Financial deepening and post crisis development in emerging markets

FINANCIAL DEEPENING AND POST-CRISIS DEVELOPMENT IN EMERGING MARKETS CURRENT PERILS AND FUTURE DAWNS EDITED BY ALEKSANDR V GEVORKYAN AND OTAVIANO CANUTO Financial Deepening and Post-Crisis Development in Emerging Markets Aleksandr V Gevorkyan • Otaviano Canuto Editors Financial Deepening and Post-Crisis Development in Emerging Markets Current Perils and Future Dawns Editors Aleksandr V Gevorkyan St John’s University Queens, New York, USA Otaviano Canuto Potomac, Maryland, USA ISBN 978-1-137-52245-0 ISBN 978-1-137-52246-7 DOI 10.1057/978-1-137-52246-7 (eBook) Library of Congress Control Number: 2016940871 © The Editor(s) (if applicable) and The Author(s) 2016 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc New York The views expressed in the chapters of this book are those of the respective authors and not necessarily represent those of the organizations with which the authors are affiliated v ACKNOWLEDGMENTS Financial Deepening and Post-Crisis Development in Emerging Markets is a compilation of diverse but logically coherent contributions on the problem of emerging markets’ financial and macroeconomic development in the context of the post-2008 crisis A loosely mixed and changing association of developing economies, emerging markets have evolved in the post-crisis environment as integral to the stability of the global financial system and sustainable growth of the global economy It is in such setting that this study, covering a vast geography and a broad range of economic viewpoints, serves as an informed guide in the unchartered waters of the post-crisis redefined fundamental uncertainty The ultimate meaningful impact this study may have in the annals of global macroeconomic development is all due to the world-class expertise and profound subject matter knowledge of the chapter authors who have generously contributed to this work For that we are sincerely thankful for the contributors’ labor, time, patience, and compliance with the editorial requirements We also would like to certainly thank the team at Palgrave Macmillan and specifically our editors Leila Campoli, Sarah Lawrence, and Allison Neuburger who from the very start and later through the production stage have been exceptionally enthusiastic and supportive of our project from beginning to end making it indeed an informative and insightful book We are thankful to our friends and colleagues for their encouragement throughout our work on this publication In particular, we would like to thank Arkady Gevorkyan, Catherine Marie Mathieu, and Willi Semmler Finally, we are grateful to our families for their patience, understanding, and support vii CONTENTS Part I Introduction Emerging Markets and the Post-2008 World Aleksandr V Gevorkyan and Otaviano Canuto Part II Emerging Markets’ Post-2008 Trends 19 21 Post-crisis Lessons for EME Capital Markets Catiana García-Kilroy and Anderson Caputo Silva Interest Rates, Terms of Trade, and Currency Crises: Are We on the Verge of a New Crisis in the Periphery? Nathaniel Cline and Matías Vernengo 41 Devaluation and Labor Market Dualism in  Emerging Markets Vikram Kumar 63 Financial Flows to Emerging Economies and Policy Alternatives Post 2008 Luiz Fernando de Paula and Daniela Magalhães Prates 85 ix Oil Prices and Bank Profitability: Evidence from Major   265 12.3.3  Is There a Direct Effect of Oil Prices on Bank Profitability? To distinguish between direct and indirect effects of oil price shocks, we augment the baseline specification by a set of country-specific variables Estimation results reported in Table 12.6 suggest that the impact of oil prices becomes insignificant when country-specific variables are accounted for This implies that there is no direct effect from oil price shocks and the overall impact is channeled through macro variables In particular, inflation and the fiscal stance appear to be the main macro drivers of bank profitability Table 12.6  Is there an indirect oil price effect? Bank-specific variables ROA (lagged) Capitalization