Endogenous Growth in Open Economies - A Survey of Major Results.

Endogenous growth has set a new paradigm for macroeconomic analysis. This paper overviews the most relevant theoretical contributions of this literature for the analysis of open economies, highlighting their implications both for the effects of crosscountry integration on output convergence and for the overall growth performance of the integrated economy, as compared to that of an identical group of autarchic countries. The literature is divided into three major classes, studying, respectively, the effects of factor mobility, the role of international trade, and the consequences of technology diffusion. The main conclusion is that knowledge spillovers can go a long way in explaining the differences in growth performances across countries, but additional research is needed to completely understand the mechanisms driving their international diffusion.endogenous growth, open economies, international spillovers.

The role of guarantees in bank lending

Guarantees play an important role in debt contracts. They alter the risk for the lender, transform borrowersÂ’ incentives and, possibly, modify the equilibrium allocation of financial resources. This paper studies the role of guarantees on bank loans, using a sample of over 50,000 individual lines of credit granted by Italian banks. Two empirical models are used. The first directly verifies the relationship between ex-ante publicly available information on borrowersÂ’ default riskiness and the presence of guarantees on their bank loans; the second compares the interest rates charged on secured and unsecured loans made by different banks to the same borrower, thus perfectly controlling for idiosyncratic riskiness and singling out the direct effect of the presence of guarantees on credit risk. The empirical results show that real guarantees (physical assets or equities that the lender can sell if the borrower defaults), which are often internal, are mainly used to provide a priority to some creditors. Personal guarantees (contractual obligations of third parties to make payments in case of default, e.g. suretyships), which can only be external, are used instead as incentive devices against moral hazard problems. Controlling for borrowersÂ’ characteristics, both real and personal guarantees reduce ex-ante credit risk.Bank loans, collateral, guarantee

The Role of Guarantees in Bank Lending.

Guarantees play an important role in debt contracts. They alter the risk for the lender, transform borrowers' incentives and, possibly, modify the equilibrium allocation of financial resources. This paper studies the role of guarantees on bank loans, using a sample of over 50,000 individual lines of credit granted by Italian banks. Two empirical models are used. The first directly verifies the relationship between ex-ante publicly available information on borrowers' default riskiness and the presence of guarantees on their bank loans; the second compares the interest rates charged on secured and unsecured loans made by different banks to the same borrower, thus perfectly controlling for idiosyncratic riskiness and singling out the direct effect of the presence of guarantees on credit risk. The empirical results show that real guarantees (physical assets or equities that the lender can sell if the borrower defaults), which are often internal, are mainly used to provide a priority to some creditors. Personal guarantees (contractual obligations of third parties to make payments in case of default, e.g. suretyships), which can only be external, are used instead as incentive devices against moral hazard problems. Controlling for borrowers' characteristics, both real and personal guarantees reduce ex-ante credit risk.Bank loans, collateral, guarantee

Research and Development, Regional Spillovers and the Location of Economic Activities

I present an endogenous growth model that studies the effects of local inter-industry and intra-industry knowledge spillovers in R&D on the allocation of economic activities between two regions. The equilibrium is the result of a tension between a centripetal force, the cost of transporting goods from one region to the other, and a centrifugal force, the cost increase associated with life in a more crowded area. The presence of local knowledge spillovers, which determines the concentration of the R&D activities within one region, also introduces a further centripetal force that makes impossible a symmetric allocation of the economic activities. The concentration of R&D fosters the equilibrium rate of growth of the economy with respect to the case of no-integration, by increasing the positive effect of local knowledge spillovers. Contrary to the findings of the majority of models in the new economic geography literature, within this framework a reduction in the transport costs may be associated with a more even spatial location of economic activities.endogenous growth, local spillovers, regional location.

The Determinants of Cross-Border Bank Shareholdings; an Analysis with Bank-Level Data from OECD Countries

TThis paper investigates which factors determine a bank's decision to expand its activities abroad and what determines its choice of the countries to invest in. The empirical analysis is conducted using firm-level data on foreign subsidiaries for a representative sample of nearly 2,500 OECD banks. The results show that the banks with cross-border shareholdings are larger and have headquarters in countries with a more developed and efficient banking market. They prefer to invest in countries where expected profits are larger, owing to higher expected economic growth and the prospect of reducing local banks' inefficiency. These factors are overall more important in banksÂ’ decisions than those related to the degree of openness of the origin country and its economic integration with the destination country.banks, foreign banks, foreign direct investment

Cross-Border M&As in the Financial Sector. Is Banking Different from Insurance?

