培养,提高劳动力水平,加快发展交通运输业和信息技术服务业。     

Determinants of economic growth revisited: is competitiveness and investment the solution for Greece?

In this paper we investigate the role of debt as an additional determinant of growth complementing the relevant empirical growth literature using insights gained during the recent economic crisis. Our focus is the case of Greece, the country more severely affected by the crisis, thus having to resort to tripartite external assistance. More specifically, we are exploring whether the pillars of the Troika Adjustment Programme for Greece could actually be the key to overcome the current deadlock the Greek economy, as the required fiscal consolidation resulted in deep and prolonged recession which in turn jeopardizes the sustainability of the improvement in general government accounts. The Troika Programme for Greece featured specific structural reforms as a prerequisite to improve the business environment and enhance the outward orientation of the Greek economy, thus identifying investment (domestic and foreign) and international competiveness as the new growth drivers of the Greek economy. Using panel data for EU countries we are investigating the validity of the proposed economic policy mix, placing special emphasis on the role that indebtedness (both private and public) has played in the past and could also play in the future (as public debt is ruled out for financing investment but credit expansion to the private sector through increased liquidity is a sine qua non condition for the recovery of investment). The innovation of this study is that it takes stock of both structural reforms (through PMI) and indebtedness and estimates their relevant impact on growth.     

Financial Globalization in Botswana and Nigeria: A Critique of the Thresholds Paradigm

Since the Asian financial crises, economists are more circumspect in their advocacy of ‘financial globalization’. A new consensus emerged which contends that increased financial liberalization and capital account openness may only produce economic benefits when countries are open to trade and have good institutions and policies in place. This paper critically reviews this consensus, which we term the ‘thresholds paradigm’, through a survey of the available literature and a comparative case study of two African countries that have undertaken financial and capital account liberalization: Nigeria and Botswana. The paper argues that the thresholds paradigm leaves important theoretical and policy-related questions unresolved, in particular, the origins of good institutions and policies. Further, while at first glance the paradigm appears to capture the divergent outcomes of financial globalization policies in Nigeria and Botswana, a deeper investigation reveals important factors that are neglected and occluded. The paper concludes that economists need to be more methodologically ambidextrous and must integrate institutional factors in their theoretical frameworks in order to better understand the outcomes of ‘financial globalization’ and to provide useful policy advice to developing countries contemplating financial reforms in the future.     

Competitiveness and Efficiency of the Banking Sector and Economic Growth in Egypt

Abstract: This paper investigates the impact of financial reforms on competitiveness and production efficiency of the banking sector, as well as the short‐term and long‐term impact on economic growth, in Egypt during 1992–2007. The results suggest that the reforms have a positive and significant effect on competitiveness and production efficiency. Also, the evidence shows that state‐owned banks are generally less competitive than private banks and foreign banks are less competitive than domestic banks. The average x‐inefficiency of Egyptian banks is around 30 per cent, which is comparable to those reported for other African countries. Finally, there is evidence to suggest a significant relationship between financial bank productive efficiency and economic growth in the short run but not in the long run. Overall, the results support the argument for continuing the financial sector reform programme in Egypt.     

金砖四国国际金融实力提升对国际金融及其治理的影响

近年来,金砖四国金融开放度提高,国际金融实力有所提升,有利于为国际市场提供低成本资金,维护国际金融稳定,推动国际金融体系改革。但受制于金融发展滞后,四国在国际分工中仍处于劣势,其国际金融实力的上升与实体经济及对外贸易的发展不相称,难以在国际金融治理和国际经济不平衡的调整中发挥重大作用。未来四国应加快国内金融改革,大力发展金融市场;进一步密切四国之间以及四国与其他新兴经济体的贸易投资联系;加强政策协调,推动国际货币金融体系改革。     

Promoting of Investment in Africa*

Abstract: This paper examines the trend, constraints, promotion, and prospects of investment – domestic investment, foreign direct investment, and private portfolio investment – in Africa. After identifying the importance of investment in Africa's economic development, it was shown that all forms of investment are low in Africa and hence inadequate for the attainment of the MDGs and poverty reduction in the continent. The constraining factors include: low resources mobilization; high degree of uncertainty; poor governance, corruption, and low human capital development; unfavorable regulatory environment and poor infrastructure, small individual country sizes; high dependence on primary commodities exports and increased competition; poor image abroad; shortage of foreign exchange and the burden of huge domestic and external debt; and undeveloped capital markets, their high volatility, and home bias by foreign investors. The paper recommends that successful promotion of both domestic, foreign direct and portfolio investment in Africa will require actions and measures at the national, regional, and international levels. It concludes that the prospects are bright. New and attractive investment opportunities are emerging in infrastructure, particularly as most African countries now encourage public/private partnerships for investments in this sector. In addition to privatization, renewed interest within Africa in undertaking regionally based projects and joint exploitation of natural resources is creating other investment opportunities. Apart from the fact that investment in Africa yields the highest returns, investment risk in the continent is declining. In addition, much progress has been made in recent years to improve the investment climate in Africa. All this is of course is not to deny that obstacles do remain hence economic reforms to enhance domestic investment would need to be complemented by measures to attract increased foreign capital. Critical in such endeavors must be efforts to improve governance in some countries as well as to eliminate socio‐political violence in others and development of domestic capital markets, while government institutions must be modernized and upgraded.     