Liquidity Credit risk Inefficiency Size Size^2 Macro variables Inflation Real GDP growth Fiscal stance Concentration Institutional devel Oil price shock Model specification Number of obs Hansen test of OIR (p-value) 2nd order AC test (p-value) Annual growth (average) Deviation from HP filter Hamilton (2003) Deviation from oil shock forward rate 0.2254** 5.2450** 0.8977** −0.9558 −0.0478*** 2.1593 −0.0768 0.2310** 5.2462** 0.8940** −1.0138 −0.0467*** 2.1287 −0.0751 0.2279** 5.1671** 0.9050** −0.9419 −0.0474*** 2.1329 −0.0761 0.2393** 5.1953** 0.8996** −0.9534 −0.0466*** 2.1621 −0.0764 0.2233** −0.0143 0.0315** −0.0038 −0.5806 0.0002 0.2550** −0.0217 0.0293** −0.0035 −0.0089 0.0116 0.2219** −0.0137 0.0313** −0.0038 −0.4249 0.0107 0.2365** −0.0193 0.0279* −0.0037 −0.2136 0.0027 898 0.9889 898 0.9889 898 0.9895 898 0.9908 0.8117 0.8237 0.8149 0.7876 Notes: Estimations are performed using Blundell and Bond (1998) system robust GMM estimator Capitalization is modeled as endogenous variable, and credit risk as predetermined variable ***, **, and * indicate significance at 10%, 5%, and 1% levels, respectively 266  H HESSE AND T POGHOSYAN 12.3.4  Has the Global Financial Crisis Had an Impact? The preliminary examination of descriptive statistics suggests that the relationship between oil price shocks and bank profitability might have been broken in 2008, when positive oil price shocks have coincided with a rapid decline in bank profitability in MENA countries due to the global financial crisis To evaluate the impact of the financial crisis we reestimate the first model for the total sample (covering also the 2008 data) Estimation results reported in Table  12.7 provide support for the hypothesis of a weakened relationship, since the oil price shock coefficients become insignificant for two out of four specifications This result emphasizes the importance of accounting for the impact of multiple global shocks when analyzing the relationship between oil prices and bank profitability A decomposition of the impact by banking groups provides outcomes similar to the ones for the pre-2008 sample (see Table 12.8) Table 12.7 Has the financial crisis had an impact? Bank-specific variables ROA (lagged) Capitalization Liquidity Credit risk Inefficiency Size Size^2 Oil price shock Model specification Number of obs Hansen test of OIR (p-value) 2nd order AC test (p-value) Annual growth (average) Deviation from HP filter Hamilton (2003) Deviation from oil shock forward rate 0.3091*** 7.1781*** 0.7497** −1.0973 −0.0557*** 1.254 −0.0406 0.0031** 0.3005*** 7.3261*** 0.7529** −1.1440 −0.0570*** 1.2648 −0.0406 −0.0007 0.2999*** 7.4165*** 0.7360** −1.1905 −0.0573*** 1.2007 −0.0378 −0.0154 0.3170*** 7.1011*** 0.7499** −1.0802 −0.0548*** 1.2298 −0.0398 0.0043** 956 0.9940 956 0.9938 956 0.9950 956 0.9920 0.8677 0.8680 0.8009 0.9579 Notes: Estimations are performed using Blundell and Bond (1998) system robust GMM estimator Capitalization is modeled as endogenous variable, and credit risk as predetermined variable ***, **, and * indicate significance at 10%, 5%, and 1% levels, respectively Oil Prices and Bank Profitability: Evidence from Major   267 Table 12.8  Which banks are most affected? (total sample, including year 2008) Bank-specific variables ROA (lagged) Capitalization Liquidity Credit risk Inefficiency Size Size^2 Macro variables Inflation Real GDP growth Fiscal stance Concentration Institutional devel Oil price shock interaction terms Commercial banks Investment banks Islamic banks Model specification Number of obs Hansen test of OIR (p-value) 2nd order AC test (p-value) Annual growth (average) Deviation from HP filter Hamilton (2003) Deviation from oil shock forward rate 0.2409** 5.5260** 0.8517** −1.1469 −0.0521*** 1.8069 −0.0671 0.2351** 5.8606** 0.8233** −0.9657 −0.0519*** 1.8975 −0.0709 0.2169** 5.8266** 0.8053** −1.1542 −0.0505*** 2.1063 −0.0747 0.2488** 5.6624** 0.8709** −1.2612 −0.0512*** 1.7782 −0.0661 −0.0028 0.1698* −0.0132 0.0307** 0.2739 −0.0035 0.1661** −0.0102 0.0365** −0.1660 −0.0033 0.2666** −0.0114 0.0369** −1.0001 −0.0030 0.1770** −0.0214* 0.0281* 0.5630 −0.0032 0.0310** −0.0100 −0.0094 0.0562 −0.0615 −0.0499* 0.2406 −0.1961* −0.0006 0.0342** −0.0131 956 0.9929 956 0.9952 956 0.9949 956 0.9938 0.3224 0.3689 0.3408 0.2687 Notes: Estimations are performed using Blundell and Bond (1998) system robust GMM estimator Capitalization is modeled as endogenous variable, and credit risk as predetermined variable ***, **, and * indicate significance at 10%, 5%, and 1% levels, respectively 12.4   Conclusions The importance of oil prices for the economic development of oil-­ exporting countries is widely acknowledged However, the impact of oil price shocks on bank performance has lacked a rigorous empirical analysis so far This chapter fills this gap by providing a quantitative assessment of the impact of oil price shocks on bank profitability in oil-exporting MENA countries 268  H HESSE AND T POGHOSYAN We distinguish between direct and indirect channels through which oil price shocks may affect bank profitability The former channel assumes that oil price shocks could affect bank profitability directly via increased oil-related lending or business activity The indirect channel suggests that the impact is transmitted through macroeconomic and institutional characteristics of the countries bolstered by increased expectations and business sentiment in the country The estimation results lend support for the indirect channel hypothesis We find no evidence supporting the direct channel hypothesis Among the organization structure of banks, we find that the impact of oil prices is most evident for investment banks, while there is little ­evidence supporting that commercial and Islamic banks are also affected to the same extent This result suggests that oil price shocks largely affect investment activity in oil-exporting MENA countries However, this result should be interpreted with caution, since we not control for the impact of house prices, which might be very influential determinants of profitability for Islamic banks In addition, given the heterogeneity of the bank balance sheet data across the countries, we might not be fully capturing this relationship between bank type and oil price shocks We also find that the relationship between oil price shocks and bank profitability has been distorted by the global financial crisis, when positive oil price shocks have coincided with declining bank profits in 2008 This finding suggests that the impact of global shocks other than oil price developments should be taken into account when analyzing the relationship between oil price shocks and bank profitability Our findings have interesting policy implications, since they provide the first evidence of a systemic importance of oil price shocks for bank performance in oil-exporting countries There has been anecdotal evidence of this link but it has not been tested formally in an empirical setting In particular, these findings suggest that oil price shocks could be used for macro prudential regulation purposes in MENA countries, since oil prices are easier to monitor than commonly used measures of business cycle (such as deviations of GDP from its potential level) For instance, tying bank capitalization to oil price shocks can help to mitigate procyclical bank lending and allow banks to use their capital cushions created during boom periods for lending purposes during downturns Given the recent sharp decline in oil prices, it would be also of interest to analyze its impact on bank profitability once data become available Oil Prices and Bank Profitability: Evidence from Major   269 References Angbazo, Lazarus 1997 Commercial Banks, Net Interest Margins, Default Risk, Interest Rate Risk and Off-Balance Sheet Banking Journal of banking and Finance 21: 55–87 Arellano, Manuel, and Stephen Bond 1991 Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations Review of Economic Studies 58(2): 277–297 Arellano, Manuel, and Olympia Bover 1995 Another Look at the Instrumental-­ Variable Estimation of Error Component Models Journal of Econometrics 68(1): 