We analyze the impact of cross-border mergers and acquisitions (M&amp... more We analyze the impact of cross-border mergers and acquisitions (M&A) sales as a mode of entry of multinational enterprises (MNEs) on economic growth. We break down cross-border M&A sales into primary sector, manufacturing, financial services and nonfinancial services flows, and consider each category's impact on aggregate growth, and growth in manufacturing and services. Using the GMM methodology we find that
The debt crisis in Latin America is associated with the large fiscal imbalances of the 1980s; the... more The debt crisis in Latin America is associated with the large fiscal imbalances of the 1980s; therefore public finance sustainability occupies the center of stabilization efforts in these economies. The literature examining this question in emerging economies is surprisingly scant and this paper aims at filling this gap. We analyze sustainability for a sample of Latin American countries, employing unit root tests that incorporate nonlinear alternative hypotheses. These tests capture the thresholds or corridor regimes that international agreements or markets impose on emerging economies' public finances. We show that support for sustainability substantially improves when such nonlinearities are taken into account.
Using a new methodology that allows for nonlinearities, we find frequent support for sustainabili... more Using a new methodology that allows for nonlinearities, we find frequent support for sustainability in the debt of a set of Latin American countries. Our findings overturn results obtained with traditional unit-root tests and provide a more realistic alternative to evaluate the external solvency of an economy.
In light of several economic and financial crises and institutional changes experienced by the Eu... more In light of several economic and financial crises and institutional changes experienced by the Eurozone countries, we examine whether the adoption of the euro led to business cycle synchronization or fostered convergence of growth rates. Controlling for reverse causality, we conduct multiple endogenous break tests and find that while output growth was synchronized for some countries, convergence occurred in a nonlinear way for others: (i) convergence was not triggered by adoption of the euro but by international or idiosyncratic shocks; (ii) in several countries convergence started long before the introduction of the euro, accelerated during the 1990s and continued since then, reflecting persistent influence of the core countries; (iii) convergence has been prevalent among the non-Eurozone economies in our sample.
This paper reviews and critically evaluates the exchange rate policy followed in Turkey in the po... more This paper reviews and critically evaluates the exchange rate policy followed in Turkey in the post-1980 period during which a far-reaching program of liberalization has been launched. We conclude that the new exchange rate policy has been essential for Turkey's regaining its creditworthiness. Furthermore, it has positively contributed to growth of output and exports, and to expansion of tradables production
The Maastricht Treaty imposes constraints on fiscal policy that will last beyond the formation of... more The Maastricht Treaty imposes constraints on fiscal policy that will last beyond the formation of EMU. However, the fiscal requirements are determined in an ad hoc way, and do not consider the position of the countries in the business cycle, nor the medium-term planning horizons of the governments. In this paper, we revisit the concept of "sustainability" of deficits announced in the treaty. After discussing the cyclical and the structural aspects of total deficits that occurred until 1994, we use an intertemporal, forward-looking approach to evaluate the fiscal stands of the countries under several scenarios until 2000. The advantage of our framework over the Maastricht fiscal criteria is that it provides different options for countries to follow for membership in EMU, while taking into account the effect of the cycles on the deficit and debt accumulation. Our analysis shows that if countries follow the sustainability rule, they have to pursue tight fiscal policies until ...
The purpose of this paper is to analyze the interaction of financial capital movements and accumu... more The purpose of this paper is to analyze the interaction of financial capital movements and accumulation of physical capital in a small open economy with flexible exchange rates. Tobin's q theory of investment plays a central role in linking the financial and real sides of the economy and also in the determination of financial capital movements across boundaries. Endogenizing physical
We analyze the environmental impact of capital inflows and investigate the halo effect (FDI impro... more We analyze the environmental impact of capital inflows and investigate the halo effect (FDI improves the environment). We control for the type of FDI inflows, the EKC (Environmental Kuznets Curve) effect and country income level, and find (i) a differential industry effect: while total foreign investment in aggregate has a negative effect on all countries, this can be traced in particular to capital flows to manufacturing and nonfinancial services sectors.; (ii) an income inequality effect: foreign investment flowing into poorer countries has harmful effects on environment consistent with the race-to-the bottom argument, while capital flowing to richer countries has a beneficial effect and supports the halo effect; (iii) the EKC effect depends on the sector absorbing the FDI and again income level of the country. We show that studies relying only on firm level or aggregate data, miss the sectoral spillovers, and thus may lead to misleading conclusions. Nadia Doytch Department of Eco...
