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1372. Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America
- Author:
- Graciela Moguillansky
- Publication Date:
- 03-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This article studies the currency risk management of multinational companies with investments in Latin American countries. The analysis is centred on episodes of currency or financial shocks, searching into the behaviour of the financial management of a firm expecting a significant devaluation. This allowed us to explore the interaction and transmission mechanisms between the microeconomic behaviour and the macroeconomic impact on the foreign exchange market. The analysis was carried out interviewing financial managers of multinational companies from different sectors with headquarters in the United Kingdom and Spain, by reviewing literature on business and currency risk management, and by analysing some surveys on financial risk management in developed countries.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- United Kingdom, South America, Latin America, and Spain
1373. Does a Switch of Budget Regimes Constrain Managerial Discretion? Evidence for Italian Public Enterprises' Investment
- Author:
- Elisabetta Bertero and Laura Rondi
- Publication Date:
- 03-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This study examines the effect of the hardening of the budget constraint on the investment behaviour of Italian state owned enterprises (SOEs). It carries out a natural experiment that exploits the 1987 shift of budget regimes due to the pressure of European Union economic policies on the Italian government.Drawing from the theory of capital market imperfections, we apply the empirical framework for the analysis of investment-cash flow sensitivity to a panel of state-owned manufacturing firms during the period 1977-93. We parallel state firms to Anglo-Saxon public corporations which, under separation of ownership and control, are afflicted by agency problems, managerial discretion, misallocation of free cash-flow and overinvestment. We argue that, under a soft budget constraint, state firms' managerial discretion and, in particular, collusion between managers and vote-seeking politicians, lead to wasteful investment.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- Europe and Italy
1374. The Growth Elasticity of Poverty
- Author:
- Rasmus Heltberg
- Publication Date:
- 02-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- How much does economic growth contribute to poverty reduction? I discuss analytical and empirical approaches to assess the growth elasticity of poverty, and emphasize that the relationship between growth and poverty change is non-constant. For a given poverty measure, it depends on initial inequality and on the location of the poverty line relative to mean income. In most cases, growth is more important for poverty reduction than changes in inequality, but this does not render inequality unimportant. Reduction in inequality may be triple effective: (1) it will reduce poverty for a given level of income, (2) it will accelerate the poverty reducing impact of economic growth, and (3) according to cross-country growth regressions, it may contribute to a larger rate of growth.
- Topic:
- Development, Economics, and International Trade and Finance
1375. Poverty Incidence and Sectoral Growth: Evidence from Southeast Asia
- Author:
- Peter G. Warr
- Publication Date:
- 02-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In recent decades, absolute poverty incidence declined in most countries of Southeast Asia, even though in some of these countries inequality increased at the same time. This paper examines the relationship between these outcomes and the rate of economic growth in the agricultural, industrial and services sectors. It develops a time series of available data on the headcount measure of poverty incidence for Thailand, Indonesia, Malaysia and the Philippines over the period from the 1960s to 1999, in aggregate and in both rural and urban areas. It then uses this pooled data set to analyze the economic determinants of changes in poverty incidence.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- Indonesia, Malaysia, Philippines, Thailand, and Southeast Asia
1376. How Economic Growth Reduces Poverty: A General Equilibrium Analysis for Indonesia
- Author:
- Peter G. Warr and George Fane
- Publication Date:
- 02-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Do changes in poverty and inequality depend directly on the rate of economic growth, or does the source of the growth also matter? This paper uses a computable general equilibrium model of the Indonesian economy to explore this question by simulating increases in GDP arising from (i) technical progress in each of seven broad sectors, and (ii) the accumulation of each of six types of physical and human capital. The more a given amount of growth raises the returns to the factors that are more important sources of income for the poor than for the non-poor, the more it reduces poverty and inequality. Different sources of growth affect poverty and inequality differently because they affect factor returns differently, and because the poor and the non-poor own factors in different proportions.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- Indonesia and Southeast Asia
1377. How Optimal are the Extremes? Latin American Exchange Rate Policies During the Asian Crisis
- Author:
- Ricardo Ffrench-Davis and Guillermo Larraín
- Publication Date:
- 01-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- During the Asian crisis, intermediate exchange rate regimes vanished. It has been argued that those regimes were no longer useful and only the extremes remained valid. The paper analyses three foreign exchange regimes: Argentina (pegged), Chile (band) and Mexico (float). The Argentinean currency board delivered low financial volatility while it was credible, but even then it displayed high real volatility. Mexican float performed well in periods of instability isolating the real sector. The Chilean band delivered a mixed outcome as compared to Argentina and Mexico. This is linked apparently to a loss in the band's credibility, associated to policy mismanagement and an over-appreciation in the biennium before the crisis. Optimal exchange rate regimes vary across time and the conjuncture. Exit strategies are part of the election of the optimal system, including a flexible policy package rather than a single rigid policy tool.
