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Fornero: Economic-Financial Literacy and (Sustainable) Pension Reforms: Why the Former is Key to the Latter

pension

ABSTRACT: Financial literacy has important implications for economic reforms. Reforms are meant to change people’s behavior and their effectiveness crucially depends on the ability of citizens to recognize and generally approve their necessity, their general design, and their “sense of direction.” Without basic understanding by

Ru: Government Credit, a Double-Edged Sword: Evidence from the China Development Bank

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ABSTRACT: Using unique data from the China Development Bank (CDB), this paper examines the effect of government credit on firm investment, employment, debt, profitability, and survival. I explore the different effects of various types of government credit (infrastructure vs. industry credit). I also trace the effect of

Hořejší: Foreign Direct Investment – The Changing Picture

Currency-Revaluation

ABSTRACT: The main actors in foreign direct investment as one of the phenomena of globalization of the economy, are for the decades developed countries. This fact was reflected in some of the concepts of foreign direct investments (FDI), such as The Product Life Cycle (Vernon,

An analysis of the Papua New Guinea Sovereign Wealth Fund’s process of formulation and progress towards establishment

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ABSTRACT: The National Research Institute (NRI) commissioned this Issues Paper to review and analyse the process of the formulation of Papua New Guinea (PNG)’s sovereign wealth fund (SWF); its current status; and lessons and future prospects. After providing the background and PNG’s historical attempts at

Bauerle Danzman: Cronies, Capitalists, and Control: How the Financing Environment Shapes Firms’ Strategies over Foreign Direct Investment

ABSTRACT: What explains liberalization of foreign direct investment (FDI)? Standard Political Economy models of deregulation argue economic liberalization occurs when incumbent firms lose political power vis-à-vis groups that generally benefit from open markets. This has led to the popularity of models that place democratization, and

Fornero: Economic-Financial Literacy and (Sustainable) Pension Reforms: Why the Former is Key to the Latter

pension

ABSTRACT:

Financial literacy has important implications for economic reforms. Reforms are meant to change people’s behavior and their effectiveness crucially depends on the ability of citizens to recognize and generally approve their necessity, their general design, and their “sense of direction.” Without basic understanding by citizens, reforms risk having little or no effect or even being reversed. Informed judgment about economic reforms requires information and numeracy as well as literacy. This is particularly true of pension reforms because of their profound impact on people’s life plans. The 2011 Italian pension reform is a case in point.

 

Available for download here.

Ru: Government Credit, a Double-Edged Sword: Evidence from the China Development Bank

1500px-Flag_of_the_People's_Republic_of_China.svg

ABSTRACT:

Using unique data from the China Development Bank (CDB), this paper examines the effect of government credit on firm investment, employment, debt, profitability, and survival. I explore the different effects of various types of government credit (infrastructure vs. industry credit). I also trace the effect of government credit across different levels of the supply chain. Using municipal government turnover timing as an instrument of local government borrowing from the CDB, I find that CDB industry loans to SOEs crowd out private firms in the same industry but crowd in private firms in downstream industries. Private firms with better political connections benefit significantly more from upstream CDB industry loans. I also find both SOEs and private firms benefit from CDB infrastructure loans. From 1998 to 2009, on average, a $1 million increase in government industry credit from the CDB led to a $0.52 million decrease in the private sector’s total assets. Local politicians play a role in CDB credit allocation. I find that municipal politicians borrow significantly more during the early period of their terms, and that promotion prospects incentivize politicians to employ the borrowing pattern.

 

Available for download here.

Hořejší: Foreign Direct Investment – The Changing Picture

Currency-Revaluation

ABSTRACT:

The main actors in foreign direct investment as one of the phenomena of globalization of the economy, are for the decades developed countries. This fact was reflected in some of the concepts of foreign direct investments (FDI), such as The Product Life Cycle (Vernon, 1966) or The Eclectic Paradigm (Dunning, 1988). Dunning himself in this context speaks of the old paradigm of development (Dunning, 2006). At the end of the 20th century, however, a number of changes, whether economic – administrative nature (decrease of barriers to international trade and investment), the major technological changes (development of the microprocessor and subsequently the development of telecommunications and transport technologies) and policy changes occur. The old paradigm of development is proving to be very narrow and does not reflect the institutional infrastructure and social capital, which seem to be essential for current development. Through these key determinants developing countries can increase their effectiveness, usage of their resources and access to international markets.

