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Comparative Advantage, Demand for External Finance, and Financial Development
Abstract
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
... In fact, we are interested in the influence of firms' internationalization status and modes on bank credit decisions rather than the opposite effect. In this sense, our paper is close in spirit to Do and Levchenko (2007), who analyze the effect of international trade on a country's level of financial development in an aggregate perspective and show that financial development is affected by the external finance needs of exported goods. 3 The second related literature investigates the allocation of credit, especially during crises. ...
... However, the effects appear to be significantly more pronounced in the case of banks with an international scope, consistent with the hypothesis that these banks are more concerned about international spillovers of their credit denial to global chain participants. 24 A second piece of preliminary evidence comes from investigating the geographical location of the firm's supply chain customers and suppliers. By exploiting information provided by the EFIGE survey, in Panel B of Table 7 we classify firms as importing or exporting their products and services in three main geographical areas: Europe, Asia and the Americas. ...
... ...; (v) the bank has an extensive international network; ... . 24 When looking at the results for firm export, the positive impact of export on credit rationing is confirmed only for the subsample of firms borrowing from domestic local banks or from domestic national banks without an international network. 25 As it is usually the case, in the first stage we insert the instrument interacted with the destination market. ...
... In the last few decades, economists and policy makers have shown much concerned regarding the impact of the institutional quality in improving economic outcomes. Much of the empirical literature focuses on macro-level investigation (Álvarez et al., 2018;Amiri et al., 2019;Belloc, 2006;Chemin, 2009aChemin, , 2012Daude & Stein, 2007;Do & Levchenko, 2007Eicher & Leukert, 2009;Francois & Manchin, 2013;Knack & Keefer, 1995;P.-G. Méon & Weill, 2005;P. ...
... The growing empirical work on firm-level focuses on the impact of institutions on exports of the firms (Chakraborty, 2016;Davies & Jeppesen, 2015;Kapri, 2021;Lin et al., 2020;Melitz, 2003;Olney, 2016;Sheng & Yang, 2016;Srinivasan & Archana, 2011;Wang et al., 2014). Specifically, the impact of judiciary on credit market (Jappelli et al., 2005), firm growth (Fisman & Svensson, 2007), investment (Alesina et al., 2005), contract intensity (Berkowitz et al., 2006;Ma et al., 2010), input tariff (Ahsan, 2013) and it gives firms the comparative advantage (Berkowitz et al., 2006;Do & Levchenko, 2007;Ranjan & Lee, 2007). In general, less consideration has been paid to judicial factors. ...
... The existing empirical literature provides strong support to our results. Specifically, the impact of judiciary on credit market (Jappelli et al., 2005), firm growth (Fisman & Svensson, 2007), investment (Alesina et al., 2005), contract intensity (Berkowitz et al., 2006;Ma et al., 2010), input tariff (Ahsan, 2013) and it gives firms the comparative advantage (Berkowitz et al., 2006;Do & Levchenko, 2007;Ranjan & Lee, 2007). The results of logistic regression model show that foreign firms have higher probability of innovation. ...
Innovation works as an engine of growth for the country and the backbone for the performance of the firm. Pakistan is a developing country and it is lagging behind in terms of innovation activities in the region. In Pakistan, due to the weaker quality of institutions, court fairness is biased. The objective of the study was to measure the effect of court fairness on the innovation of the firm in the case of Pakistan using the World Enterprise Survey. The results of the study indicate that court fairness increases the likelihood of innovation. From the perspective of the policy proposal, it is suggested that proper reforms in the judicial system must be initiated and it is the utmost need of the society, firms, and the nation as a whole.
... Many other studies have, nevertheless, emphasized (without testing it empirically) the potential causality effect of manufactured exports to nancial development (e.g., Contessi and De Nicola, 2013;Huang and Temple, 2005;Kletzer and Bardhan, 1987;Beck, 2002Beck, , 2003Cezar, 2014;Matsuyama, 2005;Rajan and Zingales, 1998;Vaubourg, 2016). In a similar spirit, some other studies have stressed that export product upgrading, including export product diversi cation (at both the extensive and intensive margins), and improvement of export product quality are key drivers of nancial development (e.g., Contessi and De Nicola, 2013;Cho et al., 2019;Do and Levchenko, 2007;Gnangnon, 2019a;Hattendorff, 2014;Ramcharan, 2006). An important argument put forth in these studies is that the demand for external nance in individual countries -driven by their comparative advantage -in uences signi cantly their nancial development depth. ...
... An important argument put forth in these studies is that the demand for external nance in individual countries -driven by their comparative advantage -in uences signi cantly their nancial development depth. For example, Do and Levchenko (2007) has shown theoretically and empirically that countries that specialize in more nancially dependent export products (such as manufactured exports) are likely to experience a high demand for external nance (i.e., a rise in the credit demanded by rms involved in exporting nancially intensive products), and as a result, a high nancial development depth. Similarly, countries' rms that export products not nancially dependent (such as primary commodities) are likely to experience a low demand for credit, and would and hence, a low depth of nancial development, i.e., an under-developed nancial system. ...
... Using topographical data, he has provided strong evidence that economic diversi cation promotes nancial development, whereas the concentration of economic activities (as it is the case in many developing countries) in uences negatively nancial development. Gnangnon (2019a) has drawn insights from the studies by Do and Levchenko (2007), Hattendorff (2014) and from the literature on the political factors underpinning the relationship between export upgrading and nancial development, to demonstrate empirically that export product upgrading is positively associated with nancial development. ...
Many studies have considered the macroeconomic effects of Aid for Trade (AfT) flows, that is, the part of official development assistance allocated for the development of the trade sector. The present paper aims to expand this literature by investigating the effect AfT flows on financial development notably through channel of manufactured exports. The analysis has covered a set of 120 countries over the period 2002–2017, and relied primarily on the two-step system Generalized Methods of Moments (GMM). Results show that total AfT flows, notably its components AfT for economic infrastructure and AfT for productive capacity promote financial development, and the magnitude of these positive effects rises as countries' share of manufactured exports increases. Additionally, total AfT flows influence positively financial development in countries that diversify their export product basket towards manufactured exports. These findings highlight the key role of AfT flows in promoting financial development in recipient-countries, and therefore call on donor-countries to scale up AfT flows in favour of developing countries, given the importance of financial development for economic development.
... To address this endogeneity problem, I resort to gravity models to isolate preferential import share variation arising from geographical determinants that are deemed exogenous to agricultural protection. However, the common practice of using predicted trade from gravity model with time-invariant impacts of geographical variables on trade (Frankel and Romer 1999;Do and Levchenko 2007;Saggi, Stoyanov, and Yildiz 2018) has been increasingly challenged due to its inability to address omitted variable bias (Rodriguez and Rodrik 2000). For example, some timeinvariant geography variables, such as distance from the equator, could also affect trade via unobserved institutions (Rodriguez and Rodrik 2000). ...
... The second difference is that this article adopts a methodology that alleviates the endogeneity concern of preferential import share. Saggi, Stoyanov, and Yildiz (2018) follow Frankel and Romer (1999) and Do and Levchenko (2007) to construct an instrument based on time-invariant geographical factors. Because geography might affect the tariff and non-tariff policies via non-trade geography-determined variables such as disease environment or colonial institutions, this type of instrument might suffer from omitted variables bias (Rodriguez and Rodrik 2000). ...
... Rather than generating predicted bilateral import value d Imp ckjt from the traditional gravity models as in Frankel and Romer (1999) and Do and Levchenko (2007), I follow Feyrer (2019) and use the following gravity model to generate bilateral imports d Imp ckt for a specific agricultural commodity j: ...
This article investigates the impact of regional trade agreements (RTAs) on excluded countries' protection for agricultural producers. Specifically, this article quantifies the causal impact of an average trading partner's import share from its RTA members, that is preferential import share, on excluded countries' nominal rate of assistance (NRA) to agricultural producers. The empirical analysis is based on a panel dataset that covers fifty‐four agricultural commodities across eighty‐eight countries from 1986 to 2018. Based on an instrumental variables approach that instruments average trading partners' preferential import share with predicted average trading partners' preferential import share constructed from gravity models that assume time‐varying impacts of air and sea distances on trade, I find that a one‐percentage‐point increase in an average trading partner's preferential import share decreases excluded countries' NRA by 0.298 percentage points. The impacts are larger and more significant for net‐importing countries than for net‐exporting countries. Heterogeneity analysis shows that developed countries reduce protection for more protected and subsidized producers, and developing countries reduce protection for less protected and taxed producers. These findings suggest that it's important to provide farmers in developing countries with complementary mitigation strategies to counteract the reduced protection resulted from their partners' RTA formation.