This paper analyses the effects of monetary shocks in the determination of exchange rates in econ... more This paper analyses the effects of monetary shocks in the determination of exchange rates in economies where banks play a central role in providing finance for domestic investment and in international capital transactions. This is a situation that prevails in many countries, both developed and developing. For such countries the standard models of exchange rate determination are not strictly appropriate. As there are six state variables, a rational expectations simulation model is constructed and is used to carry out the dynamic analysis. In addition to the exchange rate there are two other jump variables in the model: Tobin's q and the shadow price of bank debt, which depends on expectations of future interest rates. It is shown that financing investment through intermediation helps to stabilize the economy following a domestic monetary shock but makes the economy more vulnerable to a foreign monetary shock.
Since the collapse of the Bretton Woods system in the early 1970s, the choice of the exchange rat... more Since the collapse of the Bretton Woods system in the early 1970s, the choice of the exchange rate regime has been the subject of a lively debate in international finance. In this study, we investigate the determinants of three exchange rate regimes (fixed, flexible and intermediate). Our contribution to the literature is threefold: (i) we examine the unordered choice between the three regimes, with a multinomial logit model and cross-section data from 1982 to 1999. Previous studies are generally based on binomial and/or ordered models and use a short data span; (ii) we cover three different currency zones, the US dollar, the ECU/EMU, and the CFA Franc. The previous literature confines the analysis mainly to the US dollar zone; (iii) we compare two streams of the literature, the optimal currency area (OCA) and the currency crises (CC) models, and examine when each model explains the choice of exchange rate regimes better. Our approach provides a rich framework for the analysis of ex...
We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze t... more We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.
We analyze the environmental impact of capital inflows and investigate different hypotheses: the ... more We analyze the environmental impact of capital inflows and investigate different hypotheses: the Halo Effect (FDI improves environmental standards by bringing in clean technology), the Pollution Haven argument (capital flows to poor countries with environmentally lax standards) and the Environmental Kuznets Curve, EKC (pollution increases with economic growth, and declines when wealth reaches a certain threshold). We find: (i) a differential industry effect: FDI flows into manufacturing support the pollution haven hypothesis, while those flowing into services support the halo effect hypothesis; (ii) an income inequality effect: on aggregate, FDI flowing into low and middle income countries degrades the environment, while flows to high-income countries benefit the environment and support a halo effect; (iii) EKC results hold if capital flows into agriculture and services industries in relatively lower income countries and if flows go into mining and manufacturing in wealthier economies.
Sustainability Accounting, Management and Policy Journal
Purpose This study aims to examine the effect of greenfield foreign direct investment (GFDI) and ... more Purpose This study aims to examine the effect of greenfield foreign direct investment (GFDI) and mergers and acquisitions (M&A) on the environment and more specifically, on the sectoral emissions of CO2. The authors identify significant differential and income effects with various data classifications of foreign direct investment (FDI) mode of entry. Design/methodology/approach The authors use system generalized method of moments with instruments for income and GFDI and M&A, which allows us to control for present reverse causality and endogeneity of income and the two modes of FDI. Findings Evidence from the full sample reveals that GFDI increases pollution, supporting the pollution haven hypothesis, while M&As decrease pollution in line with the halo effect hypothesis. GFDI flowing into poorer countries worsens the environment, while M&As flowing to industrialized economies reduce pollution. Entry-mode effects are also present at the level of industry emissions. GFDI in developed e...