This paper investigates what factors might help explain the internationalization strategy of banks and insurance companies, by comparing the determinants of cross-border M&As in the two sectors in a unified framework. The empirical analysis shows that between 1990 and 2003 the internationalization of banks and insurance companies followed similar patterns. Distance and economic and cultural integration are important determinants for both the banks’ and the insurance companies’ expansion abroad. Comparative advantage also has a prominent role, the more so for banks. The evidence is less supportive of the view that cross-border M&As are more frequent between similar countries, as predicted by the new trade theory. Finally, and most interestingly, we find indirect evidence consistent with the hypothesis that implicit barriers to foreign entry are more important in explaining the behavior of banks than that of insurance companies.international banking and insurance, foreign direct investment

Exchange Rate, Employment and Hours: What Firm-Level Data Say

Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on the firm's exposure to foreign sales and its reliance on imported inputs. Further, we show that, for given international orientation, the response to exchange rate fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specificity in the employment sensitivity to exchange rate swings. Further, wage adjustments are also shown to provide a channel through which firms react to currency shocks. Finally, gross job flows within the firm are found to depend on exchange rate fluctuations, although the effect on job creation is predominant.Employment, Exchange Rate, Firm's Foreign Exposure

Where Do Banks Expand Abroad? An Empirical Analysis

This paper investigates the determinants of the pattern of banks' foreign investment. We extended previous analyses in three directions. First, we use a unique database that includes information on 260 large banks from OECD countries and all their foreign branches and subsidiaries in each one of the other OECD countries. Second, we consider explicitly the role of institutional and regulatory characteristics. Third, we considered within a unified framework a wide set of variables that are likely to influence the pattern of bank internationalization. Consistent with previous research, we find that a high degree of integration between the home and the destination countries has an effect on the location choice of multinational banks. However, we also find that the marginal effect of integration is much lower than that of other explanatory variables. Profit opportunities resulting from a high expected economic growth and the prospect of competing with relatively less efficient banks appear to be a key factor affecting the expansion abroad, especially in the case of subsidiaries. Institutional characteristics of the destination country also play a crucial role. For example, financial centers attract branches of foreign banks, but not subsidiaries, while lower regulatory restrictions on banking activities are associated with a stronger presence of foreign subsidiaries, but not of branches.international banking, foreign direct investment.

The Behaviour of the Dollar and Exchange Rates in Europe: Empirical Evidence and Possible Explanations

The analysis of the day-by-day evolution of currency markets often emphasises the relationship between the behaviour of the US dollar and that of the exchange rates between the other major currencies, in particular the tendency of EMS currencies to appreciate vis-à-vis the DM in periods of dollar strength. In this paper we systematically analyse this relationship. In particular, we examine the extent to which it has changed in the last ten years, a span of time that included a period without realignments in the EMS, the crisis of the System, the suspension of the lira’s participation in the ERM and the withdrawal of the pound, the “widened” band for the other currencies, and the re-entry of the lira. We also suggest a possible explanation for this relationship and find supporting empirical evidence for it: we show that the reactions of each bilateral exchange rate to shocks to the value of the dollar are related to the different orientation of monetary and exchange-rate policies in the various European countries, and that these differences are consistent with the potential effects of variations in the exchange rates vis-à-vis the dollar and the DM on each country’s rate of inflation.exchange rate, Europe, fundamentals, forecast

Bank Cross-Border Merger and Acquisitions (Causes, consequences and recent trends)

In the past fifteen years, cross-border mergers and acquisitions have had an ever increasing role in the process of bank internationalization. Although a consensus view has developed on the determinants of a bank’s decision to expand abroad and on the determinants of the patterns of expansion, the debate on the consequences of foreign bank presence is still open. The aim of this chapter is twofold. Firstly, it discusses the major results of the empirical literature studying the determinants, the patterns, and the consequences of bank foreign expansion. Secondly, it studies whether the determinants of bank foreign expansions have changed through time, estimating an econometric model of the patterns of cross-border bank M&As between 1990 and 2006.international banking, foreign direct investment