... Specially, human capital accumulation is positively associated with financial development (e.g., Cole et al., 2014;Ibrahim and Sare, 2018;Khan et al., 2020;Sibel et al., 2015;Zaidi et al., 2019). Trade openness has been found to affect positively financial development (e.g., Ashraf, 2018;Baltagi et al., 2009;Kim et al., 2010;Rajan and Zingales, 2003;Zhang et al., 2015); and export product upgrading, including export product diversification drives positively financial development (e.g., Contessi and De Nicola, 2013;Cho et al., 2019;Do and Levchenko, 2007;Gnangnon, 2019a;Hattendorff, 2014;Ramcharan, 2006). ...
... On the one hand, Gnangnon (2019b) has provided empirical evidence that the lower human capital accumulation and decline in public revenue induced by higher poverty rates would lead to a greater export product concentration in countries that experience a rise in the poverty level. On the other hand, some few studies have uncovered a positive effect of export product diversification on financial development (e.g., Contessi and De Nicola, 2013;Cho et al., 2019;Do and Levchenko, 2007;Gnangnon, 2019b;Hattendorff, 2014;Ramcharan, 2006). One of the theoretical links through which export product diversification can affect positively financial development is that greater export product diversification, including towards financially dependent products (such as manufactured exports) induces a higher demand for external finance (i.e., a an increase in the demand for credit by firms that export financially-dependent products). ...
... One of the theoretical links through which export product diversification can affect positively financial development is that greater export product diversification, including towards financially dependent products (such as manufactured exports) induces a higher demand for external finance (i.e., a an increase in the demand for credit by firms that export financially-dependent products). In turn, the rise in the demand for external finance promotes financial development (see Do and Levchenko, 2007). The reverse reasoning holds for countries where firms export products that are not financially dependent (this is for example the case for primary commodities). ...
Numerous studies in the literature have investigated the effect of financial development on poverty, and tend to report a poverty reduction effect of financial development. The present paper considers the issue in the other way around, by examining the effect of poverty on financial development. In particular, it has investigated the financial development effect of poverty that passes through three main channels, including the education level, the level of trade openness, and the degree of export product concentration. The analysis is carried out using a sample of 97 developing countries over the period 1980-2017, and the two-step Generalized Methods of Moments (GMM). Results have shown that poverty genuinely affects financial development through these three channels. Specially, lower poverty rates induce greater financial development in countries that experience higher education levels. Similarly, a rise in poverty rates in the context of restrictive trade policies (that eventually result in lower levels of trade openness) undermines the development of the financial sector. Finally, higher poverty levels adversely affect financial development in countries that experience an increase in the level of export product concentration.
... Motivated by the above, this article tests the hypothesis: lower energy intensity and lower cost of energy do not promote financial development in Ghana. Though there are several empirical studies on the drivers of financial development both in developed and developing economies [2][3][4][17][18][19] [20][21][22][23][24][25][26], the study by Ref. [27] that links financial development and energy savings in China is worth noting. In the case of Ghana, the authors did not find any empirical studies that link financial development and energy indices. ...
... Moreover, increased export via trade openness will boost demand for external financing. Especially for economies with high-tech manufacturing activities, the evidence seems stronger [21]. On these grounds, trade openness has been found to promote financial development via enhanced external financing. ...
... Energy Strategy Reviews 24 (2019) [14][15][16][17][18][19][20][21][22][23][24][25][26] especially the banking sector, a reduction in loan default will foster financial development and hence improve financial intermediation. In a related study [27], revealed that improving energy efficiency (i.e. ...
This study tests the hypothesis; lower energy intensity and lower cost of energy do not foster financial development. To this end, we estimate a long-run econometric model based on three cointegrating techniques that correct for both the second-order bias and non-centrality bias, using data from Ghana. Different robustness checks were conducted to provide a justification for either the rejection/acceptance of the null hypothesis. On different accounts, we reject the null hypothesis. Thus, lower energy intensity and lower cost of energy foster financial development in the long-run. The negative effects of higher energy intensity and energy cost on financial development have important implications for the design of loan contracts and the behaviour of borrowers toward energy efficiency investments. Further, economic growth, democracy, and trade openness foster financial development.
... Like this, Svaleryd et al., (2005) opine that growing trade openness leads to an increase in a nation's susceptibility to external shocks and international competition, increasing the demand for new financial instruments that provide diversification benefits. Do and Levchenko's (2007) research shows how a country's production pattern and the consequent need for external financing are both impacted by a competitive advantage in trade. They demonstrate that nations with a focus on financially dependent goods will see an This preprint research paper has not been peer reviewed. ...
... The findings of this study are consistent with those found in previous studies, most notably the work ofKim et al., (2010a). According toDo and Levchenko (2007), the demand for external financial assets acts as an exogenous factor determining the level of a country's financial development. They contend that a country's comparative advantage in global commerce may impact production structure and external funding requirements. ...
... 229 Do y Levchenko (2007) quieren mostrar que el desarrollo financiero depende de patrones de comercio, en parte por la demanda de financiación externa de cada país. La ventaja comparativa en el comercio afecta al patrón de producción de un país y, por lo tanto, a su demanda de financiación externa. ...
... La literatura de desarrollo financiero también ha tenido en cuenta la apertura financiera como Klein y Olivei (2008). Además de la apertura financiera, es importante tener en cuenta también la influencia de la apertura comercial en el desarrollo financiero, ver Levine (1997) Algunos autores han destacado la importancia de las variables geográficas como determinantes del desarrollo financiero: Do y Levchenko (2007). Una variable en la que se centran muchos autores (Gupta et al., 2009;Demirgüç-Kunt et al., 2011;Huang, 2010ay Ayadi et al., 2013 es la inversión, tanto doméstica como extranjera, además de la variable remesas. ...
El Impuesto sobre el Valor Añadido (IVA) se aplica en más de 150 países desde los años sesenta
del siglo pasado, pero la dificultad en calcular el valor añadido financiero y la falta de un método
preciso para gravar los servicios financieros en el IVA ha llevado a que en la mayoría de países los
servicios financieros estén exentos en ese impuesto, como ocurre en España. En la Unión Europea
está en vigor la Directiva del Consejo 2006/112/EC del 28 de noviembre de 2006 que posibilita
que los países miembros opten por permitir gravar el IVA o no. Si un país miembro decide permitir
gravar los servicios financieros en el IVA, entonces se dará la opción a las empresas de gravar la
operación con el IVA o continuar con la exención. Con el considerable crecimiento del sector
financiero en las últimas décadas, esta exención ha conducido a una menor recaudación fiscal y a
distorsiones en las economías de estos países. El estudio del valor añadido del sector financiero y su
imposición lleva siendo uno de los mayores y más difíciles problemas de la Hacienda Pública desde
hace décadas, de ahí que la mayoría de países opten por mantener exentos este tipo de servicios en
el IVA. Pese a que se han desarrollado numerosos métodos de gravamen en la literatura, todavía no
se ha encontrado ninguno que grave plenamente este tipo de servicios de manera sencilla, factible y
siendo compatible con el método de deducción-factura del IVA general.
La dificultad en el gravamen de estos servicios y la complejidad de los métodos existentes se debe,
principalmente, a dos razones. La primera radica en que los servicios financieros implican un
intercambio temporal de dinero entre dos clientes por medio de un intermediario financiero, a
diferencia de los bienes y servicios privados habituales, en los que hay un único cliente y vendedor
para cada producto.
En segundo lugar, esta primera razón conlleva una dificultad en la asignación del valor añadido del
servicio financiero para cada transacción correspondiente a cada cliente. Mientras que las
comisiones, que son cargas explícitas, sí que reflejan una parte del consumo efectuado, los
márgenes bancarios no son conocidos exactamente por los consumidores ni por la Administración,
debido a que el banco carga el valor del producto de manera implícita, de forma que la base
imponible del impuesto, el valor añadido del servicio financiero, normalmente no es observable o
mesurable en una base transacción a transacción. Esto dificulta el cálculo del impuesto y lleva al
desarrollo de complejos métodos de asignación exacta, y, por lo tanto, eficiente teóricamente, del
valor añadido para cada transacción, generándose un trade-off entre eficiencia y sencillez.
A pesar de ello, actualmente está ampliamente aceptado entre los economistas que los servicios
financieros deben estar sujetos, y no exentos, al IVA. Las razones son varias, y podemos destacar
las siguientes, relacionadas con la eficiencia, suficiencia, equidad y sencillez.
