International finance

Randolph Bruno, Nauro Campos, Saul Estrin, 17 July 2021

Do different economic integration arrangements vary in terms of their capacity to attract foreign direct investment? This column uses a structural gravity framework on annual bilateral FDI data for 142 countries between 1985 and 2018 to revisit this question. It finds that deep integration in the form of EU membership increases FDI by about 60% from outside the EU and by about 50% from within the EU. The effect of EU membership on FDI appears to be significantly larger than that from the less deep integration arrangements (EFTA, NAFTA, or MERCOSUR), with the Single Market the cornerstone of this differential impact. 

Cathérine Casanova, Beatrice Scheubel, Livio Stracca, 04 June 2021

Since the Global Crisis, the channels of capital flows have changed significantly. This column analyses key trends and underlying drivers of capital flows since the Global Crisis, including the policy trade-offs. It documents the increasing importance of market-based funding, a growing reliance on domestic currency liabilities, and a less stable foreign direct investment environment, particularly for emerging market economies. Although these changes create risks which should be managed, capital flows also present clear benefits for stimulating economic performance and efficiency. 

Michele Ca' Zorzi, Luca Dedola, Georgios Georgiadis, Marek Jarociński, Livio Stracca, Georg Strasser, 25 May 2021

There is growing need to understand the international dimension of monetary policy. This column argues that ECB and Federal Reserve monetary policy decisions spill over to other countries asymmetrically. At the bilateral level, the Fed’s impact on the euro area is material to firms’ financial conditions and economic activity. Conversely, the impact of the ECB’s actions on the US economy is minimal. On a global scale, both central banks’ monetary policies matter for other countries, but the Fed’s monetary policy has a more sizeable impact, particularly on foreign financial variables, such as corporate bond spreads.

Avinash Persaud, 01 April 2021

The servicing and rolling over of the public and private debt of middle-income countries is a major point of COVID-19-induced stress in the global economy. The G20’s Debt Service Suspension Initiative is a worthy initiative, but it does not address this issue. This column outlines three related steps that may help avoid a crisis. The centre-piece is recycling new and unused Special Drawing Rights for debt reduction through the repayment or repurchase of debt. Moral hazard can be addressed by reducing only those debts held by official creditors and up to an amount equal to fiscal expenditures relating to natural disasters – COVID-19 and climate change, principal amongst them.  

Clemens Graf von Luckner, Josefin Meyer, Carmen Reinhart, Christoph Trebesch, 30 March 2021

Today, more than half of low-income countries eligible for relief under the Debt Service Suspension Initiative are either in debt distress or at high risk. Several emerging markets have either recently restructured (Argentina and Ecuador) or remain in default (Lebanon, Surinam, and Venezuela). In this context, this column reviews some of the features of external sovereign debt restructurings. It shows that default spells are lengthy and that the road to debt-crisis resolution is often littered with serial restructuring agreements.  

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