We introduce the revised version of the KOF Globalisation Index, a composite index measuring globalization for every country in the world along the economic, social and political dimension. The original index was introduced by Dreher (Applied Economics, 38(10):1091–1110, 2006) and updated in Dreher et al. (2008). This second revision of the index distinguishes between de facto and de jure measures along the different dimensions of globalization. We also disentangle trade and financial globalization within the economic dimension of globalization and use time-varying weighting of the variables. The new index is based on 43 instead of 23 variables in the previous version. Following Dreher (Applied Economics, 38(10):1091–1110, 2006), we use the new index to examine the effect of globalization on economic growth. The results suggest that de facto and de jure globalization influence economic growth differently. Future research should use the new KOF Globalisation Index to re-examine other important consequences of globalization and why globalization was proceeding rapidly in some countries, such as South Korea, but less so in others. The KOF Globalisation Index can be downloaded from http://www.kof.ethz.ch/globalisation/
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The KOF Globalisation Index – revisited

Testing Trade-Off and Pecking Order Predictions about Dividends and Debt

This thesis investigates the relationship between economic growth and financial development in developing countries over 1988-2001. Previous studies have generally used averaged data, for both developing and developed countries, and inappropriate estimation methods. In an attempt to reach some definitive conclusions, Generalised Method of Moments dynamic estimation is used with a newly collected panel of annual data to assess the relationship. The results show that while banks performance has a negative impact on growth, stock markets positively promote growth. To reach an overall conclusion about the impact of finance on growth and to solve the problems associated with the existence of multicollinearity among the different measures of financial development, principal components analysis is used to generate new, comprehensive measures of financial development. In assessing the link between the new measures and financial development and growth, the results support the existence of an overall positive relationship. The thesis also examines the behaviour of interest rates in developing and industrialised countries using individual and panel unit root tests. The results are sensitive to the choice of the test, country and time unit.

Stock markets, banks and economic growth

This paper introduces the concepts of time-speci…c weak and strong cross section dependence. A double-indexed process is said to be cross sectionally weakly dependent at a given point in time, t, if its weighted average along the cross section dimension (N) converges to its expectation in quadratic mean, as N is increased without bounds for all weights that satisfy certain ‘granularity’ conditions. Relationship with the notions of weak and strong common factors is investigated and an application to the estimation of panel data models with an in…nite number of weak factors and a …nite number of strong factors is also considered. The paper concludes with a set of Monte Carlo experiments where the small sample properties of estimators based on principal components and CCE estimators are investigated and compared under various assumptions on the nature of the

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Weak and Strong Cross Section Dependence and Estimation of Large Panels

Using a unique dataset of the Euro area and the U.S. bank lending standards, we find that low (monetary policy) short-term interest rates soften standards, for household and corporate loans. This softening – especially for mortgages – is amplified by securitization activity, weak supervision for bank capital and too low for too long monetary policy rates. Conversely, low long-term interest rates do not soften lending standards. Finally, countries with softer lending standards before the crisis related to negative Taylor-rule residuals experienced a worse economic performance afterwards. These results help shed light on the origins of the crisis and have important policy implications.

Bank Risk-Taking, Securitization, Supervision and Low Interest Rates: Evidence from the Euro Area and the U.S. Lending Standards

In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

https://www.econstor.eu/bitstream/10419/154467/1/ecbop014.pdf

Measuring financial integration in the euro area

In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate-bond, government-bond, credit, and equity markets. Building upon the law of one price, we have developed two types of indicators that can be broadly categorized as price-based and news-based measures. We have complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government- and corporate-bond markets, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

Measuring European Financial Integration

While many theories of accounts payable and receivable are related to firm performance, there has not been a direct test whether firms actively use them to manage their growth. We argue that it is not just the accounts payable but also the accounts receivable that matter. While the former help to alleviate imperfections in the financial market, the latter do so in the product market. Using over 2.5 million observations for 600.000 firms in 8 euro area countries in the period 1993–2009, we show that firms use the trade credit channel to manage growth. In countries where the trade credit channel is more present, the marginal impact is lower, but the total impact is still higher. Further, firms that are more vulnerable to financial market imperfections, rely more on the trade credit channel to manage growth. Finally, we show that also the overall conditions of the financial market matter for the importance of the trade credit channel for growth.

Do Firms Use the Trade Credit Channel to Manage Growth

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Do firms use the trade credit channel to manage growth

For the period 2001-8, we propose an empirical assessment of the determinants of borrowing costs of new European Union member countries. The results of a dynamic panel error-correction model, accounting for both common long-run determinants and cross-country heterogeneities suggest that fundamentals still matter for market assessment of a country's creditworthiness. We check the long-run determinants for two subgroups of countries based on their current account balances. In the context of heightened risk aversion, one group of countries, characterized by low fiscal discipline, is more exposed to domestic sources of vulnerability as well as to swings in market perceptions of sovereign risk.

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Annalisa Ferrando

Papers

Measuring financial integration in the euro area

Measuring European Financial Integration

Do Firms Use the Trade Credit Channel to Manage Growth

Do firms use the trade credit channel to manage growth

Determinants of Government Bond Spreads in New EU Countries