Respecto de la eficiencia, la exención de los servicios financieros en el IVA lleva a numerosas
distorsiones económicas. En primer lugar, las entidades financieras no pueden deducirse todo el
IVA soportado de las compras no financieras y, por lo tanto, tratan de trasladar este montante a los
precios y, a través de estos, a los consumidores. En segundo lugar, se generan incentivos de integración vertical para evitar el IVA soportado no recuperable. Además, esto lleva a impactos en
la oferta y en la demanda. Debido al sobregravamen de las empresas y el infragravamen de los
consumidores finales derivado de la exención, el gravamen de los servicios financieros en el IVA
podría tener un efecto positivo en la demanda de estos servicios por parte de las empresas, las
cuales pagarían unos tipos de interés más bajos en los préstamos y recibirían deducciones por el
IVA soportado, y un efecto negativo sobre los hogares, ya que el gravamen incrementaría los
precios de los consumidores. En el lado de la oferta, el gravamen de los servicios financieros no
afectaría al tamaño del sector financiero. Además, la exención puede generar sesgos comerciales, de
forma que los intermediarios financieros se vean tentados a adquirir servicios financieros ofertados
por proveedores extranjeros situados en países en los que no hay IVA o en los que se aplica tipo
cero a las exportaciones, reduciendo el IVA soportado no deducido del comprador gracias a ello.
Aparte de distorsionar la economía, la exención tiene consecuencias negativas para la recaudación y,
por lo tanto, para la suficiencia. Como los servicios financieros no son gravados, no se consiguen
ingresos fiscales del valor añadido de este tipo de servicios, exceptuando el IVA soportado no
deducible. Por lo tanto, al no aplicarse el IVA a los servicios financieros, se deja de disfrutar de una
importante fuente de ingresos para las arcas de la Administración que sí que se tendría si el tipo
impositivo fuera positivo y se permitiera la deducción plena del IVA soportado de las compras no
financieras. De hecho, hay estudios que muestran que el gravamen de los servicios financieros en el
IVA llevaría a una recaudación adicional del IVA de más del 0,1% del PIB español, lo que podría
permitir, por ejemplo, un mejor cumplimiento de los actuales estándares de déficit público
impuestos por la Unión Europea.
En términos de equidad, se considera que los servicios financieros son consumidos en mayor
medida por personas con renta alta, con lo que la exención en estos servicios beneficia a personas
con alto poder adquisitivo, que no pagan el correspondiente IVA por los servicios financieros. Por
lo tanto, su gravamen permitiría mejorar la actual situación de desigualdad económica en la
economía española, que se ha visto agravada en los últimos años desde la pasada crisis económica.
Por último y en el plano de la sencillez, cabe destacar que la distinción entre transacciones exentas
y no exentas representa un coste de cumplimiento y una complejidad añadida. También se pueden
producir problemas de definición e interpretativos, como la determinación de los límites de la
exención. Por ejemplo, hay que definir si los nuevos productos financieros que aparecen en
Internet se encuadran dentro de la exención o no. Esto puede llevar a comportamientos de
ingeniería financiera para evitar las consecuencias negativas de la exención o para situarse dentro de
la misma, o comportamientos fraudulentos de planificación y evasión fiscal con el objetivo de
minimizar el pago del IVA soportado no deducible. Finalmente, en una perspectiva de economía política, la exención supone, además, una ruptura en la
cadena del IVA y una erosión de la base imponible que puede llevar a originar movimientos de
presión política para que se aplique la exención también en otros sectores.
En conclusión, hay un buen conjunto de efectos positivos derivados de la tributación efectiva, sin
exención de los servicios financieros en el IVA. Teniendo en cuenta la dificultad encontrada a la
hora de investigar en este campo, conviene mencionar la relevancia del tema elegido,
proponiéndonos en esta tesis doctoral contribuir a la mejora en el conocimiento de la tributación de
estos servicios en el IVA.
Es importante señalar que nos centramos en el estudio del gravamen de los servicios financieros en
el IVA, es decir, analizamos la aplicación de un impuesto sobre los servicios financieros. Este tipo
de impuestos grava el consumo y, por lo tanto, el valor añadido de estas operaciones. No son
impuestos sobre las transacciones financieras como, por ejemplo, la tasa Tobin. Estos últimos
representan un tipo de impuesto pigouviano que grava las externalidades negativas que generan los
bancos por medio de impuestos sobre el capital. En esta investigación no profundizamos en este
tipo de impuestos.
Teniendo presente las anteriores motivaciones, el objetivo general de la tesis va a ser el análisis
teórico y empírico de los efectos económicos del gravamen de los servicios financieros en el IVA.
Para alcanzar este objetivo, la tesis doctoral se estructura de la siguiente manera.
Comenzaremos con una primera parte teórica titulada “Marco teórico y métodos de gravamen de
los servicios financieros en el IVA”. En el Capítulo 1 (“Análisis teórico del IVA financiero”) se
estudia la situación actual del régimen tributario de los servicios financieros en el IVA en España y
en Europa y se realiza un análisis teórico de la vigente exención. Por último, se estudian las causas y
consecuencias del IVA financiero, ateniendo a los principios impositivos clásicos. Además, cuando
se analiza el criterio impositivo de suficiencia, se aporta una estimación de la recaudación que se
habría podido obtener en España en los últimos años si se hubiera aplicado el gravamen pleno de
los servicios financieros en el IVA.
En el Capítulo 2 (“Métodos de gravamen de los servicios financieros en el IVA y prácticas
internacionales”) se investigan en profundidad los métodos de gravamen de los servicios
financieros propuestos en la literatura y los aplicados en la experiencia internacional. Cada método
se presenta analíticamente y se explica mediante un ejemplo numérico. Posteriormente, y con base
en el desarrollo anterior, se comparan y evalúan los diferentes métodos de acuerdo a los principios
tributarios y a las propiedades que caracterizan a dichos métodos.
Una vez analizadas las propuestas de IVA financiero de la literatura y la práctica internacional, se
contribuye proponiendo un nuevo método de IVA financiero en el Capítulo 3 (“Propuesta de un
método alternativo para el gravamen de las operaciones financieras en el IVA: el método de la ratio móvil”). La propuesta que desarrollamos en este capítulo, que denominamos “método de ratiomóvil”,
grava el margen financiero de cada entidad aplicando la misma ratio para cada transacción
de intereses llevada a cabo por una entidad para un periodo concreto. Un ejemplo sería gravar cada
interés de los depósitos o de los préstamos. La “ratio-móvil”, tasa que cambia periódicamente,
consiste en el margen generado por los servicios financieros provistos por la empresa (es decir, la
diferencia entre los intereses recibidos y pagados), durante el periodo más cercano al corriente para
el que hay disponible información (por ejemplo, el trimestre previo) dividido por el total del valor
de los intereses de la entidad, (esto es, la suma de los intereses recibidos y pagados) para el mismo
periodo. Entonces se aplica el tipo del IVA a la base imponible. Además, el tipo del IVA se aplica
directamente a las comisiones, de forma que todo el valor añadido es gravado mediante una
aproximación razonable y plenamente compatible con el método de deducción-factura del IVA
general. Este método se puede aplicar a los servicios financieros provistos tanto por entidades
financieras como no financieras. En nuestra opinión, este método mejora a los anteriores en
términos de eficiencia y factibilidad y alcanza un equilibrio entre los principios de sencillez y
eficiencia.
La segunda parte de la tesis es eminentemente aplicada y se titula “Aplicaciones al gravamen de los
servicios financieros en el IVA”. En ella se modelizan teóricamente y contrastan
econométricamente los efectos del gravamen del IVA financiero sobre una serie de variables y
consta de cuatro capítulos. En el Capítulo 4 (“Marco teórico y metodología de las aplicaciones
empíricas”) se elabora un modelo teórico de generaciones solapadas que se basa en modelos de
otros autores y se incorporan las características propias de la exención de los servicios financieros
en el IVA. Posteriormente, se desarrolla otro modelo que tiene en cuenta la tributación de estos
servicios en el IVA, lo que supone la deducción total del IVA soportado de las compras no
financieras y la aplicación de un tipo impositivo positivo al valor añadido. En concreto, en este
modelo se aplica el tipo general de IVA. Finalmente, se estudian las principales consecuencias
económicas del gravamen de los servicios financieros en el IVA sobre diferentes variables
económicas mediante la comparación de ambos modelos. A la vista de los efectos observados en
los modelos teóricos acerca del impacto del IVA financiero sobre la economía, se decide ahondar
más en el estudio de la influencia del impuesto sobre la apertura comercial, el peso del sector
financiero y la redistribución de la renta. En los Capítulos 5, 6 y 7, respectivamente, se realiza un
estudio empírico de estos efectos, utilizando técnicas econométricas con datos reales por primera
vez en la literatura internacional. La base de datos y la metodología utilizada en las tres aplicaciones
se explican en el Capítulo 4.