29–52 Athanasoglou, Panayiotis, Matthaios Delis, and Christos Staikouras 2006 Determinants of Banking Profitability in the South Eastern European Region Bank of Greece Working Paper No 06/47 Athens: Bank of Greece Athanasoglou, Panayiotis, Sophocles Brissimis, and Matthaios Delis 2008 Bank-­ Specific, Industry-Specific and Macroeconomic Determinants of Bank Profitability Journal of Financial Markets, Institutions, and Money 18: 121–136 Berger, Allen N & Hanweck, Gerald A & Humphrey, David B., 1987 “Competitive viability in banking: Scale, scope, and product mix economies,” Journal of Monetary Economics, Elsevier, vol 20(3), pages 501-520, December Berger, Allen, Seth Bonime, Daniel Covitz, and Diana Hancock 2000 Why Are Bank Profits so Persistent? The Roles of Product Market Competition, Informational Opacity, and Regional/Macroeconomic Shocks Journal of Banking and Finance 24: 1203–1235 Bikker, Jacob, and Hu Haixia 2002 Cyclical Patterns in Profits, Provisioning and Lending of Banks and Procyclicality of the New Basel Capital Requirements BNL Quarterly Review 221: 143–175 Blundell, Richard & Bond, Stephen, 1998 “Initial conditions and moment restrictions in dynamic panel data models,” Journal of Econometrics, Elsevier, vol 87(1), pages 115-143, August Bourke, Philip 1989 Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia Journal of Banking and Finance 13: 65–79 Boyd, John, and David Runkle 1993 Size and Performance of Banking Firms: Testing the Predictions of Theory Journal of Monetary Economics 31: 47–67 Cihak, Martin, and Heiko Hesse 2008 Islamic Banks and Financial Stability: An Empirical Analysis IMF Working Paper No 08/16 Washington: International Monetary Fund Demirguc-Kunt, Asli, and Harry Huizinga 2000 Financial Structure and Bank Profitability Policy Research Working Paper Series No 2430 Washington: The World Bank 270  H HESSE AND T POGHOSYAN Demirgỹỗ-Kunt, Asli, and Harry Huizinga 1998 Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence World Bank Economic Review 13: 379–408 Flamini, Valentina, Calvin McDonald, and Liliana Schumacher 2009 The Determinants of Commercial Bank Profitability in Sub-Saharan Africa IMF Working Paper No 09/15 Washington: International Monetary Fund Gelos, Gaston 2006 Banking Spreads in Latin America IMF Working Paper No 06/44 Washington: International Monetary Fund Goddard, John & Molyneux, Phil & Wilson, John O S, 2004 “Dynamics of Growth and Profitability in Banking,” Journal of Money, Credit and Banking, Blackwell Publishing, vol 36(6), pages 1069-90, December Hamilton, James 2003 What is an Oil Shock? Journal of Econometrics 113(2): 363–398 Hamilton, James 2008 Oil and the Macroeconomy In The New Palgrave Dictionary of Economics, 2nd ed, ed Steven N. Durlauf and Lawrence E. Blume New York: Palgrave Macmillan Kilian, Lutz 2008 The Economic Effects of Energy Price Shocks Journal of Economic Literature 46(4): 871–909 Maudos, Joaquin, and Juan Fernandez de Guevara 2004 Factors Explaining the Interest Margin in the Banking Sectors of the European Union Journal of Banking and Finance 28: 2259–2281 Miller, Stephen, and Athanasios Noulas 1997 Portfolio Mix and Large-Bank Profitability in the USA Applied Economics 29: 505–512 Molyneux, Philip, and John Thornton 1992 Determinants of European Bank Profitability: A Note Journal of Banking and Finance 16: 1173–1178 Saunders, Anthony, and Liliana Schumacher 2000 The Determinants of Bank Interest Rate Margins: An International Study Journal of International Money and Finance 19: 813–832 Short, Brock 1979 The Relation between Commercial Bank Profit Rates and Banking Concentration in Canada, Western Europe and Japan Journal of Banking and Finance 3: 209–219 Smirlock, Michael 1985 Evidence on the (Non) Relationship between Concentration and Profitability in Banking Journal of Money, Credit, and Banking 17: 69–83 INDEX A Advanced economies (AEs) and EMEs, 2–6, 21–2, 27, 31, 35, 37–9, 54, 57, 85, 93–5, 97–9, 105 Aghion, Philippe, 236 Agénor, Pierre-Richard, 65 Ahmed, Ehsan, 137 Ahmed, Shaghil, 91, 101 Aizenman, Joshua, 64–5, 