International finance

Lorenzo Forni, Philip Turner, 15 January 2021

Dollar bond issuance by non-US companies has dominated foreign borrowing since the global crisis. In many emerging markets, higher leverage and currency mismatches have increased the risk of corporate insolvencies and created new threats to the balance sheets of local banks. This column documents the financial risks created by these recent trends and outlines the necessary implications for regulatory policy. In addition to regulation, financial fragilities have added to demands for fiscal stimulus and led some emerging market central banks to ease monetary policy by buying government bonds, creating new links with fiscal policy. 

Barry Eichengreen, Balazs Csonto, Asmaa El-Ganainy, Zsoka Koczan, 14 January 2021

Global inequality has fallen in recent decades, but within-country inequality has risen in a significant number of national economies during the same period.  This column identifies the channels through which financial globalisation accentuates inequality and suggests how these could be mitigated by accompanying policies.  

Mattia Di Ubaldo, Michael Gasiorek, 05 January 2021

Preferential trade agreements increasingly feature non-trade provisions whose impact on foreign direct investment is yet to be explored. This column exploits a structural gravity setting to study how preferential trade agreement provisions related to civil and political rights, economic and social rights, and environmental protection may affect the flow of bilateral greenfield foreign direct investment. It finds that all three types of non-trade related provisions affect FDI negatively. The largest effects are estimated for FDI directed ‘South’ (to middle- and low-income countries), and between ‘South-South’ countries in particular.

Simeon Djankov, Eva (Yiwen) Zhang, 04 December 2020

Foreign direct investment flows to the US have seen a sharp decline in the past two years, despite a cut in the corporate tax rate from 35% to 21% in 2017. Previous research suggests that such a tax cut should have resulted in increased investor appetite. This column argues that countervailing forces, in particular the shift in investment sentiment driven by the corrosion of US openness to trade and global cooperation, have played the dominant role in reducing flows.  

Tim Willems, 17 November 2020

The COVID-induced surge in public debt has raised concerns about its sustainability, further increasing the need to improve the debt-restructuring process. This column proposes an auction-based strategy to restructure sovereign debt that tailors the shape of the restructured debt stock optimally to creditor preferences, subject to debt being sustainable post-restructuring. Any debt relief provided to the country gets optimally distributed over its creditors, thus minimising the pain inflicted upon them. A version of the winner’s curse can reduce the ‘holdout problem’ of creditors trying to free-ride on each other’s contributions towards debt relief. All this should smoothen the restructuring process and enable the debtor to mobilise greater creditor support (given the amount of relief provided). 

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