El Capítulo 5 (“Impacto económico del IVA financiero sobre la tasa de apertura comercial”) se
centra en el principio de eficiencia, por medio del análisis del impacto del IVA financiero sobre la
tasa de apertura comercial de bienes comercializables. La exención de los servicios financieros en el
IVA abarata relativamente los bienes no comercializables, como son estos servicios, al no estar gravados. Esto lleva a una reducción en la tasa de apertura comercial de bienes comercializables,
situación que cambiaría con el gravamen de los servicios financieros en el IVA, produciéndose un
incremento en el comercio de mercancías. En este capítulo se estiman regresiones siguiendo la
metodología GMM System para datos de 35 países de la OCDE y la UE durante el periodo de 1961
a 2012. La especificación de los modelos incluye una variable de tasa de apertura comercial como
dependiente y como variables explicativas se incluyen, además de las consideradas tradicionalmente
por la literatura, como, por ejemplo, variables de tipo comercial, geográfico o poblacional, se
incluyen variables de interés que indican el gravamen o no de los servicios financieros y el tipo
aplicado.
El Capítulo 6 (“Neutralidad del IVA financiero sobre el peso del sector financiero”) también
estudia el principio de eficiencia, pero por medio del análisis del impacto del IVA financiero sobre
el peso del sector financiero. La exención no debería modificar el peso del sector porque, de
acuerdo con la teoría, el IVA se repercute a los consumidores, así como el IVA soportado no
deducible se traslada mediante el efecto cascada. De esta forma, el gravamen de los servicios
financieros no debería afectar a los beneficios bancarios y, por lo tanto, a la oferta de servicios
financieros. El Capítulo 6 se basa en la misma base de datos del anterior capítulo y también se
especifica un modelo GMM System. Consideramos como variables dependientes diferentes
indicadores de desarrollo del sector financiero y como explicativas, además de las consideradas en la
literatura (p.ej.: variables financieras, de estructura de activos, fiscales), consideramos también las
variables de interés que muestran la presencia de gravamen de los servicios financieros y el tipo de
gravamen que se aplica.
El Capítulo 7 (“Efectos sobre la redistribución de la renta del gravamen de los servicios financieros
en el IVA”) estudia las consecuencias del IVA financiero atendiendo al principio de equidad y
analizando el impacto del IVA financiero sobre la redistribución de la renta. Este impuesto debería
reducir las desigualdades económicas, al considerar que se produciría un incremento de la
recaudación y que se reduciría la regresividad del IVA. Esto se debe a que los clientes que
consumen servicios financieros son, en mayor medida, personas de renta alta. Esta hipótesis se
estudia empíricamente siguiendo la misma metodología que en los dos capítulos previos, pero
utilizando una base de datos de 32 países de la OCDE para el periodo comprendido entre 1974 y
2012. Se especifica un modelo de GMM System en el que la variable dependiente es el índice de
Reynolds-Smolensky, como indicador de redistribución de la renta, y como variables
independientes las empleadas habitualmente en la literatura, como la tasa de desempleo, la renta, la
recaudación o la ratio de impuestos directos sobre los indirectos. Además, se incluyen las variables
indicativas de gravamen de los servicios financieros o no y del tipo aplicado. Por último, en la última sección de la tesis, se sintetizan las principales conclusiones obtenidas, se
remarcan las principales aportaciones, y se señalan algunas limitaciones y posibles extensiones de la
tesis doctoral.
... Nevertheless, external finance suffers when trade openness strengthens those groups. Do and Levchenko (2007) state that the demand for external finance endogenously determines partly financial development in each country. A country's comparative advantage in international trade might influence the pattern of production and affecting demand for external finance. ...
... It eliminates credit granted to the public sector and credit issued by the central bank and development banks, and therefore depicts the overall development in private banking markets (Beck et al., 2007;Ito, 2006). This measure focuses particularly on the role of financial intermediaries and financial markets in providing funding to the private entrepreneurial sector, and that makes this sector more suitable for estimating financial activity in bank-based financial systems (De Gregorio & Guidotti, 1995). ...
This study investigates the influences of trade and financial openness on financial development over the period 2003–2017 from a sample of 64 developing countries, employing a Bayesian model averaging approach to take into account model uncertainty. The results demonstrate that the contribution of trade openness to financial development is important in developing economies with better institutions. However, financial openness has an insignificant positive effect on financial development. There is no evidence to support the Rajan and Zingales hypothesis that the simultaneous openness to both trade and capital flows promotes financial development. Our findings also indicate that a better institutions environment allows a developing economy to exploit the benefits of openness to financial development.
... Local finance provision is important for developing countries due to low level of income and creditworthiness rating, lack of internationally acceptable collateral and poor credit contract enforcement that deters foreign funding. However, Do & Levchenko [32] gives alternative argument that financial development is influenced by trade patterns. They pointed out the endogeneity of financial development as it is driven by the demand for foreign finance in individual countries: When comparative advantage in trade influences a country's consumption patterns, then countries importing goods (including energy) that require more finance will have a high demand for foreign trade finance which will enhance financial development. ...
... Moreover, a significant feedback effect exists between financial development and energy resource import (fuel import). This result is in line with the arguments of both Kletzer & Bardhan [31] and Do & Levchenko [32]. Financial development may be a source of comparative advantage in trade. ...
The complications in the sustainable development notion which have resulted into unending arguments and empirical analyses on energy-output-emission nexus have been extended to the exploration of the individual and joint effects of trade and finance on the nexus This study therefore extends the literature by reviewing the theoretical links among economic growth, carbon emission, energy resource import and financial development with empirical evidence from Nigeria during 1981 and 2019. Based on the mixed integration order, autoregressive distributed lag (ARDL) bounds test revealed cointegrating (long-run) relationship among the selected variables with and without structural break. Further analysis was conducted using the standard linear and non-linear bivariate Granger causality methods with and without structural breaks. With the inclusion of structural break in the causality model, the results improved. The results indicated that a significant unidirectional causality runs from real output (GDP) per capita to financial development (domestic credit to the private sector). Similarly, a significant one-way causality moved from environmental pollution (carbon emission) to financial development (both domestic credit and broad money supply). Further, there is a significant unidirectional causality running from energy resource import (fuel import) to financial development (broad money supply). Moreover, a significant feedback effect exists between financial development and energy resource import. These findings inform some policy implications which were well articulated in the conclusion.
... Later Romalis (2004) adopts a similar method to analyze whether countries that are more abundant in unskilled labor/skilled labor/capital stock seize larger U.S. import shares in industries intensively using relevant factors. Trade economists have then augmented this specification to test other possible causes of comparative advantage by adding different kinds of industry factor intensities coupled with country factor endowments (e.g., Do & Levchenko, 2007;Levchenko, 2007;Nunn, 2007;Maskus & Yang, 2018). Other papers (e.g., Bombardini, Gallipoli, & Pupato, 2012;Cai & Stoyanov, 2016) adjust the specification to test bilateral trade data by adding traditional gravity controls. ...
... The column (2) includes the influence of financial development on trade patterns. Rajan and Zingales (1998), Do and Levchenko (2007) and Manova (2013) all highlight that a country with well-developed financial market exports more in industries heavily relying on external finance. We add the product of a country's financial development and industry-level dependence on external finance from Rajan and Zingales (1998) as an additional control variable in column (2). ...
This paper empirically investigates the effect of product life‐cycle on trade patterns. We measure the product life‐cycle length with patent citation data at the industry level. Using bilateral trade data from 2002 to 2006, we find that countries with more knowledge capital endowment export more in industries with shorter product life‐cycles. We show that this pattern is largely driven by the risk of imitation. The pattern is reversed when imitation is limited by stronger intellectual property rights.
... Third, the extant literature suggests few immediately obvious concerns about reverse causality. Financial development may shape comparative advantage in specific industries (Kletzer & Bardhan, 1987;Beck, 2002) and is closely linked to trade patterns (Rajan & Zingales, 2003;Do & Levchenko, 2007). Trade agreements also often incorporate stipulations about financial services (Dobson, 2007). ...
The ability to borrow is important for government survival. Governments routinely resort to policies that privilege their own debt on financial markets, exploiting their dual role as borrowers and regulators. We label such policies as borrowing privileges. These borrowing privileges nudge investors to hold the government’s own debt. They share similarities with prudential regulation, but skew the market in favor of the government’s debt; and they share similarities with financial repression, but are less severe and thus consistent with the growth of financial markets. Introducing the first systematic dataset documenting the use of such policies across countries and over time, we demonstrate that governments implement borrowing privileges when their interactions with the global economy heighten fiscal needs: when borrowing costs indicate tightened access to credit, when trade liberalization undercuts revenue, and where fixed exchange rates increase the value of fiscal space. Despite the mobility of financial assets and constraints from global markets, governments retain latitude in regulating domestic markets to their own fiscal benefit.