We examine an application of machine learning to exchange traded fund investments in the U.S. mar... more We examine an application of machine learning to exchange traded fund investments in the U.S. market. To find how the changes in exchange traded fund prices are associated with expected market fundamentals, we propose three parsimonious risk factors extracted from various U.S. economic and market indicators. Based on the information set including these three factors, we build a predictive support vector machine model that can detect long or short investment signals. We find that the high probability of an upward momentum from our forecasting model suggests a long exchange traded fund signal, whereas the low probability of a downward momentum indicates a short exchange traded fund signal. We further design an algorithmic trading system with the support vector machine factor model. We find that the trading system shows practically desirable and robust performances over in-sample and out-of-sample trading periods
We analyze the impact of cross-border mergers and acquisitions (M&amp... more We analyze the impact of cross-border mergers and acquisitions (M&A) sales as a mode of entry of multinational enterprises (MNEs) on economic growth. We break down cross-border M&A sales into primary sector, manufacturing, financial services and nonfinancial services flows, and consider each category's impact on aggregate growth, and growth in manufacturing and services. Using the GMM methodology we find that
The debt crisis in Latin America is associated with the large fiscal imbalances of the 1980s; the... more The debt crisis in Latin America is associated with the large fiscal imbalances of the 1980s; therefore public finance sustainability occupies the center of stabilization efforts in these economies. The literature examining this question in emerging economies is surprisingly scant and this paper aims at filling this gap. We analyze sustainability for a sample of Latin American countries, employing unit root tests that incorporate nonlinear alternative hypotheses. These tests capture the thresholds or corridor regimes that international agreements or markets impose on emerging economies' public finances. We show that support for sustainability substantially improves when such nonlinearities are taken into account.
Using a new methodology that allows for nonlinearities, we find frequent support for sustainabili... more Using a new methodology that allows for nonlinearities, we find frequent support for sustainability in the debt of a set of Latin American countries. Our findings overturn results obtained with traditional unit-root tests and provide a more realistic alternative to evaluate the external solvency of an economy.
In light of several economic and financial crises and institutional changes experienced by the Eu... more In light of several economic and financial crises and institutional changes experienced by the Eurozone countries, we examine whether the adoption of the euro led to business cycle synchronization or fostered convergence of growth rates. Controlling for reverse causality, we conduct multiple endogenous break tests and find that while output growth was synchronized for some countries, convergence occurred in a nonlinear way for others: (i) convergence was not triggered by adoption of the euro but by international or idiosyncratic shocks; (ii) in several countries convergence started long before the introduction of the euro, accelerated during the 1990s and continued since then, reflecting persistent influence of the core countries; (iii) convergence has been prevalent among the non-Eurozone economies in our sample.
This paper reviews and critically evaluates the exchange rate policy followed in Turkey in the po... more This paper reviews and critically evaluates the exchange rate policy followed in Turkey in the post-1980 period during which a far-reaching program of liberalization has been launched. We conclude that the new exchange rate policy has been essential for Turkey's regaining its creditworthiness. Furthermore, it has positively contributed to growth of output and exports, and to expansion of tradables production
The Maastricht Treaty imposes constraints on fiscal policy that will last beyond the formation of... more The Maastricht Treaty imposes constraints on fiscal policy that will last beyond the formation of EMU. However, the fiscal requirements are determined in an ad hoc way, and do not consider the position of the countries in the business cycle, nor the medium-term planning horizons of the governments. In this paper, we revisit the concept of "sustainability" of deficits announced in the treaty. After discussing the cyclical and the structural aspects of total deficits that occurred until 1994, we use an intertemporal, forward-looking approach to evaluate the fiscal stands of the countries under several scenarios until 2000. The advantage of our framework over the Maastricht fiscal criteria is that it provides different options for countries to follow for membership in EMU, while taking into account the effect of the cycles on the deficit and debt accumulation. Our analysis shows that if countries follow the sustainability rule, they have to pursue tight fiscal policies until ...
The purpose of this paper is to analyze the interaction of financial capital movements and accumu... more The purpose of this paper is to analyze the interaction of financial capital movements and accumulation of physical capital in a small open economy with flexible exchange rates. Tobin's q theory of investment plays a central role in linking the financial and real sides of the economy and also in the determination of financial capital movements across boundaries. Endogenizing physical
We analyze the environmental impact of capital inflows and investigate the halo effect (FDI impro... more We analyze the environmental impact of capital inflows and investigate the halo effect (FDI improves the environment). We control for the type of FDI inflows, the EKC (Environmental Kuznets Curve) effect and country income level, and find (i) a differential industry effect: while total foreign investment in aggregate has a negative effect on all countries, this can be traced in particular to capital flows to manufacturing and nonfinancial services sectors.; (ii) an income inequality effect: foreign investment flowing into poorer countries has harmful effects on environment consistent with the race-to-the bottom argument, while capital flowing to richer countries has a beneficial effect and supports the halo effect; (iii) the EKC effect depends on the sector absorbing the FDI and again income level of the country. We show that studies relying only on firm level or aggregate data, miss the sectoral spillovers, and thus may lead to misleading conclusions. Nadia Doytch Department of Eco...
