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We use data on the sources of debt finance of U.S. majority-owned foreign affiliates in 53 countries over the period 1983 to 2001 to examine the role of financial market development, and exposure to host country-specific risk on the financing choices of these affiliates. We find that total balance sheets are about four times as large as the cross-border component of foreign direct investment (FDI). The extent of financial leverage through local debt is positively related to host-country corporate tax rates, exchange rate variability, local currency-denominated sales, and financial development. Factors that further the role of local debt reduce that of parent company debt, and through this substitution overall leverage increases.
This edition of the OECD Sovereign Borrowing Outlook reviews developments in response to the COVID-19 pandemic for government borrowing needs, funding conditions and funding strategies in the OECD area.
A Brookings Institution Press, the World Bank, and the International Monetary Fund publication The extensive reforms and liberalization of financial services in emerging markets worldwide call for cutting-edge strategies to capture the benefits of new investment opportunities. In Open Doors, a volume of papers from the third annual Financial Markets and Development conference, multidisciplinary financial sector experts analyze current economic and political trends and prescribe practical advice to the financial development community. The book addresses the key issues of concern regarding the emerging markets, including the trends, motivations, and scope of FDI in finance; policy options that will best capture the opportunities of foreign entry; and the role of foreign institutions in e-finance innovation. The authors focus on specific topics such as foreign participation in emerging market banking systems and securities industries, WTO policies and enforcement, the role of foreign banks, liberalization of insurance markets, the need for capital markets, and the policy, regulatory, and legal issues associated with e-finance. For policymakers and financial practitioners affected by the WTO's Financial Services Agreement, this timely book should be of particular interest. Contributors include Donald Mathieson (International Money Fund), Pierre Sauvé (Trade Directorate, OECD), George J. Vojta (formerly with Bankers Trust and Citibank), Harold D. Skipper (J. Mack Robinson College of Business, Georgia State University), Benn Steil (Council on Foreign Relations), Morris Goldstein and Edward M. Graham (Institute for International Economics), Nicolas Lardy (Brookings Institution), Phillip Turner (Bank of International Settlements), and Robert Ledig (Fried, Frank, Shriver & Jacobson).
Many questions have been raised about America's status in the increasingly interconnected global economy. Yet key factsâ€"such as the amount of foreign assets abroad owned by U.S. citizensâ€"are not known. The crucial data needed to assess the U.S. position are unavailable. This volume explores significant shortcomings in U.S. data on international capital transactions and their implications for policymakers. The volume offers clearcut recommendations for U.S. agencies to bring data collection and analyses of the global economy into the twenty-first century. The volume explores: How factors emerging since the early 1980s have shaped world financial markets and revealed shortcomings in data collection and analysis. How the existing U.S. data system works and where it fails how measurements of international financial transactions are recorded; and how swaps, options, and futures present special reporting problems. How alternative methods, such as collecting data, from sources such as global custodians and international clearinghouses, might improve coverage and accuracy.
Using business registry data from China, we show that internal capital markets in business groups can propagate corporate shareholders’ credit supply shocks to their subsidiaries. An average of 16.7% local bank credit growth where corporate shareholders are located would increase subsidiaries investment by 1% of their tangible fixed asset value, which accounts for 71% (7%) of the median (average) investment rate among these firms. We argue that equity exchanges is one channel through which corporate shareholders transmit bank credit supply shocks to the subsidiaries and provide empirical evidence to support the channel.
In recent decades, the foreign assets and liabilities of advanced economies have grown rapidly relative to GDP, with the increase in gross cross-holdings far exceeding changes in the size of net positions. Moreover, the portfolio equity and FDI categories have grown in importance relative to international debt stocks. This paper describes the broad trends in international financial integration for a sample of industrial countries and seeks to explain the cross-country and time-series variation in the size of international balance sheets. It also examines the behavior of the rates of return on foreign assets and liabilities, relating them to "market" returns.
Capital markets can improve risk sharing and the efficiency with which capital is allocated to the real economy, boosting economic growth and welfare. However, despite these potential benefits, not all countries have well developed capital markets. Moreover, government-led initiatives to develop local capital markets have had mixed success. This paper reviews the literature on the benefits and costs of developing local capital markets, and describes the challenges faced in the development of such markets. The paper concludes with a set of policy recommendations emerging from this literature.
This paper analyzes the impact of the globalization of financial markets on developing and transition economies. Differences between the responses of competitive and imperfectly competitive banking sectors cause them to affect economic activity differently. While nonbank financial markets and institutions can help to increase the competitiveness of banking sectors, there are “gaps” in the institutions and market structures of developing and transition economies. Eliminating these gaps may reinforce financial market discipline in these countries. Some current international initiatives are outlined for enhancing financial system soundness; these emphasize the complementary roles of market discipline and official oversight in an environment of globalized markets.
Analytical background -- Nature of systemic risk -- Who should be regulated (by whom) -- Counter-cyclical regulation -- Regulation of liquidity and maturity mismatches -- Other regulatory issues -- The structure of regulation -- Conclusions -- Appendix : the boundary problem in financial regulation -- Discussion and roundtables.