... The inverse relationship between two can be explained by the level of trade in Pakistan. As argued by Do and Levchenko [95], the financial development (including stock market development) in an economy is affected by the comparative advantage in trade. They demonstrate that if main exports of the economy significantly depend on internal finance then, in result, the pattern of financial development growth becomes slow down. ...
Over the past decades, emerging stock markets have started to significantly contribute to economic growth through mobilizing long-term capital by pooling funds, facilitating savings and investments into profitable projects and improving corporate governance structure. A plethora of empirical studies is devoted to investigate the determinants of different capital markets but due to highly controversial and inconclusive findings about macroeconomic determinants, this study contributes to the body of existing literature by empirically investigating the macroeconomic forces that drive the stock market development of Pakistan from 1980 to 2019. By applying Ng-Perron and Zivot-Andrews unit root tests (to determine the integrating orders of variables) and Autoregressive Distributed Lag (ARDL) bounds testing approach, our results confirm cointegration among variables and exhibit the significant positive impact of economic growth and banking sector development on stock market development and negative affect of inflation, foreign direct investment and trade openness on it in long run. At the same time, the short run results show a significant relationship of economic growth, inflation and foreign direct investment with stock market development. Our study has some important policy implications.
... In the work of Manova (2008aManova ( , 2008b, he found out that sectors that are financially vulnerable can be supported by economies where there are more developed financial markets meanwhile Do and Levchenko (2007) and Huang and Temple (2007) posit that countries with comparative advantage in goods and services produced by financially dependent sectors have more incentive to grow their financial markets. These views appear to advocate that the effects of financial integration for financial market development might rely on a country's comparative advantage. ...
In reallocating resources from the fund surplus unit to the fund deficit unit, financial markets face some interference which is referred to as financial market frictions. The study examines the micro and macro aspects of the effects of financial markets frictions on portfolio investments decisions and performance of financial market participants (individual firms and the entire economy). The study employs secondary data collected from firms annual reports and accounts and the World Bank data bank for national economic data. The firm level data covers a period of five years while the macro level data covers a period of seven (11) years. The study used EView 8.0 for generating the estimation results for the study. The study uses panel least square and two stage least square estimation techniques for the analysis of the data and to test the hypotheses. The study find, amongst other findings, that financial markets frictions and changes in financial market frictions across specific financial markets significantly affect investor’s portfolio decision and performance at the firm level and national economies. The study concludes that financial market frictions affect both portfolio investment decisions and portfolio investment performance in all financial markets and that exchange rate changes and changes in other financial markets frictions result in significant changes in investor’s decisions and performance across the globe. The study also concludes that the portfolio constituent of an investor changes with regards to changes in financial frictions. That portfolio investment decisions in all financial markets are significantly influenced by financial markets frictions at varying degrees and magnitudes and that these frictions changes frequently in financial markets. The study recommends, amongst other recommendations, that investors should give considerable attention to minimizing varied financial markets frictions that affect their investment decisions and the performance of their investment portfolios.
... Huang and Temple (2005) found positive relationships between trade openness and financial development in countries that are open to capital flows, like Brazil. Do and Levchenko (2006) argued that, in countries that are richly endowed with physical capital and specialize in capital-intensive industries, as is the case of exporting companies, for example, the demand for good financial intermediation drives the development of the financial system. The Brazilian banking system is structured in large segments. ...
... This potentially reduces opposition to financial reform. Other works such as Do and Levchenko (2007) and Sare et al. (2018) have shown empirically that financial systems strongly influence international trade: as greater participation in international trade (including through greater trade openness) exposes countries to the vagaries of the international markets, well-developed domestic financial systems provide countries with a powerful insurance instrument to reduce barriers to trade, and hence help promote international trade (see also Kim et al. 2010Kim et al. , 2012. While the literature tends to show that financial development influences positively trade openness, the direction, and the extent to which financial development affect tax revenue would ultimately depend on how trade openness itself affects tax revenue. ...
This study examines the effect of financial development on non-resource tax revenue performance in developing countries through the international trade channel. The empirical analysis has relied on a sample of 104 developing countries over the period 1980–2014, and used the two-step system Generalized Methods of Moments (GMM) approach. Results show that financial development exerts a positive effect on non-resource tax revenue performance. Interestingly, this positive effect takes place through a higher trade openness, a greater export product diversification and a higher share of manufactured exports in total export products. The analysis, therefore, highlights some avenues through which deepening domestic financial markets can affect tax revenue performance in developing countries.
... Huang and Temple (2005) found positive relationships between trade openness and financial development in countries that are open to capital flows, like Brazil. Do and Levchenko (2006) argued that, in countries that are richly endowed with physical capital and specialize in capital-intensive industries, as is the case of exporting companies, for example, the demand for good financial intermediation drives the development of the financial system. The Brazilian banking system is structured in large segments. ...
Purpose
Banks play a crucial role in the sustainable development of exports as they finance much of the trade. Additionally, in Brazil's case, banks provide exporting companies with advisory and training services, which facilitate the internationalization process. This work aims to analyze the role of public and private banks in the export process of companies in Brazil.
Design/methodology/approach
Interviews are conducted with a sample of 318 Brazilian exporting companies. Two research questions are posed: What type of export services do companies use from public and private banks in Brazil? Is exporting companies' access to credit, as a type of banking service, related to their size or export experience? A descriptive study of the functions of public and private banks in helping Brazilian exports is presented. Hypotheses are proposed regarding companies' access to credit and its relationship with their size and export experience.
Findings
It is found that public and private banks in Brazil provide exporting companies with banking services, other services related to technical aspects, and export consulting. There are significant differences in access to credit in both public and private banks, depending on the exporting company's size.
Originality/value
This work contributes to the internationalization literature on the role of banks in supporting exports in an emerging country like Brazil.
... First, in strengthening previous empirical studies, such as those of Rigobon and Rodrik (2005) and Rodrik et al. (2004), Jiao and Wei (2017) find that geographically predetermined overall openness to trade positively affects institutional quality. Second, Do and Levchenko (2007) and Levchenko (2013) show positive effects on a country's rule of law stemming from specializing in exporting institutionally intensive manufacturing goods. Third, a dependence on natural resources may deteriorate institutional quality (e.g., Alexeev and Conrad, 2009;Bhattacharyya and Hodler, 2010). ...
Recent literature has analyzed three main channels regarding the effect of international trade on legal institutions: overall openness to trade, a specialization on institutionally intensive exports, and a dependence on exports of natural resources. Unlike previous literature, we examine all these channels within a single regression framework. Importantly, we develop a new measure of institutional intensity of exports at the goods level based on nearly one hundred million disaggregated bilateral trade flows. Our new measure shows that goods subject to international fragmentation of production are the most institutionally intensive. Using a sample of 144 countries, our regression results show that specialization on institutionally intensive exports, especially on fragmented goods, helps countries to improve their rule of law. In addition, we find that greater openness improves the rule of law, but we fail to find any effect from natural resources exports.
... ENDNOTES 1 Financial development is usually exogenous. Do and Levchenko (2007) point to a reverse link and argue that a comparative advantage can shape financial institutions. For instance, a country specializing in financially intensive goods faces high demand for external finance, which fosters intermediation. ...
Innovative production is driven by creative destruction. High turnover requires frequent reallocation of capital. Banks play a major role in capital reallocation by withdrawing funds from nonviable firms and redirecting credit to scale up the most productive firms. Structural parameters of the banking system thus affect a country’s comparative advantage in innovative sectors. Using a Heckscher–Ohlin model with banks, this paper shows how insolvency laws, investor protection, and bank capital regulation shape reallocation, specialization, and trade patterns.
... Measuring credit market development by credit to the private sector as a share of GDP is appropriate because it is in line with the empirical literature. Studies such as Adusei (2019), Adeleye, Osabuohien, Bowale, Matthew, and Oduntan (2018); Ang and Kumar (2014), and Do and Levchenko (2007) have used it to measure financial development. ...
The nexus between corporate disclosure and credit market development as well as whether the nexus is sensitive to the income classification of countries is not well delineated in the empirical literature. The objective of this paper is to interrogate these issues. In addressing these important issues, we rely on a panel of 122 countries and deploy a battery of econometric techniques. Generally, we find that corporate disclosure promotes credit market development. The results from the analysis of subsamples suggest that the effect of corporate disclosure on credit market development is sensitive to creditor rights protection and the income status of a country. In particular, there is evidence that the interaction between corporate disclosure and creditor rights protection significantly benefits the credit markets only in upper-middle-income countries.
... Using an extended model to analyse the effect of human capital and institutional quality on GDP per capita for several country-groups in the core model, Basu and Das (2011) find that a flow of credit and well-functioning financial markets are necessary to sustain higher levels of economic performance. This perhaps supports Do and Levchenko (2007) who point out that it is accepted to consider the financial system as an endowment, and for that reason, variances in financial development may be perceived as sources of comparative advantages in global trade. ...
