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G18 - Government Policy and Regulation

Government Policy and Regulation

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Do Government Guaranteed Small Business Loans Promote Economic Growth and Entrepreneurship?

This paper examines the impact of government guaranteed small business loans on urban economic growth, and compares the growth impacts of government versus market financed entrepreneurship. OLS estimates indicate a significant and positive relation between the Small Business Administration’s guaranteed loans and metropolitan growth between 1993 and 2002. However, first-difference and instrumental variable regressions show no growth impact from government guaranteed loans. In contrast, market entrepreneurship significantly and positively contributes to local economic growth.

Should Chinese Citizens Be Allowed to Invest in China's Corporate Bond Market?

Currently, there is almost no participation from private individuals in China’s corporate bond market and corporate bonds are primarily held by China’s large commercial banks. This paper presents a theoretical proof that such an arrangement is suboptimal from the individual’s perspective. To improve investor welfare, authorities should implement policies to facilitate individual investment in corporate bond.

China's Financial Conundrum and Global Imbalances

China’s financial conundrum arises from two sources: (1) its large saving (trade) surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead foreign currency claims (largely dollars) build up within domestic financial institutions. And (2), economists—both American and Chinese—mistakenly attribute the surpluses to an undervalued renminbi. To placate the United States, the result is a gradual appreciation of the renminbi against the dollar of 6 percent or more per year.

Explaining the Migration of Stocks from Exchanges in Emerging Markets to International Centers

We study the determinants of stock market development and the growing migration of capital raising, listing and trading activity to international exchanges. Economies with higher income per capita, sounder macro policies, more efficient legal systems with better shareholder protection, and more open financial markets have larger and more liquid markets. As such fundamentals improve, however, the degree of migration to international exchanges also increases. This leads to gains for corporations in the form of lower costs, better terms and more liquidly-traded shares.

Government Bonds in Domestic and Foreign Currency: The Role of Macroeconomic and Institutional Factors

The development of government bond markets and, in particular, their currency composition have recently received much interest, partly because of their perceived links with financial crises. This paper studies determinants of the size and currency composition of government bond markets for a panel of developed and developing countries. We find that countries with larger economies, greater domestic investor bases and more flexible exchange rate regimes have larger domestic currency bond markets, while smaller economies rely more on foreign currency bonds.

Banking With and Without Deposit Insurance: Mexico's Banking Experiments, 1884-2004

The author examines the long history of banking regulation in Mexico from 1884-2004. He identifies three "experiments" in Mexico's banking history (1884-1911, 1924-1982, 1991-1996) during which banking regulation and the political environment differed, and analyzes reasons why deposit insurance was or was not adopted in each.

Foreign Banks and the Mexican Economy, 1997-2004

In 1997 Mexico allowed foreign banks unrestricted entry to the market, allowing multinational banks to acquire almost all of Mexico's large banks. At the same time, the Mexican banking system began to limit private credit, in both absolute and relative terms. We investigate the hypothesis that these phenomena are related, and find for the null hypothesis: the contraction in credit is not related to foreign entry. The evidence does suggest, however, that foreign banks are better able to screen borrowers and charge lower interest margins than domestic banks.

Political Institutions and Financial Development: Evidence from the Economic Histories of Mexico and the United States

Why is there considerable variation across countries in levels of financial development? The extant literature points to two explanations: legal origin and political institutions. This paper adjudicates between these two explanations by tracing the process by which the banking systems of the United States and Mexico developed from independence to 1913. This analysis indicates that political institutions—particularly those that created institutionalized competition among political entities—played a determinative role in the size and structure of each country's banking system.

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