100, 230 Akyüz, Yilmaz, 86, 99–100, 105, 228, 238 Alexander, Kern, 53 Alexander, William E., 169 Algeria, 248, 253, 255 Al-Najjar, Basil, 114, 124, 129 Alvarez, Roberto, 112, 114, 117, 126, 127 Andrade, Rogerio P., 98 Angola, 226, 237 Appreciation, 26, 44, 52–3, 194 and capital flows, 86, 93–5, 100–3 and devaluation, 65, 73–5 and Guyana, 14, 170, 172, 175, 185 and Jamaica, 160–1 Arellano, Manuel, 251 Argentina, 13, 59, 112, 114–15, 126, 141–4, 171 Armenia, 12 Arpaia, Alfonso, 191, 206 Assets under management (AUM), 31–2 Autoregressive model, 135, 139–42 B Bagehot, Walter, 50 Bahrain, 248, 253–4, 255 Bank of England, 50 Bank of Guyana, 178, 180, 185–6 Bank of Jamaica (BOJ), 161–2, 165 Bank of Japan, 154 Bank profitability, 15, 247–68 Basel III, 30, 38–9 Bates, Thomas W., 111–12, 116 Baxter, Marianne, 54 Page numbers in italics refer to tables and figures © The Editor(s) (if applicable) and The Author(s) 2016 A.V Gevorkyan, O Canuto (eds.), Financial Deepening and Post-Crisis Development in Emerging Markets, DOI 10.1057/978-1-137-52246-7 271 272 INDEX Beine, Michel A. R., 151 Belarus, 192, 193–6, 198, 200–1, 203, 204, 214 Bernard, Lucas, xii, 14, 189, 200, 205 Black-Scholes pricing model, 205 Bliss, Barbara A., 115, 129 Blundell, Richard, 251 Bolton, Patrick, 236 Bond, Stephen, 251 Bortis, Heinrich, 42 Botswana, 226 Brazil, 6, 9, 13, 24–5, 27–9, 33, 34, 88, 101, 103, 112, 114–15, 124, 126, 129, 138, 142, 143–4 Brecher, Richard A., 64 Bretton Woods, 53, 95, 97 BRICS nations, 11, 114, 236 See also Brazil; China; India; Russia Britain See Great Britain; United Kingdom British Petroleum, 210 Broda, Christian M., 54 Bulgaria, 192, 193, 194–7, 199, 200, 201–2, 204, 214 Business cycles, 24–5, 49, 54, 95–9, 105, 126, 191, 208–10, 249, 268 C Calvo, Guillermo A., 53, 97, 100, 229 Canuto, Otaviano, ix, 3–8, 86 Capital account regulation (CAR), 86, 102–3 Capital flow management measures (CFMs), 104 Capital flows, 85–105 See also Foreign direct investment (FDI) capital inflows and outflows, 88 capital inflows by region, 89 capital inflows by region and modality, 90 consequences to EMEs, 94–5 and economic policy, 100–4 and exchange rate regime, 95–9 features of cross-border capital flows, 86–95 and foreign exchange reserves, 102 private capital inflows to emerging economies, 91 and real effective exchange rate, 94 and Sub-Saharan Africa, 223–42 types of net capital inflows, 92 Capital markets, 21–2 common themes since 2008 crisis, 34–7 developments before 2008 crisis, 22–6 developments since 2008 crisis, 26–33 policy implications, 37–9 Caribbean, central bank policy intervention in, 149–65 Cash holdings, 13, 111–30 cash in developing countries, 113–14 and economic crises, 119–21 optimal cash, 113 Cato Institute, 189 Central Bank of Trinidad and Tobago, 162–3 Central banks, 24, 26, 36, 42–4, 48, 97, 100, 121, 228–9 See also individual central banks and Caribbean foreign exchange markets, 13, 149–65 Câmara-Neto, Alcino F., 48, 51 Chang, Ha-Joon, 53 Chile, 9, 13, 112, 114, 126, 129, 137–8, 141–4 China, 4, 6–7, 13, 27–30, 88–90, 114, 124, 129, 190, 236, 240 Choi, Woon Gyu, 230 Cline, Nathaniel, x, 11–12, 41, 51, 59 Cohen, Benjamin J., 98 INDEX Colombia, 9, 13, 50, 138, 141–4 Commodity exports, 4, 14–15, 27, 53–5, 94, 184, 226, 239, 242 Commodity prices, 4, 8, 52–5, 86, 93, 100, 225–6, 234, 239–40 Cornford, Andrew, 99 Coronado, Semei, xi, 13, 135 Currency crises, 11–12, 41–2, 95 and foreign interest rate shocks, 49, 59 history of, 48–54 and post-crisis development, 54–9 post-Keynesian model of, 42–8 and terms of trade (TOT) shocks, 41, 43, 46–7, 49–55, 59 wage-Share and Productivity, 218 Czech Republic, 9, 192, 193–6, 198, 200–1, 203, 204, 214 D Davidson, Paul, 97, 105 Dawson, Frank Griffith, 50 De Cecco, Marcello, 51 Denis, David, 113 De Paula, Luiz Fernando, x, 12, 29, 105 Devaluation, 12, 47–8, 58, 63–78, 81, 97 Dhal, Sarat C., 172, 175, 176, 181, 184 Diaz-Alejandro, Carlos F., 47, 53 Dittmar, Amy, 112, 113 Duchin, Ran, 112–13 E Easterly, William, 49–50 Eastern Europe, 189–20 current account in GPD, 195 external debt, 204 273 