Regional trade can be a powerful engine of economic growth and sustainable job creation. Despite the global economic slowdown after the Global Financial Crisis (GFC) of 2008, growth in Sub-Saharan Africa (SSA) remained strong, mainly supported by resilient domestic demand and increased investment flows. Embracing high growth markets with a potential of sustaining import demand is a clear objective of most exporting firms. Thus, given that import demand in South Africa’s traditional markets has been declining over the years, the need for South African exporting firms to pursue the growing SSA market is further strengthened.
The World Bank (WB) published a report in 2014 focusing on South Africa’s export competitiveness and points out that South Africa’s exports to SSA have remained smaller and more short-lived than exports to its traditional markets. This is despite SSA increasingly becoming an important export destination for South Africa as well as a regional trade priority for South African policymakers. Therefore, this makes identification of sustained export potential in SSA and evaluation of the country’s utilisation of this potential important and triggers the main question of this study: is South Africa utilising its sustained export potential in SSA?
The overall objective of this study is to evaluate South Africa’s utilisation of sustained export potential in SSA. The methodology applied to achieve this involved three steps. The first step focused on: the identification of markets with consistently large and/or growing import demand in SSA for all products at HS6-digit level, in step 1.1; and the identification of products which South Africa consistently export competitively (sustainable exports), in step 1.2. This analysis was done over a five-year period from 2010 to 2014. The second step focused on matching SSA markets (product-country combinations) with consistently large and/or growing import demand to South Africa’s consistently competitive export supply products. These matches are considered product-country combinations with sustained export potential in this study. The third step focused on evaluating South Africa’s actual exports to these product-country combinations over the same five-year period as an indication of the country’s utilisation of sustained export potential in SSA.
The literature study focused on the discussion of the importance of exporting in an economy, export growth in the intensive and extensive margins of trade, export sustainability, export structure, and non-trade barriers as highlighted in international trade literature. It is acknowledged that international trade has been an important tool for enhancing competitiveness in developing countries. In fact, as a result of increased trade, emerging economies are increasingly moving towards convergence with developed countries evidenced, for instance, by the increase in per capita GDP of G20 developing countries.
This study finds that South Africa is utilising 58% of its sustained export potential identified in SSA (growing exports). However, it is underutilising 21% of its sustained export potential identified in SSA (declining exports). In addition, the country is non-utilising 21% of its sustained export potential identified in SSA (no exports). Most of the export potential that South Africa is utilising is in SSA countries in Eastern Africa whereas most of the export potential that South Africa is underutilising as well as non-utilising is in SSA countries in Central and Western Africa.
Following the main findings of this study, policymakers, export promotion organisations, and industry associations are recommended to investigate the reasons behind South Africa’s underutilisation and non-utilisation of sustained export potential identified in SSA. However, focus should not be completely re-directed from sustained export potential that South Africa is already utilising in SSA. Instead, policymakers, export promotion organisations, and industry associations can use the results of this study as a starting point in obtaining information and formulating export promotion strategies for the specific countries and matched product-country combinations identified in SSA.
Keywords: Exports; imports; export sustainability; export growth; intensive margin; extensive margin; Sub-Saharan Africa (SSA); South Africa; matched product-country combinations.
... We address reverse causality by instrumenting CP with the deviations of the observed flow of cultural trade with respect to its predictions obtained from an ad hoc structural gravity model. 23 We took inspiration from the strategy originally proposed by Frankel and Romer (1999) for the analysis of trade's growth effect (also see Do & Levchenko, 2007;di Giovanni & Levchenko, 2009, for some extensions to the original idea). Using deviations from a country's 'Natural Openness' to cultural trade as an instrument hinges on the idea that, assuming cultural preferences to be properly identified and the gravity model fitting adequately the data, every deviation between actual and structural flows reflects the premium assigned to a country's cultural production by an economic partner. ...
This paper studies bilateral cultural preferences as an asymmetric dimension of cultural proximity and estimates their effect on greenfield foreign direct investment (FDI). We derive a gravity equation of FDI and test simultaneously the impact of both (i) the preferences of investing countries for recipients’ culture; and (ii) recipients’ preferences for the culture in the investing economies. While the role of investors’ preferences can be rationalized with existing supply‐side gravity theories of FDI, we propose new mechanisms to explain why recipients’ preferences might matter as well. We use exports and imports of cultural goods to proxy for the two directions of cultural preferences. Our results reveal a stronger investment effect of the recipients’ preferences, a channel so far understudied.
... We examine the impact of trade openness on financial development in sub-Saharan African countries. Several studies have identified a link between finance and openness (see, for example: Newbery and Stiglitz, 1984;Braun and Raddatz, 2005;Do and Levchenko, 2007;Baltagi, Demetriades and Law, 2009;Kim, Lin and Suen, 2010;Iyke, Antwi-Asare, Gockel and Abbey, 2016). For example, Rajan and Zingales (2003) argue that trade and capital account openness may promote financial development by enhancing foreign direct and portfolio investments. ...
... To ensure that our results on the effects of culture are robust to such disease outbreak, we include a SARS indicator in the model, which equals one for countries that reported SARS deaths in 2003 and zero otherwise. 25 Rajan and Zingales (2003) and Do and Levchenko (2007) show that a country's stock market development is driven by the level of its trade openness. During the COVID-19 pandemic, Hassan et al. (2020) and Ramelli and Wagner (2020) document that firms consider the potential impact of the COVID-19 disease on their performance domestically and internationally. ...
National culture has been shown to impact the way investors, firm managers, and other financial market participants respond to crisis. To date, however, none has looked at the impact of culture on market responses to disasters. This paper is the first to address the effect of national culture on stock market responses to a global health disaster. We find larger declines and greater volatilities for stock markets in countries with lower individualism and higher uncertainty avoidance during the first three weeks after a country’s first COVID-19 case announcement. Our results are robust after controlling for investor fear, cumulative infected cases, the stringency of government response policies, the level of democracy, political corruption, and the 2003 SARS experience, among others.
... The importance of foreign trade has been evaluated in other articles by other authors. Some of them are analysing international trade from more theoretical point of view, for example Broda & Weinstein (2006), Chen & Juvenal (2018), Cernohlavkova et al. (2013), Do & Levchenko (2007), Do, Levchenko & Raddatz (2016), Ready, Roussanov & Ward (2017), or Vannoorenberghe (2014). The other authors are using more global point of view, such as Baier, Bergrstrand & Feng (2014), Cieslik, Bieganska & Sroda-Murawska (2016), Cieslik, Bieganska & Sroda-Murawska (2016), Colantone & Sleuwaegen (2010), Gnangnon (2018), McCalman (2018), Reimer (2006), Samarina et al. (2015), or Yanase & Tawada (2017). ...
... Studies asserting that capital inflows possess some fundamental attributes observed that capital inflows are volatile in an environment of increasing financial globalization, macroeconomic and macro prudential measures [14], the state of financial sector development, institutional and legal frameworks, [20], [12], [20], [28], [21], [4]. Nonetheless, going by the studies that had advocated financial sector development in curbing capital inflows volatility, the role of banking sector development in explaining capital inflows volatility is depicted in equation (1): ...
The paper aimed at testing the possibility of a causal relationship between banking sector development and foreign Investment inflow volatility in Nigeria from the period of the most recent financial crises of 2008 to 2014 using Toda and Yamamoto (1995) causality test. The result showed that there exists a unidirectional causal relationship from foreign direct investment volatility to banking sector efficiency also; there exists a unidirectional causal relationship from banking sector access to foreign direct investment volatility in the years under investigation. Also, a unidirectional causal relationship exists from the various indicators of banking sector development (banking access, banking efficiency and banking stability) to foreign portfolio investment volatility (except for banking sector depth with no causal relationship). However, there was no causality found between other foreign investments and banking sector development. The paper concluded therefore that, there exist a causal relationship between banking sector development and foreign investment inflows volatility in Nigeria.
... On the other hand, Do and Levchenko (2007), approaching the issue from the opposite point of view of Kletzer and Bardhan (1987), examine the effect of comparative advantage in international trade on the financial development level of a country. According to the authors, the demand for external financing of countries with comparative advantage in financing dependent goods increases, thus accelerating financial development. ...
