We develop a model of foreign direct investment (FDI) in which financially liquid foreign firms acquire liquidity-constrained target firms. Using a large dataset of emerging-market acquisitions, we find evidence supporting three central predictions of the model: (i) firms in external finance dependent and intangible sectors are more likely to be targets of foreign acquisitions; (ii) these targets have ownership structures with larger foreign stakes; (iii) these effects are most prominent in countries with low levels of financial development. The regression evidence indicates that liquidity is at least as economically important as technology- or trade-related motives for FDI in emerging-market economies.
A surprisingly large number of countries have been able to finance a significant fraction of domestic investment using foreign finance for extended periods. While many of these episodes are in low-income countries where official finance is more important than private finance, this paper also identifies a number of episodes where a substantial fraction of domestic investment was financed via private capital inflows. That said, foreign savings are not a good substitute for domestic savings, since more often than not episodes of large and persistent current account deficits do not end happily. Rather, they end abruptly with compression of the current account, real exchange rate depreciation, and a sharp slowdown in investment. Summing over the deficit episode and its aftermath, growth is slower than when countries rely on domestic savings. The paper concludes that financing growth and investment out of foreign savings, while not impossible, is risky.
Recent attempts to connect the current ‘next billion’ to the Internet in places such as sub-Saharan Africa have not met expectations. In places where Internet infrastructure has come online and prices have gone down, the expected consequent increase in uptake was not observed. I develop a framework that incorporates language in the the two-sided markets framework, viewing differences as transaction costs. As a result of the cross-side network effects, it is difficult to isolate the causal effect of one on the other. The exogenous introduction of the Setswana language interface on the South African Google Search website was a spillover of the development of that interface for the Botswanan Google website. This exogenous improvement in the accessibility of Setswana-language content has resulted in a substantial increase in the number of native Setswana speakers coming online and owning personal computers. This is turn has also led to increased usage of the Setswana language online. This adoption appears to also lead to improvements in employment.
The paper reviews the latest technological tools that arguably can contribute to reducing the excessively high costs of remittance transactions in Africa. Indeed, despite huge remittance inflows to and within the continent, Africa is the most expensive destination to send money to. As remittances have become more important than Overseas Development Assistance and Foreign Direct Investment inflows in some countries, it has become crucial to explore technological advances that can contribute to reducing their transaction costs. Such reduction would enable the end beneficiaries to capture a larger share of these external resources, which in turn could have an even bigger impact on development in Africa. In addition to revisiting the role of mobile banking in lowering remittance transaction prices, the paper takes a closer look at the newest available technology, the Bitcoin block chain technology that underpins digital currencies. Although, a few top schools, such as Cambridge University’s Judge School of Business, Georgetown’s McDonough School of Business, and UNSW Business School in Sydney, have conducted research into bitcoin and the blockchain, at this early stage, still very few social science researchers have addressed the role that such digital currency could play in the reduction of the remittance transaction prices, in addition to a few innovative Bitcoin operators. The paper proceeds as follows. It first looks at the causes of the high remittance transaction costs. Then, it reviews, presents and analyses the official remittances data downloaded from the World Bank's Remittances Prices Worldwide database. It also briefly reviews a few remittance transfer technological instruments. Given the novelty of the topic, the review of the most recent existing "literature" on Bitcoin is mainly retrieved from either online news sources or information from a few leading Bitcoin operators. In the light of the UN Global Working Group Post-2015 Development Agenda and Sustainable Development Goal proposal to reduce by 2030 the remittance transaction costs to even less than 3%, the effectiveness of these new technological instruments to reach such objective are discussed. Finally, a number of appropriate policy actions to foster the economic impact of remittances are proposed.
Motivated by a set of stylized facts, we develop a model of cross-border mergers and acquisitions (M&As;) to study foreign direct investment (FDI) in emerging markets. We compare acquisitions undertaken during financial crises – so called fire-sale FDI –with acquisitions made during non-crisis periods to examine whether the outcomes differ in the ways predicted by the model. Foreign acquisitions are driven by two sources of value creation. First, acquisitions by a foreign firm relax the target's credit constraint (i.e., a liquidity motive). Second, acquisitions exploit operational synergies between the target and the acquirer (i.e., a synergistic motive). During crises credit conditions tighten in the target economy and the liquidity motive dominates. The model predicts that during crisis relative to non-crisis periods, (1) the likelihood of foreign acquisitions is higher; (2) the proportion of foreign acquisitions in the same industry is lower; (3) the average size of ownership stakes is lower; and (4) the duration of acquisitions is lower (i.e., acquisition stakes are more likely to be flipped). We find support for (1) but not for the other three predictions. The results thus suggest that foreign acquisitions in emerging markets do not differ in these important ways between crisis and normal periods.
The educational gender gap has closed or reversed in many countries. But what of gendered labour market inequalities? Using micro-level census data for some 40 countries, the authors examine the labour force participation gap between men and women, the “marriage gap” between married and single women’s participation, and the “motherhood gap” between mothers’ and nonmothers’ participation. They find significant heterogeneity among countries in terms of the size of these gaps, the speed at which they are changing, and the relationships between them and the educational gap. But counterfactual regression analysis shows that the labour force participation gap remains largely unexplained by the other gaps.
Does the government control of school systems facilitate equality in school quality? Whether centralized or localized control produces more equality depends not only on what ‘could’ happen in principle, but also on what does happen in practice. We use the Programme for International Student Assessment (PISA) database to examine the association between school sector and the variance in school fixed effects. We find, on average, the same inequality in adjusted learning achievement across the private and public schools. However, in some countries, such as Denmark, there is more equality across the public sector schools, while in others, such as Mexico, there is more equality across the private schools. Among the 18 non-OECD countries, the standard deviation across schools in adjusted quality is, on average, 36% higher in government schools. Our findings suggest that top-down educational systems in weak states can be lose-lose relative to localized systems relying on bottom-up control, producing both worse average performance and higher inequality.
Countries with weaker domestic investor protection hold less diversified international portfolios. An equilibrium business cycle model of North-South capital flow with corporate governance frictions between outside investors and corporate insiders explains this phenomenon through two channels. First,weak governance leads to concentrated ownership in the South because international diversification by insiders is penalized by lower stock market valuation. This reduces the float portfolio, or the supply of South assets. Second, weak governance tilts the demand of South outside investors towards domestic assets to hedge labor income risk. This is due to a higher share of labor in income, which increases labor income risk. In addition, the dynamics of investment under insider control leads relative dividend and labor income to be more negatively correlated in the South, making domestic assets a better hedge against local labor income risk. I find that the insider ownership and hedging channels are responsible for at least 29% and 11%, respectively, of the cross-country variation in international diversification. Thus, weak institutions lower international diversification primarily through concentrated ownership of firms, with outsider hedging also playing a quantitatively significant role.
