Financial Markets Volatility and Performance in Emerging Markets (National Bureau of Economic Research Conference Report) - Hardcover

Hardcover

ISBN 10: 0226184951 ISBN 13: 9780226184951

Verlag: University of Chicago Press, 2008

Inhaltsangabe

Capital mobility is a double-edged sword for emerging economies, as governments must weigh the benefits of investment against the potential economic costs and political consequences of currency crises, devaluations, and instability. Financial Markets Volatility and Performance in Emerging Markets addresses the delicate balance between capital mobility and capital controls as developing countries navigate the convoluted global network of private investors, hedge funds, large corporations, and international institutions such as the International Monetary Fund.
            A group of experts here examine rapidly globalizing financial markets with regard to capital flows and crises, domestic credit, international financial integration, and economic policy. Featuring detailed analyses and cross-national comparisons of countries such as Brazil, Argentina, Uruguay, and Korea, this book will shape economists’ and policymakers’ understanding of the effectiveness of restrictions on capital mobility in the world’s most fragile economies. 

 

 

Über diesen Titel

Über die Autorin bzw. den Autor

Sebastian Edwards is the Henry Ford II Professor of International Business Economics at the Anderson Graduate School of Management at UCLA. He is the author and editor of several books, including The Decline of Latin American Economies and Capital Flowsand the Emerging Economies, both published by the University of Chicago Press.
 
Márcio G. P. Garcia is associate professor of economics at Pontifícia Universidade Católica do Rio de Janeiro and a visiting associate professor at Stanford University’s Center for Research on Economic Development and Policy Reform. 

 

 

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Financial Markets Volatility and Performance in Emerging Markets

The University Of Chicago Press

Copyright © 2008 National Bureau of Economic Research
All right reserved.
ISBN: 978-0-226-18495-1

Contents

Preface..................................................................................................................................................................................................................................ixIntroduction Sebastian Edwards and Mrcio G. P. Garcia..................................................................................................................................................................................11. Links between Trade and Finance: A Disaggregated Analysis Joshua Aizenman and Ilan Noy Comment: Maria Cristina Terra Comment: Thierry Verdier.....................................................................................92. Ineffective Controls on Capital Inflows under Sophisticated Financial Markets: Brazil in the Nineties Bernardo S. de M. Carvalho and Mrcio G. P. Garcia Comment: Gustavo H. B. Franco Comment: Marcelo Abreu.....................293. Financial Openness, Currency Crises, and Output Losses Sebastian Edwards Comment: Edmar L. Bacha Comment: Marcelo Kfoury Muinhos..................................................................................................974. Capital Market Development: Whither Latin America? Augusto de la Torre, Juan Carlos Gozzi, and Sergio L. Schmukler Comment: Ugo Panizza............................................................................................1215. Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans Ana Carla A. Costa and Joo M. P. De Mello Comment: Renato G. Flres Jr...................................................................1556. Liquidity Insurance in a Financially Dollarized Economy Eduardo Levy Yeyati Comment: Marco Bonomo Comment: Alejandro Werner.......................................................................................................1857. Sudden Stops and IMF-Supported Programs Barry Eichengreen, Poonam Gupta, and Ashoka Mody Comment: Ilan Goldfajn....................................................................................................................2198. Mutual Reinforcement: Economic Policy Reform and Financial Market Strength Anne O. Krueger..........................................................................................................................................267Contributors.............................................................................................................................................................................................................................279Author Index.............................................................................................................................................................................................................................281Subject Index............................................................................................................................................................................................................................285

Chapter One

Links between Trade and Finance: A Disaggregated Analysis

Joshua Aizenman and Ilan Noy

1.1 Introduction and Overview

Traditional analysis of open developing countries viewed trade and financial integrations as two independent margins of openness. Accordingly, trade integration deals with "real issues" related to export orientation versus import substitution, whereas financial integration deals with "financial issues" related to the degree to which the domestic capital market is segmented from foreign ones. Yet recent research suggests that the two margins of openness are interrelated in various hidden channels. Examples of these links include market pressures through, for example, the need for trade financing and political economy considerations that may have an impact both on trade flows and through that on the degree of financial repression.

The market pressure channel follows the logic of arbitrage-segmentation implies gaps across borders in relative prices or returns, providing profitable opportunities. Goods smuggling may be viewed as endogenous outcome of costly enforcement of commercial policy. Similarly, trade mis-invoicing may be viewed as an endogenous outcome of costly enforcement of financial segmentation, linking trade and financial integrations-in this case, greater trade openness will increase de facto financial openness (see Aizenman and Noy [2004] for further discussion).

A political economy channel is exemplified by Rajan and Zingales (2003), who propose an interest group theory of financial development whereby incumbents oppose financial development because it breeds competition. In these circumstances, the incumbents' opposition will be weaker when an economy allows both cross-border trade and capital flows. They predict that country's domestic financial development should be positively correlated with trade openness and identify the time varying nature of this association.

Other theoretical models that connect trade openness with financial factors also exist. Do and Levchenko (2004, 2006), for example, develop a two-sector trade model in which one sector is more financially intensive, and cross-border financial flows depend on the size of this sector. They conclude that in the country that uses this sector more intensively (the rich country), opening up to trade will result in more financial flows and a deeper financial system (the opposite is true for the other country). Rose and Spiegel (2004) develop a model of sovereign lending and suggest that if a credible threat to reductions in trade is what sustains sovereign lending, then one should observe more lending occurring between countries whose trade links are stronger. Petersen and Rajan (1997) focus on trade credits and investigate theoretically and empirically what firm characteristics will drive an increased usage of trade credits to finance trade transactions.

Most papers that do distinguish between different types of financial flows, however, do not investigate their impact on trade flows (e.g., Smith and Valderrama 2006). Several projects, though, focus on the theoretical links between foreign direct investment (FDI) and trade openness; Swenson (2004), for example, examines whether FDI and trade flows are complements or substitutes. She suggests a theory to support her findings of complementarities at a high level of data aggregation and substitution effects at the product level. Aizenman and Noy (2006), on the other hand, propose a theory of links that describe dynamic complementarities, both from FDI to trade and from trade to FDI.

A number of recent empirical papers have begun to examine the differences between the determinants of trade flows and financial flows. For example, Eaton and Tamura (1994) compare the determinants of Japanese and U.S. trade and foreign investment, while Guerin (2006) compares a gravity model for trade with similar gravity models for FDI and portfolio flows. Guerin (2006) builds on a growing literature that uses gravity models to empirically examine the determinants of financial flows focusing exclusively on FDI and portfolio flows (e.g., Portes, Rey, and Oh 2001; Razin, Rubinstein, and Sadka 2003; Wei 2000). Interestingly, these papers typically do not examine the links between the financial flows and trade flows but rather compare their determinants and find similar specifications fit both trade and...

Details zur Ausgabe

• Verlag: University of Chicago Press
• Erscheinungsdatum: 2008
• Sprache: Englisch
• ISBN 10: 0226184951
• ISBN 13: 9780226184951
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 287
• Herausgeber: Edwards Sebastian, Garcia Marcio G. P.
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: Nicht verfügbar