financial account, 202–3 foreign direct investment, 199–200 GDP growth rate, 192 GDP per capita, 193 global CDO issuance, 205 inflation, 194 international financial flows, 198–202 labor productivity by sector, 211 macroeconomic indicators, 191–8 official exchange rate, 196 personal remittances, received, 197–8 portfolio investment, 201 productivity, 218 sectoral productivity for Hungary, 216 sectoral wage share and productivity for Hungary, 219–20 sectoral wage-share for Hungary, 215 technological trends, 202–6 transistor cost, 204 wage-share, 206–18 wage-share and labor productivity, 213 wage-share and productivity, 217 wage-share by sectors, 212 Edwards, Sebastian, 65 Egypt, 9, 28 Eichengreen, Barry, 42, 98, 228 Elkinawy, Susan, 112, 114–15, 124–6, 129 Emerging markets, 3–15 and advanced economies, 2–6, 21–2, 27, 31, 35, 37–9, 54, 57, 85, 93–5, 97–9, 105 and capital flows, 85–105 capital inflows and outflows, 88 capital markets common themes since 2008 crisis, 34–7 capital markets developments before 2008 crisis, 22–6 274 INDEX capital markets developments since 2008 crisis, 26–33 capital markets policy implications, 37–9 concentration of local currency corporate issuances, 30 defined, evolution of credit ratings for a sample of the largest 20 EMEs, 35 international financial integration, 87 Employment, 14, 43, 46–9, 236, 241 and dual labor markets, 64–78 and Eastern Europe, 207–17 unemployment, 48, 64, 70, 74–7, 175, 206, 208 England See Bank of England; Great Britain Epps, Mary L., 152 Epps, Thomas W., 152 Epstein, Gerald A., 102–3, 238 Erten, Bilge, 54 F Fama, Eugene F., 126, 129, 132117 Faulkender, Michael, 113 Federal Reserve (Fed), 57, 85–6, 92–4, 96 Fernandez-Arias, Eduardo, 54 Fiess, Norbert M., 64, 65 Financial flows See capital flows Fixed-income instruments and markets, 21–2, 26–7, 36–9 EM fixed-income fund inflows by hard and local currency, 27 Flassbeck, Heiner, 97 Fofack, Hippolyte, 172, 175–6, 181, 184 Ford, Alec George, 51 Foreign direct investment (FDI), 8–9, 88–9, 92–4, 198–200, 224, 234, 236, 241–2 Foreign reserves, 8, 23, 57, 93, 100, 224, 228, 230, 239–40 Frankel, Jeffrey A., 54, 65 Frieden, Jeffrey, 105 Fukuyama, Francis, 189–90 G Garcia-Appendini, Emilia, 115, 129 Gatica, Leonardo, xi, 13, 135 Germany, 51–2, 191 labor productivity, 211, 213 wage share by, 212, 213 Gevorkyan, Aleksandr V., ix, 3, 8, 11–12, 119, 126, 191, 194, 197, 239 Gevorkyan, Arkady, 8, 12, 197, 239 Ghana, 229, 237 Ginzburg, Andrea, 49 Globalization, 191, 206, 211 Gollin, Douglas, 207 Goodwin, Richard M., 191, 208–10 Great Britain, 50–1, 54 See also United Kingdom Great Depression, 51 Greece, 9, 58–60, 213, 249, 263 labor productivity, 211, 213 wage share, 212, 213 Greenawalt, Mary B., 171, 176–7, 181 Grilli, Enzo R., 51 Gunderson, Michael, x, 13, 111 Guyana, 14, 169–86 H Hall, Thomas, 124, 129 Hamilton, James, 260–1 Harford, Jarrad, 111–13, 116, 118–19, 126, 128 INDEX Harris, John R., 64 Hausmann, Ricardo, 4, 98, 228 Heintz, James, 241 Helpman, Elhanan, 64–5, 68, 73 Henderson, Jeffrey, 53 Hesse, Heiko, xii, 15, 247 Hinich bispectrum test, 135–8, 140 Hirschman, Albert O., 47 Hu, in-Li, 172, 174, 176, 181 Hungary, 9, 25, 34, 193–7, 199, 200, 201–2, 204, 214, 215–16 sectoral productivity, 216, 219 sectoral wage-share, 215, 219 I India, 6, 9, 29, 30, 114, 124, 129, 172 Indonesia, 6, 9, 25, 27, 34, 53, 101 Insurance companies, 32–3, 36 International monetary and financial system (IMFS), 98–9, 101, 105 International Monetary Fund (IMF), 59, 85, 87, 94–9, 101–5, 178, 227–33, 239, 258 International reserves See Foreign reserves Iran, 248, 253, 255 Islam, Rizwanul, 241 J Jamaica, 14, 151, 159–65 Japan, 57, 122, 149, 154 Jensen, Michael C., 113, 130 Jimenez, Gabriel, 14, 172–3, 175–6, 181, 184 Job search premium, 64–5, 68–9, 73, 75–7 JPMorgan Government Bond Index-Emerging Markets (GBI-EM), 31 275 K Kahle, Kathleen, 115, 129 Kamin, Steven B., 65 Kaminsky, Graciela L., 43, 50 Karpoff, Jonathan M., 151 Kearns, Jonathan, 150, 153–4 Keeton, William R., 171, 176 Kenya, 229, 237–8 Khemraj, Tarron, xii, 14, 169 Kim, Soyoung, 151, 