FDI and credit constraints: firm level evidence from China

In this paper, we assess the success of the ongoing financial system reforms in China by investigating the extent to which firms are financially constrained. We focus on the role played by Foreign Direct Investment (FDI) in funding the Chinese corporate sector, and analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints. Using firm-level data on 1300 domestic companies over the period 2000-2002, we confirm that the development of cross-border relationships with foreign firms helps private domestic firms to bypass both the financial and legal obstacles that they face at home.Financial constraint; Corporate finance; Foreign Direct Investment; China

A new look at the Feldstein-Horioka puzzle : an "European-regional" perspective

The purpose of this paper consists in assessing the extent of financial integration in the European Union using the Feldstein-Horioka criterion. More precisely, we test the cross-correlation of savings and investment rates across the regions of the European Union, using regional data from Regio and national statistical offices, over the period 1995-2000. Several important outcomes are reported by our article. First, we find that the financial integration seems to be realized inside each country, and we are able to rationalize the few puzzles we face. Second, we find that overall financial integration between EU regions is almost complete. After performing additional investigations on consistent sub-groups of regions, however, our analysis discards the illusion that the sole suppression of institutional barriers to capital mobility would be sufficient to achieve a perfect financial integration. In that spirit, our main finding is that History, language, borders and distance as a proxy for transaction and information costs, still matter.Enigme de Feldstein-Horioka, épargne et investissement régionaux, marchés de capitaux, flux financiers.

FDI and credit constraints : firm level evidence in China

In this paper, we analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints. Access to external finance is a crucial determinant of business expansion. Using firm-level data on 2,200 domestic companies for the period 1999-2002, we investigate the extent to wich firms are financially constrainted and whether direct foreign investment relaxes financing constraints of firms. When we split domestic firms into public and private firms, we find that public firms' investment decisions are not sensitive to debt ratios or the cost of debt. Nor is there any evidence that public firms are affected by foreign firms presence. We interpret this as evidence in support of the notion of a soft budget constraint for public firms. In contrast, private domestic firms appear more credit constrained than state-owned firms but their fincancing constraints tend to ease in a context of abundant foreign investment.Financial constraint, corporate finance, Foreign Direct Investment.

The relationship between trade credit, bank credit and financial structure : from firm-level non-linearities to financial development heterogeneity. A study on MENA firm-level data

Using a database of more than 1,100 firms in the MENA region, this article looks at the determinants of demand for trade credit, particularly access to bank credit, size, age and the quality of the firm's financial structure. We show that the difficulty of gaining acces to bank credit positively influences the use of trade credit, and thus demonstrate the substitutability of bank credit and trade credit. Besides, firm's non-financial characteristics, namely age and size do not influence similarly the probability of having trade credit and the volume of trade credit raised. Additional investigations strongly support the existence of non-linearities in the relationship between trade credit and firm's financial structure and size. Finally, financial development emerges as a key feature of the demand for trade credit. Indeed, we show that most firm-level characteristics lose their influence on trade credit when financial development is high enough. With financial development, trade credit gets primarily driven by trade relationships and does not appear any more as a palliative solution when bank credit access is difficult.Trade credit, bank credit, financial constraints, financial development.