During the global financial crisis in 2008, the world trade experienced a large and severe collapse. Between 2008 and 2009, world exports and exports in Turkey decreased by 16% and 22%, respectively. The recent research has shown that the slowdown in global demand and tight financing conditions are the main factors behind this drop in exports. Auboin (2009) has stated that the 10%–15% decline in international trade after the global financial crisis may be due to the decline in commercial finance. In addition, the decline in commercial finance is particularly important for developing countries that have many sectors dependent on external financing. This study examines the reasons of the decline in exports in the world especially in Turkey during global financial crisis and assesses whether the financing constraints have contributed to this collapse.This study considered as a literature review consists of theoretical framework of the relationship between export and export financing. In order to show whether there is an effect of financing in international trade, firstly, research on the financial models is included in the classical models of international trade that show the dependence of international trading companies to financing. Secondly it has been utilized studies that analyzing of empirical evaluations of the effects of the external trade firms’ dependence on external financing.
Keywords: Financial development, export financing, international trade, financial crisis
... When analysing the impact of comparative advantage in international trade on a country's level of financial development, Do and Levchenko (2007) showed that countries enjoying comparative advantage in financially intensive goods had a greater demand for external finance and therefore experienced financial development. Their sample included 96 countries, both developed and developing, over the period 1970-1999. ...
The emphasis of international trade theories shifted in the last forty years, from comparative advantage, to scale economies and product differentiation. More recently, the “new” new trade theories have stressed the role of firm heterogeneity, which has led to a renewed interest on the study of how credit constraints may hamper the export activities of firms. In this paper, we provide a brief survey of the relationship between international trade and finance, a field that only recently has been the subject of systematic analysis in the economic literature, from both a theoretical and empirical point of view. In general, barriers to external financing play a significant role as an obstacle to the exporting activity of firms, especially for younger and smaller firms; and these results would have been reinforced by the global financial crisis.
... The consequences of fiat money for trade, finance, and the international distribution of wealth _______________________________________________________________________________________ 116 globalization and real shocks ( Kose et al. 2003, Coeurdacier et al. 2009), price inflation dynamics Some studies have also shown a strong causal link of opposite direction: from the degree of trade integration toward financial openness and development ( Cripps et al. 2007). From an economic perspective, Do and Levchenko (2007) argued that trade liberalization brings about an increase in the demand for finance from countries with financially intensive exports, which in turn induces financial development. From a political perspective, Rajan and Zingales (2003) argued that trade liberalization increases incentives for private interests to favor financial deregulation and ...
This dissertation endeavors to offer a way to bridge the gap between the analysis of real and monetary phenomena in international economics. To this end, I analyze Cantillon effects, i.e. the differential impact of monetary expansion on prices, production, wealth, and the pattern of international trade. In Part I review the standard literature in international economics from the 19th century to contemporary theories. In Part II I use the contributions of Ludwig von Mises to the theory of money and business cycles as the foundation for the analysis of monetary expansion and international trade. In Chapter 4, I focus on the relationship between financial development and international trade. In Chapter 5, I analyze the impact of inflation and5fractional reserve banking on trade finance, and the transmission of business cycles across national borders. The main findings of my research are that monetary expansion modifies the direction, composition, volume and value of trade and capital flows. I apply this framework in Chapter 6, to explain the evolution of merchandise and capital flows over the last decades, and illustrate my findings with statistical evidence from the most recent financial crisis and the global trade collapse of 2008-2009. In Part III I analyze the impact of monetary expansion on international industrial organization, and the global distribution of income and wealth. In the concluding section, I draw out the major implications of my analysis for international trade and monetary policies, and its importance for future research.
... Trade openness increases the demand for external finance and consequently leads to financial sector development (Do and Levchenko, 2007). Do and Levchenko (2004) argue that the effect of trade openness on financial sector development differs across countries due to differences in wealth. ...
Since the seminal paper by Rajan and Zingales in 2003, a plethora of studies have been motivated to establish whether the simultaneous opening of trade and capital borders leads to financial sector development. We test whether the simultaneous openness hypothesis is valid for Nigeria, with a focus on the banking sector and stock market. Using annual data from 1990 to 2015 and an instrumental variable regression estimation technique, we show that the simultaneous increase of trade and financial openness limits banking sector and stock market development. Thus, there is no empirical evidence to validate the simultaneous openness hypothesis in Nigeria. It also shows that trade openness is more beneficial for banking sector and stock market development in Nigeria than financial openness.
... The profession does not unanimously share this view. Do and Levchenko (2006) defines the Bank's functions as engaging in investment, not intermediating capital. 49. ...
A multilateral development finance institution for the Inter-Governmental Authority on Development (IGAD) region represents the chance to create a strong pro-developmental actor—and energise the IGAD itself. Yet, senior IGAD officials will need to look beyond the traditional development banking model if they hope to make an impact of the scale needed to drag these poorest of countries out of poverty. In this article, the author argues for the design of a development bank modelled after successful role models—like the China Development Bank—instead of proven failures. A mix of government and private sector participation, a widely disbursed capital base and a temporary base in London will help ensure the proposed IGAD Communities Development Bank acts as bridge and vector of pro-developmental capitalism in the IGAD region.
... Trade credit is measured as an open account transaction in which payment is typically due 30-90 days after delivery of an export (Demir and Javorcik, 2014). This type of credit is therefore only able to satisfy short-term financing needs. ...
This paper analyzes the impact of banking crises on manufacturing exports, exploiting the fact that sectors differ in their needs for external financing. Relying on data from 160 developed and developing countries during 1970–2012, we analyze 147 banking crisis episodes and separate their impact on export growth from the impact of other exogenous shocks (e.g., demand shocks, exchange rate shocks). Our findings show that during a crisis, the exports of sectors more dependent on external finance grow significantly less than other sectors. However, this result holds only for sectors that depend on banking finance as opposed to interfirm finance (i.e., trade finance or trade credit). For sectors that depend heavily on banking finance, the effect of banking crises on exports is robust, additional to external demand shocks, and not driven by exchange rate shocks.
... In a contrasting approach, Do and Levchenko (2007) suggest that the degree of comparative advantage and pattern of trade can influence a country's level of financial development, rather than viceversa. They provide empirical evidence that specialization in industries requiring more external finance promotes more developed financial markets. ...
General equilibrium trade theory is one of the oldest subfields of economics. It has accumulated an impressive body of theoretical insights, many of which were discussed in the previous chapter of this handbook. This chapter surveys the empirical approaches that have been utilized linking the theory to the data. My emphasis will be on the development of the theoretical specifications that have been fruitfully applied to the empirical domain rather than on the empirical findings, per se.KeywordsComparative AdvantageAmerican Economic ReviewTrade CostFactor ContentFactor PriceThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
Using firm‐level customs data from 51 countries at different levels of development, we explore differential impacts of access to finance on incumbent and new exporters. Consistent with the literature, firms in sectors more dependent on external finance have higher exports based in financially more developed countries. This effect, however, occurs entirely through entrants, with no effect found for incumbents. The trade response of entrants works primarily through the extensive margin (number of exporters) rather than the intensive margin (average size). We further find access to external finance affects exporter entry rates while it does not affect exporter exit rates.
We study the role of financial development on the aggregate implications of reducing import tariffs on capital and intermediate inputs. We document empirically that financially underdeveloped economies feature a slower aggregate response following trade liberalization. To quantify these effects, we set up a general equilibrium model with heterogeneous firms subject to collateral constraints and estimate it using Colombian plant‐level data. We find that low financial development substantially limited the gains from trade liberalization in Colombia in the early 1990s. More broadly, we find that low financial development substantially limits both the aggregate and welfare gains from tariff reductions. This article is protected by copyright. All rights reserved
This paper empirically studies the impact of foreign direct investment (FDI) on financial development from 37 Asian nations covering the period 2001-2020 from a panel data set. The findings show that FDI has a positive impact on financial development, implying the spill-over effect of FDI in Asian financial markets. Furthermore, this study discovers that trade openness and population growth have a positive impact on financial development, while inflation affects financial development negatively. However, it is found that there is no relationship between government consumption and financial development in the Asian context.
As discussed by Lewis and Davis (1987), international banking broadly refers to the “cross-border and cross-currency facets of banking business.” This definition accords with a survey of international banking by Aliber (1984), which referred to “[t]wo distinct sets of issues…involved in the analysis of international banking.” One set of issues is international-finance concerns “involv[ing]…the role of banks in cross-border and cross-currency financial flows.” The other set entails industrial organization issues “center[ing]…on the patterns of expansion of foreign branches and subsidiaries of banks.” This activity, called multinational banking, involves foreign direct investment in facilities owned and directly operated in host nations separate from the enterprise’s home office.