- Topic:
- Development and International Trade and Finance
- Political Geography:
- Asia, Argentina, South America, Latin America, Mexico, and Chile
1378. Hardening a Soft Budget Constraint Through 'Upward Devolution' to a Supranational Institution: The Case of Italian State-Owned Firms and the European Union
- Author:
- Elisabetta Bertero and Laura Rondi
- Publication Date:
- 01-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper contributes to the literature on the role of decentralization in hardening the budget constraint of public enterprises. Following Qian and Roland the study adopts a 'federalist' approach. However, it interprets federalism as the upward devolution of domestic economic policies to a supranational authority and examines its role in disciplining public enterprises operating in a soft budget regime. The methodology is a case study of the shift in budget regime in Italy in the late 1980s. The study shows that a determinant role in driving this shift was played by European economic policies. The discipline imposed by participation in the EMS, the Single Market Programme and, later, the requirements to enter the EMU pushed the Italian government toward a much tougher approach to its budget deficit.
- Topic:
- Economics, Government, and International Trade and Finance
- Political Geography:
- Europe
1379. Institutional Investors, Corporate Ownership, and Corporate Governance: Global Perspectives
- Author:
- Stuart L. Gillan and Laura T. Starks
- Publication Date:
- 01-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- We examine the role of institutional investors in financial markets and in corporate governance. In many countries, institutional investors have become the predominant players in financial markets and their influence worldwide is growing, chiefly due to the privatization and development of pension fund systems. Moreover, foreign institutional investors are becoming a significant presence, bringing their trading habits and corporate governance preferences to international markets. In fact, we argue that the primary actors prompting change in many corporate governance systems are institutional investors, often foreign institutional investors. In other countries the role of institutional investors is limited. Instead, large blockholders, often in the form of individuals, family groups, other corporations, or lending institutions are the dominant players. We present the theoretical arguments for the involvement of investors in shareholder monitoring and a brief history of institutional ownership and activism in the United States and other countries. We also discuss studies of the efficacy of such activism.
- Topic:
- Economics, Government, and International Trade and Finance
- Political Geography:
- United States
1380. Proposals for Curbing the Boom-Bust Cycle in the Supply of Capital to Emerging Markets
- Author:
- John Williamson
- Publication Date:
- 01-2002
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper examines what might be done to limit the boom-bust cycle in the flow of capital to emerging markets. Although the paper accepts that some types of capital flow (notably foreign direct investment) are much less problematic in this respect than others (notably short-term bank loans), it argues that influencing the mix would have to be done by capital controls by capital-importing countries rather than supply-side policies. Where supply-side reforms might help is in making some types of flow less unstable: for example, the Buiter/Sibert proposal for a Universal Debt Rollover Option (which needs amendment to alter the term for which rollover might apply); allowing investors with fiduciary responsibilities to hold (though not to buy) bonds of sub-investment grade; penalizing put options in bond contracts and inserting collective action clauses; requiring foreign loans to be denominated in domestic currency; and modifying the remuneration practices of portfolio managers.
- Topic:
- Economics, Emerging Markets, and International Trade and Finance