Monetary policy transmission in the CEECs: a comprehensive analysis

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSECahiers de la MSE 2005.20 - Série blanche - ISSN : 1624-0340This paper aims at providing better supported results regarding monetary policy transmission in Central and Eastern European countries (CEECs). In the general frame of VAR models, our study differs from previous research in two main respects. Firstly, we provide estimations which do not rely on the hypothesis of cointegration usually exploited in the related literature, but economically meaningless over less than ten years spans and statistically very fragile. Secondly, we present another set of results, relying on real GDP monthly data that have been rebuilt using the Chow and Lin (1971) method; this allows for an alternative to the traditional industrial production data, a partial and highly unstable proxy variable for output. These original methodological insights lead to results emphasizing the general prevalence of exchange rate and domestic credit channels for monetary policy transmission across the studied countries, despite some persistent national specificities. The empirical evidence also incites to be reasonably optimistic regarding the relevancy of a close integration of these countries into euro area.L'objet de cet article consiste à fournir des résultats empiriques plus solides concernant les mécanismes de transmission des chocs de politique monétaire dans les pays d'Europe Centrale et Orientale (PECO). Dans le cadre de modèles VAR, notre analyse s'écarte des études précédentes sur deux principaux points. Tout d'abord, les estimations que nous présentons s'affranchissent de l'hypothèse de cointégration communément employée dans la littérature voisine, économiquement peu pertinente sur une période d'une dizaine d'année et statistiquement fragile. Ensuite, nous présentons une série de résultats ayant recours à des données mensuelles de PIB réel, reconstruites selon la méthode de désagrégation des séries temporelles de Chow et Lin (1971) ; nous disposons ainsi d'une alternative à l'emploi des traditionnelles séries de production industrielle, qui n'offre qu'une approximation partielle et instable du niveau de production d'un pays. Ces apports au plan méthodologique conduisent à des résultats soulignant la prédominance des canaux du taux de change et du crédit domestique dans la transmission des chocs de politique monétaire, en dépit de la persistance de spécificités nationales. L'analyse empirique incite également à être raisonnablement optimiste quant à l'opportunité d'une intégration rapide des PECO dans la zone euro

Central bank independence and ageing

We contrast the influence of demography and central bank independence on inflation. The recent demographic trends in developed countries are shown to weight more on inflation than central bank independence, while the contrary stands for the period from 1960 to 1979.Demography ; Central Bank Independence ; Inflation

Two-round elections, one-round determinants? Evidence from the French municipal elections

Using a new database of French municipalities that covers 821 towns and 2 elections (2001 and 2008), we examine how the budget structure, degree of electoral competition and the economic context affect the share of votes for the incumbent. We assess the specicities created by the two-round process under French electoral rule (a dual ballot under plurality rule). We show that in the first round of the electoral process, spending on equipment can influence the voter, and that electoral competition has a strong impact on the incumbent's score. In the second round, the incumbent's vote is affected more by national considerations and local budget variables have no effect. We show that the dynamics between the first and the second rounds are intense. The results suggest that the determinants of each round in a two-round electoral process are different.Economic voting; Local elections; Plurality rule; Visible expenditures

Export dynamics and sales at home

How do firms' sales interact across markets? Are foreign and domestic sales complements or substitutes? Using a large French firm-level database that combine balance-sheet and product-destination-specific export information over the period 1995-2001, we study the interconnections between exports and domestic sales. We identify exogenous shocks that affect firm demand on foreign markets to instrument yearly variations in exports. Our results show that exogenous variations in foreign sales are positively associated with domestic sales, even after controlling for changes in domestic demand. A 10% exogenous increase in exports generates a 1.5 to 3% increase in domestic sales in the short-term. This result is robust to various estimation techniques, instruments, controls, and sub-samples. It is also supported by the natural experiment of the Asian crisis in the late 1990's. We discuss various channels that may explain this complementarity.Export dynamics, domestic sales, liquidity

Monetary policy transmission in the CEECs : a comprehensive analysis

This paper aims at providing better supported results regarding monetary policy transmission in Central and Eastern European countries (CEECs). In the general frame of VAR models, our study differs from previous research in two main respects. Firstly, we provide estimations which do not rely on the hypothesis of cointegration usually exploited in the related literature, but economically meaningless over less than ten years spans and statistically very fragile. Secondly, we present another set of results, relying on real GDP monthly data that have been rebuilt using the Chow and Lin (1971) method ; this allows for an alternative to the traditional industrial production data, a partial and highly unstable proxy variable for output. These original methodological insights lead to results emphasizing the general prevalence of exchange rate and domestic credit channels for monetary policy transmission across the studied countries, despite some persistent national specificities. The empirical evidence also incites to be reasonably optimistic regarding the relevancy of a close integration of these countries into euro area.Monetary policy transmission, VAR models, CEECs.

Budget structure and reelection prospects: Empirical evidence from French local elections

This paper is a study of the influence of economic and political conditions on the results of incumbent parties' candidates in local elections in France. The large sample used covers 586 towns and two elections (2001 and 2008). It explicitly deals with the specificities induced by the tworound process of the French electoral rule, and results are provided for both the reelection probability and the share of votes. It is shown that the budget structure, and notably equipment expenditures, has a strong impact on the incumbent party's share of votes. Political variables also play a role, as do the number of candidates, and national partisan waves. --Local elections,Visible expenditures