 

Available for download here.

An analysis of the Papua New Guinea Sovereign Wealth Fund’s process of formulation and progress towards establishment

imagesCABAKD04

ABSTRACT:

The National Research Institute (NRI) commissioned this Issues Paper to review and analyse the process of the formulation of Papua New Guinea (PNG)’s sovereign wealth fund (SWF); its current status; and lessons and future prospects. After providing the background and PNG’s historical attempts at creating SWFs, the paper then discusses the current SWF including its design, formulation process, structure, and the organic law. The paper then provides some key lessons emanating from the analysis, which include the need:

Bauerle Danzman: Cronies, Capitalists, and Control: How the Financing Environment Shapes Firms’ Strategies over Foreign Direct Investment

ABSTRACT:

What explains liberalization of foreign direct investment (FDI)? Standard Political Economy models of deregulation argue economic liberalization occurs when incumbent firms lose political power vis-à-vis groups that generally benefit from open markets. This has led to the popularity of models that place democratization, and the empowerment of labor, at the center of explanations of economic liberalization. In the particular case of FDI, however, prominent firms have often supported openness while anti-FDI coalitions frequently consist of small firms, state-owned enterprise, and labor groups. I argue theories of political economy must do more to explain the conditions under which insiders will support regulatory reform. Movements toward FDI openness through the latter part of the 20th century can be explained as resulting from a series of economic shocks that forced governments to fundamentally reform their banking sectors and in the process reoriented local firms’ financing strategies. While politically connected domestic enterprises can easily finance operations and investment through state-subsidized loans during times of financial repression, banking sector reforms raise the cost of borrowing sufficiently to induce firms to look to equity finance. FDI, particularly in the form of joint venture, provides local firms with access to foreign capital while also allowing them to maintain private benefits to control. Using large-n statistical techniques to model FDI openness, I show support for this explanation of regulatory change.

 

Available for download here.

Carrera-Marquis: Banking on Global Sustainability

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ABSTRACT:

Adequate financial markets are fundamental to sustainable development. Accurate capital allocation requires return on investment incorporates the social and environmental variables impacting, negatively or positively, such investment. Values-based capital allocation relies on sound corporate governance structures guiding the decision-making process towards sustainability objectives, not short-term returns. One where the use of natural capital preserves the stock of capital, assuring that all generations live-off the income-flow. Concurrently financial markets, especially in emerging markets, should further engage in growth and redistribution models to create wealth for and inclusion of SMEs. Long-term financial sustainability is then aligned with environmental sustainability and social inclusion. Enhancing the potential of formal and informal SMEs requires strengthening credit channels. With the implementation of downscaling strategies, financial institutions (FIs) contribute to address existing levels of inequality while supporting the sustainable development path. At the same time FIs have the opportunity to impact the public policy dialogue regarding SMEs formalization. Formalized SMEs are in a better position to grow, to have higher labor and capital demand and productivity. For FIs this implies a market expansion. For society, higher productivity and more equitable growth contribute to a better income distribution and closing the inequality gap. Redefining the financial sector’s role is relevant for all stakeholders. Is not a choice, is the ethical response. FIs have to acknowledge their impact on society and the environment carries great responsibility and that their legitimacy as agents of social change, depends on the realization that their role goes beyond the traditional financial intermediation.

 

Available for download here.

Brooks: Commitment Credibility in Funding Public-Employee Pensions (2001-2011)

public-pensions

ABSTRACT:

State governments have utilized defined benefit (DB) pensions to compensate public employees while keeping visibility and taxes low. Pensions somewhat recently have entered the political problem stream, though, as funding has declined. Absent a lack of strong national regulation, state politics might contribute to variation in plan performance. I utilize fixed effects and seemingly unrelated regression approaches to jointly examine variation in funding, liabilities, and assets. I focus on political independent variables, while controlling for economic and actuarial factors. Funding appears to operate at arm’s length from legislative politics and union membership. However, more politicized boards have lower funding ratios, as well as greater assets and liabilities, suggesting they are less credible. Additionally, pensions in states with more conservative legislatures tend to have especially large liabilities in comparison to general budget revenue. Thus, while it appears that pensions are quite robust to many political forces, increased insulation protects them from short-term political decision-making. Politics do appear to matter for these public plans, influencing credibility, credit ratings, and future politics.