153–5 Kim, Yoonbai, 54 Klau, Marc, 65 Korea See South Korea Kose, M. Ayhan., 50 Kouparitsas, Michael, 54 Krugman, Paul, 41–2, 47, 65 Kumar, Vikram, x, 12, 63 Kuwait, 248, 253–4, 255 Kvangraven, Ingrid Harvold, xii, 12, 14–15, 223 L Labor market dualism, 63–4, 73–7 Latin America, 28, 42, 229, 240, 249 and capital flows, 88–93, 100 and cash holdings, 111–30 and currency crises, 50–5 nonlinearity testing of exchange rates, 13, 135–44 Lee, Jaewoo, 230 Lehman Brothers, 26, 89, 93 Leipziger, Danny M., 86 Lewis, Karen K., 150, 153–4 Liberia, 236–7 Libya, 248, 253, 255 Local currency bond markets (LCBMs), 21–2, 27–33, 38 London Interbank Offered Rate (LIBOR), 52, 57, 58 Louzis, Dimitrios, 170, 172 276 INDEX M Macroeconomics, 3–4, 11–15, 34–5, 38, 47, 86 capital market developments after 2008 crisis, 27 capital market developments before 2008 crisis, 22–6 fiscal policy, 23–4, 26, 28, 46, 52, 59, 63, 74, 234 monetary policy, 6–7, 10, 23, 26, 35, 42–50, 91–103, 150–1, 153–6, 159–62, 231, 234, 240 and nonperforming loans, 169–70, 172–3, 175, 178–80, 184–5 pull factors, 34, 90, 92 push factors, 35, 90, 92, 94 Magud, Nicolas, 103 Malawi, 229 Malaysia, 9, 29–30, 34 Marichal, Carlos, 49 McCombie, John, 49 Meckling, William, 113 Mejía-Reyesab, P., 65 Mendoza, Enrique G., 50 Mexican Central Bank, 121, 130 Mexico, 9, 30, 31, 34, 37, 54, 88 and capital market development before 2008 crisis, 24, 25 cash holdings by corporations, 13, 111–30 cash to assets and selected firm characteristics, 123 descriptive statistics for Mexican firms, 121 mean and median of cash to assets, 122 Mexican Stock Exchange Index, 120 net debt issuance in Mexican firms, 120 and nonlinear testing of exchange rates, 138, 141–4 panel regressions for Mexican firms, 125, 127 selected series related to economic crises, 120 and Tequila crisis (1994–1995), 111, 121 Middle East and North Africa (MENA), 247–68 See also Oil industry impact of financial crisis, 266–7 mean bank profitability across bank specialization, 256 mean bank profitability across countries, 255 Minsky, Hyman, 240 Mohanty, M., 99 Moldova, 192, 193–6, 198, 200–1, 203, 204, 214 Montiel, Peter J., 54 Montoriol-Garrig, Judit, 115, 129 Morgan Stanley Capital International (MSCI) Index, 5–10 annual GDP per capita growth pre-and post-crisis, 10 average GDP per capita growth rate for the MSCI emerging markets group, combined FDI and workers’ remittances per capita, country codes, 16 total investment: difference between post-and pre-crisis annual growth rates, Morocco, 28, 30 Morris, Charles S., 171, 176 Morris, Mike, 226, 239 N Nigeria, 236–8 Nikiforos, Michalis, 60 INDEX Noguera, Magdy, xi, 13, 111, 114, 126, 129 Nonlinearity, 135–44 ARCH model, 135–8 GARCH model, 135–8, 140, 144 Hinich bispectrum test, 135–8, 140 literature review, 137–8 new inferential methodology, 139–41 Nonperforming loans (NPLs), 169–70 discussion of regression results, 181–4 estimation procedure, definition of variables, and data issues, 173–81 literature review, 171–2 and policy, 184–6 and real effective exchange rate (REER), 170, 173–86 North American Free Trade Agreement (NAFTA), 205, 211–12 Nyambuu, Unurjargal, xii, 14, 189, 200, 206 O Obstfeld, Maurice, 42 Ocampo, José A., 54, 98–9, 105, 228–9, 240 Oil industry and China, 236 correlation of macro variables and oil price shocks, 262 dynamics of four measures of the oil price shock, 261 indirect oil price effect, 265 and MENA countries, 247–68 oil prices, 263i oil prices and bank profitability, 247–68 oil price shocks, 15, 53 and Sub-Saharan Africa, 225, 231, 232, 236 277 and terms of trade (TOT), 53, 55 which banks are most affected, 264 Oman, 248, 253, 255 Opler, Tim, 111–12 Original sin, 42, 98, 228, 240 Ostry, Jonathan D., 104 Ozkan, Aydin, 113, 115, 124, 128, 129 Ozkan, Neslihan, 113, 115, 124, 128, 129 P Palmer, Tom, 189–90, 202 Pasha, Sukrishnalall, xii, 14, 169 Pension funds, 32–3, 36 Pérez-Caldentey, Esteban, 60 Peru, 9, 34, 35, 88, 101, 114, 138 Pettis, Michael, 241 Philippines, 10 Pichelmann, Karl, 191, 206 Pinera, Sebastian, 64, 68, 69 Pinkowitz, Lee, 112, 114, 121, 