This paper analyses the effects of monetary shocks in the determination of exchange rates in econ... more This paper analyses the effects of monetary shocks in the determination of exchange rates in economies where banks play a central role in providing finance for domestic investment and in international capital transactions. This is a situation that prevails in many countries, both developed and developing. For such countries the standard models of exchange rate determination are not strictly appropriate. As there are six state variables, a rational expectations simulation model is constructed and is used to carry out the dynamic analysis. In addition to the exchange rate there are two other jump variables in the model: Tobin's q and the shadow price of bank debt, which depends on expectations of future interest rates. It is shown that financing investment through intermediation helps to stabilize the economy following a domestic monetary shock but makes the economy more vulnerable to a foreign monetary shock.
Since the collapse of the Bretton Woods system in the early 1970s, the choice of the exchange rat... more Since the collapse of the Bretton Woods system in the early 1970s, the choice of the exchange rate regime has been the subject of a lively debate in international finance. In this study, we investigate the determinants of three exchange rate regimes (fixed, flexible and intermediate). Our contribution to the literature is threefold: (i) we examine the unordered choice between the three regimes, with a multinomial logit model and cross-section data from 1982 to 1999. Previous studies are generally based on binomial and/or ordered models and use a short data span; (ii) we cover three different currency zones, the US dollar, the ECU/EMU, and the CFA Franc. The previous literature confines the analysis mainly to the US dollar zone; (iii) we compare two streams of the literature, the optimal currency area (OCA) and the currency crises (CC) models, and examine when each model explains the choice of exchange rate regimes better. Our approach provides a rich framework for the analysis of ex...
We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze t... more We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.
We analyze the environmental impact of capital inflows and investigate different hypotheses: the ... more We analyze the environmental impact of capital inflows and investigate different hypotheses: the Halo Effect (FDI improves environmental standards by bringing in clean technology), the Pollution Haven argument (capital flows to poor countries with environmentally lax standards) and the Environmental Kuznets Curve, EKC (pollution increases with economic growth, and declines when wealth reaches a certain threshold). We find: (i) a differential industry effect: FDI flows into manufacturing support the pollution haven hypothesis, while those flowing into services support the halo effect hypothesis; (ii) an income inequality effect: on aggregate, FDI flowing into low and middle income countries degrades the environment, while flows to high-income countries benefit the environment and support a halo effect; (iii) EKC results hold if capital flows into agriculture and services industries in relatively lower income countries and if flows go into mining and manufacturing in wealthier economies.
Sustainability Accounting, Management and Policy Journal
Purpose This study aims to examine the effect of greenfield foreign direct investment (GFDI) and ... more Purpose This study aims to examine the effect of greenfield foreign direct investment (GFDI) and mergers and acquisitions (M&A) on the environment and more specifically, on the sectoral emissions of CO2. The authors identify significant differential and income effects with various data classifications of foreign direct investment (FDI) mode of entry. Design/methodology/approach The authors use system generalized method of moments with instruments for income and GFDI and M&A, which allows us to control for present reverse causality and endogeneity of income and the two modes of FDI. Findings Evidence from the full sample reveals that GFDI increases pollution, supporting the pollution haven hypothesis, while M&As decrease pollution in line with the halo effect hypothesis. GFDI flowing into poorer countries worsens the environment, while M&As flowing to industrialized economies reduce pollution. Entry-mode effects are also present at the level of industry emissions. GFDI in developed e...
We examine an application of machine learning to exchange traded fund investments in the U.S. mar... more We examine an application of machine learning to exchange traded fund investments in the U.S. market. To find how the changes in exchange traded fund prices are associated with expected market fundamentals, we propose three parsimonious risk factors extracted from various U.S. economic and market indicators. Based on the information set including these three factors, we build a predictive support vector machine model that can detect long or short investment signals. We find that the high probability of an upward momentum from our forecasting model suggests a long exchange traded fund signal, whereas the low probability of a downward momentum indicates a short exchange traded fund signal. We further design an algorithmic trading system with the support vector machine factor model. We find that the trading system shows practically desirable and robust performances over in-sample and out-of-sample trading periods
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