Available for download here.

Cheng, Hameed, Subrahmanyam & Titman: Short-Term Reversals – The Effects of Institutional Exits and Past Returns

Currency-Revaluation

ABSTRACT:

Return reversals depend on de facto market making by active informed investors as well as uninformed market makers. Accordingly, we find that reversals are higher following declines in the number of active institutional investors. Price declines over the past quarter, which serve as a proxy for declines in active investors, lead to stronger reversals across the subsequent two months; indeed reversals are concentrated primarily in past quarter losers. We provide evidence that price pressure induced by fire sales in response to past stock price drops cannot fully account for our results. Further, the evidence is consistent with market makers reacting more quickly to changes in the number of informed investors in the more recent period, particularly for large firms.

 

Available for download here.

Jiang: Enlarged State Power to Declare Nullity – The Hidden State Interest in the Chinese Contract Law

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ABSTRACT:

This article is on the hidden state interest that article 52(§1) of the Chinese Contract Law protects and the questionable applicability of freedom of contract to Chinese state-owned enterprises (hereafter “SOEs”). In common law, fraud and duress make a contract voidable. In Western civil law jurisdictions, including Louisiana, fraud and duress make a contract relatively null. Article 52(§1) of the Chinese Contract Law renders a contract induced by fraud and duress absolutely null (null and void if using common law terminology) when state interest is harmed. At the same time, according to article 54 of the Contract Law, fraud and duress only make a contract relatively null just like in Western laws. The situation is further complicated by article 58 of General Principles of Civil Law (hereinafter “G.P.C.L.”), which renders all civil juristic acts absolutely null when induced by fraud and duress.

To understand when a contract is null or annullable one has to reconcile these three statutory provisions and figure out what the state interest article 52(1) refers to. This article attempts to demystify this state interest through a historical survey of the evolution of contract law in the communist regime in China in comparison with the similar path Soviet civil law had gone through. If it simply means public interest, Chinese law is no different than the western counterparts. If it means something different, a secretive enlarged state power to declare nullity and invade freedom of contract might come with this law. Given the principal-agent relationship between the state and SOEs regarding the ownership rights of SOE assets, the absence of a sufficiently competitive market, the incentive incompatibility between the state and SOEs, an enlarged state power over contractual autonomy is therefore implied and justified. This article suggests that such a state interest be state-owned enterprises’ financial interest, which is different from public interest. As a result, freedom of contract shall not be applicable to Chinese SOEs when ownership rights and a competitive market are missing, and a different interpretation of nullity law should be adopted to protect SOEs’ financial interest.

 

Available for download here.

Taylor: Inflation Targeting In Emerging Markets – The Global Experience

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From a recent speech:

During the past decade, the practice of monetary policy changed dramatically in many countries around the world. In some developed countries—the United States and euro area countries in particular—this change in policy was apparent before the global financial crisis, and it showed up as a deviation from the more rules-based policy of the 1980s and 1990s. This policy shift continued after the crisis and spread to other countries in what has been called the Global Great Deviation. It has been characterized by interest rate decisions that differed markedly from the 1980s and 1990s and by unconventional monetary policy actions, including quantitative easing in the form of large-scale purchases of securities. In my view this shift in policy has not been beneficial, but rather has been a factor in the deterioration of economic performance in the past decade.

As this shift away from rules-based policies was occurring in developed countries, the central banks of many emerging market countries were moving toward more rules-based systems of inflation targeting. South Africa, as well as Brazil, Mexico, and the Philippines, all adopted inflation targeting around the turn of the century, and other countries, such as Colombia began implementing monetary policy using the interest rate instrument in a rule-like manner similar to many other inflation targeting countries. In my view, these changes were, for the most part, beneficial. They led to a more stable macroeconomic environment despite significant shocks from abroad—including the global financial crisis itself—and from other non-monetary policy shocks within the countries.

Available for download here.

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