Previous research has shown that the corporate governance practices of firms are constrained by the legal standards of their country of incorporation. This column explores how an active international market for corporate control can substitute for weak institutions in a host country. Using firm-level data from 22 countries, it shows how cross-border M&A activity improves the governance of non-target firms in the same industry, via peer pressure. These findings provide evidence for corporate governance improvements as a novel positive spillover from FDI.
Rui Albuquerque, Miguel Ferreira, Luis Brandao-Marques, Pedro Matos, 17 January 2016
Adriana Kugler, Maurice Kugler, Juan Saavedra, Luis Herrera, 28 January 2016
Vocational training programmes offer a second chance to those who drop out of the formal education system. Most studies of the success of such programmes, however, typically only analyse outcomes directly after participation. This column examines the medium- and long-term outcomes of a vocational training programme in Colombia. Results suggest that vocational training and formal education are complementary investments and that there are educational spillover effects for family members, in particular among applicants with high baseline educational attainment.
Yuriy Gorodnichenko, Jan Svejnar, 26 September 2015
While there is substantial evidence that multinationals are more productive than domestic firms, the evidence on productivity spillovers remains mixed. This column estimates the effects of foreign presence on the innovation of local firms. It suggests that spillovers from foreign firms to domestic firms are limited to domestic firms immediately connected to foreign firms. Requirements for foreign firms to have significant local content may therefore be justified.
Aida Caldera, Mikkel Hermansen, Oliver Röhn, 19 September 2015
The Global Crisis and its high costs have revived interest in early warning indicators of economic risks. This column presents a new set of indicators to detect vulnerabilities and assess country-specific risks of suffering a crisis. The empirical evidence confirms the usefulness of the vulnerability indicators in warning of severe recessions and crises in OECD countries. But indicators are no silver bullet and should be complemented with other monitoring tools, including expert judgement.
Neil Lee, Andrés Rodríguez-Pose, 17 February 2015
Creativity is assumed to be the mother of invention, but research testing whether this is the case is surprisingly rare. This column addresses this gap in the literature by assessing whether firms in creative industries in the UK are more innovative than firms outside creative industries. The authors also examine whether the location of creative-industry firms in creative cities – and the size of creative cities – matters for the innovative capacity of these firms.
Plamen Iossifov, Jiří Podpiera, 16 February 2015
The ongoing, synchronised disinflation across Europe raises the question of whether non-Eurozone EU countries are affected by the undershooting of the Eurozone inflation target, by other global factors, or by synchronised domestic, real sector developments. This column argues that falling world food and energy prices have been the main disinflationary driver. However, countries with more rigid exchange-rate regimes and/or higher shares of foreign value added in domestic demand have also been affected by disinflationary spillovers from the Eurozone.
Hiroyasu Inoue, Kentaro Nakajima, Yukiko Umeno Saito, 11 February 2015
Despite vast improvements in information and communications technology, the tendency of firms in related industries to cluster together hardly changed between 1985 and 2005. This column examines the relationship between geographic clustering and innovation using establishment-level data from Japan. Research establishments – especially those in high-technology industries – are more localised than average. The degree of localisation is greater when establishments are weighted by their creativity, as measured by the number of patents created and the number of citations received.
Hiau Looi Kee, 21 November 2014
The conventional thinking about foreign direct investment is that it may create jobs but also take away market opportunities from domestic firms. This column suggests another spillover to consider. If foreign firms require higher quality inputs, domestic firms who share suppliers with foreign firms gain access to better local inputs. It then argues that this spillover effect can explain a third of the productivity gains within Bangladeshi firms during 1999-2003.
Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin, 05 November 2014
In the aftermath of the Global Crisis, policymakers and academics alike discussed how uncertainty surrounding macroeconomic policymaking has impacted domestic investment. At the same time, concerns regarding the spillover impact of monetary policy in advanced economies on emerging market economies featured strongly in the international policy debate. This column draws the two debates together, and examines how policy uncertainty in advanced economies has spilled over to emerging markets via portfolio capital flows. It finds remarkable differences in the spillover effects of EU vs. US policy uncertainty.
Aleksi Aaltonen, Stephan Seiler, 31 October 2014
Many organisations are developing open platforms to create, store, and share knowledge. This column analyses editing data by Wikipedia users to show how content creation by individuals generates significant ‘spillover’ benefits, encouraging others to contribute to the collective process of knowledge production.
Ruud de Mooij, Michael Keen, Victoria Perry, 14 September 2014
Multinational companies’ ability to pay little corporate income tax has grabbed headlines recently. This column argues that the details of international tax rules matter for macroeconomic performance – especially in low-income countries. This emphasises the importance of the G20–OECD Action Plan on Base Erosion and Profit Shifting. However, dealing properly with tax spillovers will require a deeper global debate about the international tax architecture itself.
Linda Goldberg, Signe Krogstrup, John Lipsky, Hélène Rey, 26 July 2014
The dollar’s dominant role in international trade and finance has proved remarkably resilient. This column argues that financial stability – and the policy and institutional frameworks that underpin it – are important new determinants of currencies’ international roles. While old drivers still matter, progress achieved on financial-stability reforms in major currency areas will greatly influence the future roles of their currencies.
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu, 23 June 2014
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
Mark Mink, Jakob de Haan, 24 May 2014
To date, much uncertainty exists about how large the spillovers would be from the default of a systemically important bank. This column shows evidence that the market values of US and EU banks hardly respond to changes in the default risk of banks that the Financial Stability Board considers globally systemically important (G-SIBs). However, changes in all G-SIBs’ default risk explain a substantial part of changes in bank market values. These findings have implications for financial-crisis management and prevention policies.
Theodore H. Moran, Lindsay Oldenski, 04 March 2014
The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.
Olivier Blanchard, Jonathan D Ostry, Atish R Ghosh, 20 December 2013
The world has just been through a period of unprecedented macro policy activism. More is set to come as central banks exit unconventional policies, governments fix their fiscal positions, and financial regulations are reformed. These national policies have undeniable international spillovers. This column argues that the setting is ripe for more cooperation and suggests some ways forward, even if international macro policy coordination may continue to be heard about more often than it is seen.
Olivier N. Godart, Holger Görg, Christiane Krieger-Boden, 29 April 2013
The positive spillovers from multinationals to the productivity of their host-country suppliers are empirically well established. Usually, it is assumed that multinationals aid their suppliers by voluntarily sharing knowledge and cooperating with them. This column argues the spillovers might rather result from blunt pressure by the multinationals, forcing their suppliers to adopt new practices and to adapt to new standards.
Aaditya Mattoo, Arvind Subramanian, Prachi Mishra, 23 March 2012
Do exchange rate movements in one country affect its competitors? This column suggests that a 10% appreciation of the renminbi increases other developing countries’ exports by about 2%. Where competition with China is especially intense, the increase could be as large as 6%. The results imply that an appreciation of the renminbi could provide a boost to developing country exports.
Peter Debaere, Joon H. Lee , Myungho Paik, 03 June 2009
Gains from agglomeration may explain why investors choose the same location when going abroad, but why do firms from the same country cluster together? This column examines evidence from South Korean firms investing in China and finds that investors of the same nationality benefit from stronger forward and backward linkages with each other.
Andrew K Rose, Mark M. Spiegel, 02 July 2008
Prospects for international environmental cooperation often seem dim, as agreement must hew to the lowest common denominator. This column identifies economic gains from environmental commitments via reputational spillovers and their impact on capital flows. The evidence suggests that nations have more to gain from cooperation than they may realise.