122, 126, 129 Poghosyan, Tigran, xii, 15, 247 Poland, 10, 33, 191, 192, 193–7, 199, 201–2, 214, 218 Pollin, Robert, 241 Prates, Daniela Magalhães, x, 12, 85 Prebisch, Raúl, 98, 226 Public finance, 49 Q Qatar, 10, 248, 253, 255 Quantitative easing (QE), 27, 85, 93, 101 R Rajan, Rajiv, 172, 175, 176, 181, 184 Real effective exchange rate (REER), 170, 173–86 278 INDEX Redefined fundamental uncertainty (RFU), 8, 10–12 Reinhart, Carmen M., 43, 97, 100 Reserve Bank of Australia, 154 Rey, Hélène, 96, 98, 105 Rifkin, Jeremy, 208 Rigobon, Roberto, 150, 153–4 Rodrik, Dani, 100, 239 Rogoff, Kenneth, 236 Romania, 192, 193–7, 199, 201–2, 204, 214 Russia, 6, 10, 88–9, 114, 193–7, 197–9, 201–2, 214, 218 Rusticelli, Elena, xi, 13, 135 S Sachs, Jeffrey, 236 Sahay, Ratna, 93, 94 Salas, Vincente, 172, 175, 176, 181, 184 Saudi Arabia, 248, 253, 255, 256 Saurina, Jesus, 14, 172–3, 175, 176, 181, 184 Saxena, Sweta, 96 Scatigna, Michela, 99 Seerattan, Dave, xi, 13–14, 149 Selowsky, Marcelo, 64, 68–9 Sheen, J., 149–51, 153–5 Sibilkov, Valeriy, 113 Silva, Anderson Caputo, x, 11, 21 Simonazzi, Annamaria, 49 Singer, Hans, 226 Sinkey, Jr., Joseph F., 171, 176, 181 Slovakia, 192, 193–6, 198, 200–1, 203, 204, 214, 217 Small open developing economy with dual labor markets model, 63–77 Solow, Robert, 190, 206, 241 Sorge, Marco, 169 South Africa, 6, 10, 27, 34, 90, 101, 226, 236–7, 239 South Korea, 9–10, 53–4, 87, 101, 103, 190 Sovereign wealth funds, 32, 241, 247 Spagnolo, Nicola, xi–xii, 13–14, 149 Stater, Mark, 112, 114–15, 124–6, 129 Stiglitz, Joseph, 53, 96 Studart, Rogerio, 99 Stulz, Rene, 115, 129 Sub-Saharan Africa, 12, 14–15, 55–7, 223–42 average GDP growth, 224 central government, fiscal balance, 232 changing financial flows, 231–9 current account balance, 231 domestic and external debt, 228 economics structures, 224–31 export concentration and diversification, 226 financial flows by country groups, 233 foreign direct investment, new inflows, 235 interest payments on external debt, 237 interest rates, 229 net ODA received, 234 Personal remittances, received, 235 private capital flows, 232 private external long-term debt, 238 risks and opportunities, 239–41 total reserves, 230 trade as per cent of GDP, 225 value added, percept of GDP, 227 Sudan, 248, 253, 255 Sun, Zhenzhen, 115, 129 Suter, Christian, 49 INDEX T Taiwan, 172, 190 Tanzania, 226 Taylor, Lance, 47, 52, 65 Technology, 5, 14, 76, 190–1, 202–6, 210–13, 219–20, 239 Thailand, 10, 29, 30, 34, 53, 101 Thirlwall, Tony, 49 Tobago, 14, 151, 159–65 Tobin, James, 96 Todaro, M. P., 64 Trejo-Pech, Carlos O., xi, 13, 111, 114, 126, 129 Trinidad, 14, 151, 159–65 Turkey, 6, 9, 25, 33, 34, 88, 101 U Ukraine, 89, 192, 193–6, 198, 200–1, 203, 204, 214 United Arab Emirates (UAE), 10, 248, 253, 255, 256 United Kingdom, 114, 122 See also Great Britain United States, 57, 86, 91–2, 94, 96, 213–14 Federal Reserve (Fed), 57, 85–6, 92–4, 96 and history of currency crises, 51–2 monetary policy, 10, 26 Treasury securities, 35–6 wage share and labor productivity, 213 279 V Vega-García, Pablo, 50 Vernengo, Matias, x, 11–12, 41, 48, 51, 59–60 Volcker, Paul, 52 W Wage-share, 14, 191, 202, 206–18 Wang, Rong, 113 Wang, Yaping, 115, 129 Washington Consensus, 53 Weisbrod, Aaron, 236 Whalley, John, 236 World Bank, 192, 200, 215, 217, 224, 258, 259 Sovereign Debt Management Conference, 33 Y Yang, Maw Cheng, 51 Yellen, Janet, 57 Yemen, 248, 253, 255 Ying, Yung-Hsiang, 54 Z Zambia, 229, 237 Zlate, Andrei, 91, 101 .. .Financial Deepening and Post- Crisis Development in Emerging Markets Aleksandr V Gevorkyan • Otaviano Canuto Editors Financial Deepening and Post- Crisis Development in Emerging Markets. .. ACKNOWLEDGMENTS Financial Deepening and Post- Crisis Development in Emerging Markets is a compilation of diverse but logically coherent contributions on the problem of emerging markets financial and macroeconomic... Part I Introduction Emerging Markets and the Post- 2008 World Aleksandr V Gevorkyan and Otaviano Canuto Part II Emerging Markets Post- 2008 Trends 19 21 Post- crisis Lessons for EME Capital Markets