Effects of financial reform on business entry in sub‐Saharan African countries: Do resource dependence and institutional quality matter?

This paper examined the effects of the financial liberalization strategy adopted on the African continent over 25 years ago in promoting new business entry using data from 22 sub‐Saharan African (SSA) countries in 2006–2017. Results from the dynamic generalized method of moments models show that: financial development via a policy of financial liberalization does not have a uniform effect on entrepreneurship; the interest rate gap significantly undermines the entrance of new firms; the ratio of broad money/gross domestic product (GDP) was positive and statistically significant while real interest rate had mixed findings; interactive effects of interest rate spread and real interest rate with regulatory quality was negative; the interaction of interest rate spread and real interest rate with natural resources confirms its destabilizing effect, although there was evidence suggesting that natural resources do not directly undermine entrepreneurship growth. Other results show real GDP and private credit have a significantly positive effect, and the cost of getting electricity significantly undermines entrepreneurship. The study calls for the need to deepen the financial sector though targeted reforms across SSA countries to reap its growth‐inducing effects on economic outcomes, while promoting institutional quality and efficient use of natural resources to achieve a non‐declining infusion of SMEs on the continent.     

引导民间资本投资 化解中小企业融资难题

民间资本市场改革的实践,为民间资本公平的参与市场竞争提供了一个良好的外部环境,在一定程度上有利于民间资本积极并合理地流向中小企业。但是由于当前我国金融体制固有的缺陷和民间资本自身的局限性,导致民间资本与中小企业难以有效地结合在一起。由此,本文重点分析了民间资本的投资取向和特点,从民间资本投资的三个主要投资取向,去探究解决中小企业融资难题的方法。     

Capital Markets and Capital Formation in Australia 1890–1945

This survey article examines the interaction between the domestic capital markets and capital formation in Australia from the 1890s up to the end of World War II. The disenchantment of the City of London with Australian securities in the 1890s opened a window for the development of domestic capital markets. It was the demands of the government for funds, especially during both wars, that transformed the scale and character of local markets. Local deposit taking institutions and stock exchanges handled a sufficient volume of domestic savings to fund the lion's share of both public and private sector capital formation.     

The costs of moving money across borders and the volume of capital flight: the case of Russia and other CIS countries

We estimate capital flight from seven countries of the Commonwealth of Independent States for the period 1995–2005. In some countries capital flight is large and growing, but other countries, despite similar macroeconomic and political circumstances, have little capital flight. We develop a model of capital flight that incorporates costs of moving money to offshore locations and show that such costs are an important determinant of capital flight. Liberalizing the trade and financial sectors accelerates capital flight by making it easier to move capital abroad. In the short run, greater regulation rather than external sector liberalization appears to have more potential to combat capital flight.     

Mandatory IFRS Adoption and Financial Statement Comparability

This study examines whether mandatory adoption of International Financial Reporting Standards (IFRS) leads to capital market benefits through enhanced financial statement comparability. U.K. domestic standards are considered very similar to IFRS, suggesting any capital market benefits observed for U.K.‐domiciled firms are more likely attributable to improvements in comparability (i.e., better precision of across‐firm information) than to changes in information quality specific to the firm (i.e., core information quality). If IFRS adoption improves financial statement comparability, we predict this should reduce insiders' ability to benefit from private information. Consistent with these expectations, we find that abnormal returns to insider purchases ― used to proxy for private information ― are reduced following IFRS adoption. Similar results obtain across numerous subsamples and proxies used to isolate IFRS effects attributable to comparability. Together, the findings are consistent with mandatory IFRS adoption improving comparability and thus leading to capital market benefits by reducing insiders' ability to exploit private information.     

Market reforms and consumption puzzles in China

China exhibits above average savings and below average consumption as shares of total economic activity when compared with other countries. At the same time, to create more balanced growth at home and rebalance key bilateral trade and capital flow relationships, China's leadership is trying to increase domestic demand. To complement studies that investigate the high rate of savings in China, this study focuses on the variation in consumption as a share of GDP across provinces between 1979 and 2004. Drawing on well-established consumption theories and work done on savings behavior in China, this paper develops an empirical investigation of the variables hypothesized to influence the pattern of consumption across regions.We find that the normal, economic variables have a small explanatory power if significant at all, while the key variables influencing the macro consumption share are structural, and mostly related to government behavior. For example, local government expenditure on health and education is significant and has a relatively large effect on consumption. Consistent with this we also find a positive relationship between consumption shares and the size of the state sector and the share of tax revenue in GDP. We also find some evidence that financial development has a positive effect on consumption shares. Our results suggest that in order for domestic consumption to be increased in the future, new public and private options to replace the declining security and responsibility of the prior state-dominated system will be needed.