The extent of intra-regional trading in influencing economic growth has not been given adequate attention in the literature. The Heckscher-Ohlin (H-O) factor endowment theory argued that the regional economy is usually blessed with common resources and expertise, thus an increase in intra-regional trading may only lead to trading of commonalities. This raise the questions of whether exports of commonalities may spur economic growth in the long-run. To further understand the issue, data spanning from 1995 to 2019 was employed and five groups of regional economies has been selected namely the ASEAN, EU, NAFTA, MERCOSUR and COMESA. By employing the GMM and 2SLS panel data which may allow for instrumental variables (IV) approach, this study further filled the gap in the literature. Based on the analysis, it is found that an increase export may reverse economic growth in intra-regional trading in most cases. This strengthens earlier argument that trading in commonalities is doubtful in promoting long-run economic growth. The findings are robust to diagnostic checking for both estimations techniques. This suggest that any regional economic arrangements should move away from intra-regional trading towards interregional trading in order to sustain more prominent economic growth in the long-run.
It focuses on the effect of exchange rate volatility on financial development in Nigeria and South Africa
This paper analyses the short‐ and long‐run effects of trade openness on financial development in a panel including data on 35 European countries over the period 2001–2019. For this purpose, it uses the pooled mean group (PMG) estimator for dynamic panels developed by Pesaran et al. (Journal of the American Statistical Association, 1999;94:621). The results differ depending on the income, governance and financial development level of the countries considered. In particular, it appears that in the middle‐income countries trade openness tends to strengthen financial development in the long run but to have an adverse effect in the short run. By contrast, in the case of high‐income countries with better institutions and a higher level of financial development, there is a positive and significant impact in the short run. Some policy implications of these findings are drawn.
This paper provided evidence on the effect of banking sector development on foreign capital inflows volatility in Nigeria from the period of the recent global financial crisis of 2008 to 2017. Using principal component analysis to derive an index for capital inflows volatility and another for banking sector development, Autoregressive Distributed Lag (ARDL) model corroborating the Long Run model with Generalized Methods of Moment (GMM) was employed. It was discovered that for the ARDL, volatility in banking sector development affects capital inflows volatility positively but not significantly whereas, this effect was negative and insignificant in the case of GMM. While the Short run model reveals that the effect of volatility in banking sector development on capital inflows volatility is negative. Therefore, based on this result, it was concluded that the effect of volatility in banking sector development on capital inflows volatility is insignificant in both the long run and short run time horizon although, there is a possibility of a nonlinear relationship in the effect of the banking sector development on capital inflows volatility. Thus, sequel works are recommended to validate this claim by investigating the nonlinearity of this relationship.
This article examines the role of institutional structures in the relationship between trade openness and financial development in sub‐Saharan economies. The study is based on empirical data from sampled sub‐Saharan African countries for a period of 1996–2017. The system generalized method of moment was employed to estimate the models. The findings suggest that, even though trade openness has a positive significant influence on the level of financial development in sub‐Saharan African economies, this relationship is enhanced through the presence of good institutions in these economies. Thus, for these economies to realize the full benefit of the effect of trade openness on financial development, they need to strengthen their institutions.
This study aims to analyze the dynamic relationship between trade, financial development and innovation in Turkey by employing the Toda and Yamamoto approach. The annual time-series data have been collected in the period of 1973-2016. The empirical evidence highlights bidirectional link between the variables of interest. Accordingly, trade openness tends to Granger cause financial development but can also be just accompanying result of the improvement in financial development. Moreover, technological innovation is found to Granger cause both, trade openness and financial development. Technological innovation is found to be caused by the other variables of interest. Similar conclusion is drawn for the case of financial development. Thus, government needs to make significant effort to promote technological innovation by increasing the number of patents and enhancing financial development, to decrease the information asymmetry and to ease the flow of information.
This study examines the empirical relationship between financial development and merchandise trade in Nigeria using annual data from 1981 to 2014. The empirical analysis is also carried out on the disaggregated components of the trade, that is, merchandise export and import, for robust analysis. Estimation results based on error correction model show that there exists significant long run positive relationship between financial development and export in Nigeria over the period under study. There is need for government to therefore provide enabling environment for financial sector to thrive through sound macroeconomic policies for effective economic diversification through export.
Este trabalho buscou mensurar como o grau de desenvolvimento financeiro do Brasil e dos principais parceiros comerciais afetou o valor exportado pelo país; quantificar a relação entre dependência financeira de setores selecionados, grau de desenvolvimento financeiro e o valor exportado pelo Brasil em cada setor. A análise é operacionalizada por meio da estimação do modelo gravitacional utilizando o método de regressão quantílica com correção para a seletividade amostral. De maneira geral, os coeficientes estimados indicaram que o desenvolvimento financeiro brasileiro não é importante estatisticamente para determinar as suas exportações. Todavia, quando se analisou o grau de dependência financeira dos setores, encontrou-se relação positiva e significativa entre o desenvolvimento financeiro nacional e o valor exportado.
Este trabajo revisa gran parte de la literatura dedicada a estudiar los efectos del comercio internacional sobre el crecimiento económico, el mercado laboral, la distribución del ingreso y el bienestar. De esta revisión se desprende que la integración comercial promueve el crecimiento, principalmente a través de mejoras en la productividad agregada de la economía, a la vez que genera una transformación de la estructura productiva que acarrea ganadores y perdedores. Además, los mercados están sujetos a fricciones que ralentizan las transiciones y acentúan los efectos heterogéneos del comercio sobre firmas, industrias, regiones y, en definitiva, sobre el bienestar de distintos individuos. Estos efectos se agudizan en presencia de restricciones financieras, baja movilidad laboral y debilidad institucional. En este contexto, es fundamental comprender los mecanismos por los cuales el comercio internacional genera dichos efectos para mejorar el diseño de políticas costo-efectivas, que permitan suavizar el proceso de ajuste para trabajadores y regiones desplazadas en pos de compartir los beneficios del comercio entre todos los miembros de la sociedad. Palabras clave: comercio internacional, productividad, mercado laboral, desigualdad, bienestar.
In this paper we investigate how supply and demand shocks in one country affect output volatility in other countries. While the evidence for cross‐country transmission of demand shocks is mixed, we find that volatile supply in one country leads to larger imports and output volatility in other countries. As a result, the effect of trade openness on output volatility is highly heterogeneous across countries and depends on the composition of their trade. Those countries whose imports originate in economies with volatile supply experience a greater impact of trade on output volatility.
A sizeable literature suggests that financial sector development could be an important enabler of the growth benefits of trade openness. We provide a comprehensive analysis of how financial development can affect the relationship between trade openness and growth using a dynamic panel threshold model and an extensive dataset for a large sample of countries for the 1970–2015 period. We find that there is a financial development threshold in which trade openness has a positive and significant link with economic growth. We also find that when splitting the sample into industrialized and non-industrialized countries, the financial development threshold that enables the trade and growth association is higher in the former group of countries than in the latter. This finding is consistent with the fact that the export composition of industrialized countries is tilted towards more capital-intensive finance-constrained goods.
This study investigates the macroeconomic determinants of financial institutions development in a panel of 32 countries in sub-Saharan Africa from 1985 to 2015. Using the two-step system generalized method of moments dynamic panel model estimation approach, the results reveal that trade openness, income, and government expenditure are positive determinants of financial institutions development while higher inflation inhibits improvement in financial institutions. The results suggest that financial institutions are better developed in countries with higher trade openness, income, and government expenditure and are less developed in high-inflation countries. The results are not robust to the dimensions of financial institutions development considered in this study. Policy implications are documented.
Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: under heteroskedasticity, the parameters of log-linearized models estimated by OLS lead to biased estimates of the true elasticities. We explain why this problem arises and propose an appropriate estimator. Our criticism of conventional practices and the proposed solution extend to a broad range of applications where log-linearized equations are estimated. We develop the argument using one particular illustration, the gravity equation for trade. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Does financial development translate into a comparative advantage in industries that use more external finance? We use industry-level data on firms' dependence on external finance for 36 industries and 56 countries to examine this question. We show that countries with better-developed financial systems have higher export shares and trade balances in industries that use more external finance. These results are robust to the use of alternative measures of external dependence and financial development and are not due to reverse causality or simultaneity bias.
This paper explores a possible link between financial development and trade in manufactures. The theoretical model focuses on the role of financial intermediaries in facilitating large-scale, high-return projects and shows that economies with better-developed financial sectors have a comparative advantage in manufacturing industries. We provide evidence for this hypothesis, first proposed by Kletzer and Bardhan (Journal of Development Economics 1987;27:57–70), using a 30-year panel for 65 countries. Controlling for country-specific effects and possible reverse causality, we show that financial development exerts a large causal impact on the level of both exports and the trade balance of manufactured goods.
We develop an equilibrium model to understand how the efficiency of capital allocation depends on outside investor protection and the external financing needs of firms. We show that when capital allocation is constrained by poor investor protection, an increase in firms' external financing needs may improve allocative efficiency by fostering the reallocation of capital from low to high productivity projects. We also find novel empirical support for this prediction.