When good intentions go wrong: Effects of bank deregulation and governance on risk taking
Manuel Illueca, Lars Norden, Gregory F Udell 26 June 2013
Economic liberalisation can go wrong when the objectives and corporate governance of the firms in the deregulated industry are not adequately taken into account. This column presents evidence on the deregulation of the Spanish savings banks, known as ‘cajas’, which led to a dramatic expansion of lending and branching, increase in risk taking, and the final implosion of the whole savings-bank sector in Spain in 2012.
The motivation of economic liberalisation is to foster competition in order to increase allocative efficiency, economic growth and social welfare. This paradigm hinges on the assumption that firms maximise value and that more competitors in a market automatically leads to more competition.
Europe's nations and regions International finance
Spain, liberalisation, banking
Global imbalances: What role for the WTO?
Juan A. Marchetti, Michele Ruta, Robert Teh 02 January 2013
Globally, large current account imbalances prevail. This column argues that they also continue to represent a systemic risk for the world economy. The WTO has a clear-cut role in the institutional effort to address these imbalances. However, this role has more to do with opening services and government procurement markets than with the often invoked trade sanctions in response to exchange rate misalignments.
The world witnessed a large build-up of current account and merchandise trade imbalances, both in absolute and relative terms, prior to the global financial and economic crisis (see Table 1 and Figure 1). Current account/merchandise trade surpluses were most pronounced among the East Asian economies (e.g. China), oil exporters (e.g. Saudi Arabia) and the ‘core’ Eurozone countries (e.g. Germany). The US and the Eurozone periphery countries had large and persistent deficits. While imbalances contracted after the crisis, they remained large both in absolute terms and in relation to GDP.
WTO, trade, liberalisation, current account imbalances
Trade and inequality: From theory to estimation
Oleg Itskhoki, Marc Muendler, Stephen Redding, Elhanan Helpman 20 May 2012
What is the effect of trade on inequality? This column presents a unique study examining wage inequality in Brazil after liberalisation. Starting from a closed economy, the column finds that wage inequality will initially rise as only some firms take advantage of the new opportunities. But as trade costs continue to fall and more firms start to trade, wage inequality peaks and begins to fall back.
Until recently, research on the labour market effects of international trade has been heavily influenced by traditional theories such as the Heckscher-Ohlin and Specific Factors models. Those theories provide predictions about relative wages across skill groups or across occupations and sectors. In contrast to predictions of those theories, empirical studies find increased wage inequality in both developed and developing countries, growing residual wage dispersion among workers with similar observed characteristics, and increased wage dispersion across plants and firms within sectors.
International trade Poverty and income inequality
Inequality, trade, liberalisation, Brazil
Regulatory reform in services sectors: The missing explanation for the revival of Indian manufacturing?
Jens Matthias Arnold, Beata Javorcik, Molly Lipscomb, Aaditya Mattoo 12 October 2010
Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on trade liberalisation and industrial de-licensing. This column examines 4,000 Indian firms from 1993 to 2005 and argues that a key factor for the success of Indian manufacturing may lie outside of manufacturing – in the services sector.
A vital element of India’s rapid economic growth since the early 1990s has been the impressive performance of its manufacturing industries. Output in manufacturing grew by 5.7% per year in the period 1993-2005, while exports grew at almost twice that rate (Reserve Bank of India 2008). The conventional explanations for the revival of Indian manufacturing point to policy reforms in manufacturing industries, such as tariff liberalisation and the dismantling of the “license raj” (Aghion et. al. 2005, 2008), and limited labour market reforms (Besley and Burgess 2004).
Development International trade
India, international trade, liberalisation, services
The transformation of India: Incumbent control, reforms, and newcomers
Laura Alfaro, Anusha Chari 12 December 2009
What microeconomic forces drove the structural transformation of India’s economy in recent decades? This column studies firm-level data and portrays a dynamic economy driven by the growth of private and foreign firms. But the Indian economy did not go through an industrial shakeout phase driven by creative destruction. The endurance of incumbent firms prevented a dramatic microeconomic transformation.
The end of the license Raj and implementation of pro-market reforms in the 1980s and 1990s had far-reaching implications for India’s industrial structure. Significant sectors of the economy were opened up to private participation through industrial de-licensing and de-reservation measures. India began to integrate into the world economy as import licensing was abolished in many sectors, import duties were sharply reduced, and many restrictions on FDI were lifted.
India, liberalisation, firms
Now is the time to reduce international trade and migration barriers
Kym Anderson, L Alan Winters 21 April 2008
Current prospects for liberalisation of barriers to international trade and migration seem dim. In this column, the authors of the Copenhagen Consensus paper on global economic integration outline the magnitude of the gains that politicians are opposing.
In June 1930 the Smoot-Hawley tariff act in the US turned a stock market collapse into a crippling, decade-long Great Depression. Now, with a financial meltdown going on, is therefore NOT the time for politicians to be more protectionist. Yet last year the European Union dropped the principle of "free and undistorted competition" from its Lisbon treaty, and this year US presidential hopefuls Barack Obama and Hillary Clinton are muttering negatively about liberal trade and migration.
International trade Migration
Doha Round, protection, migration barriers, liberalisation, trade negotiations, subsidies