Banks That Don't Lend? Unlocking Credit to Spur Growth in Developing Countries

This article explores the level of liquidity within the banking systems of developing countries and the potential impact on rates of economic growth from prudently redirecting a portion of liquid assets into credit to the private sector. It finds that banks in developing countries are extremely liquid and growth rates per capita might increase substantially in response to heightened lending to the private sector. It then summarises the primary obstacles to this and presents several policy reforms that can augment the level of credit to the private sector in developing countries.     

Pension reforms and old people in Poland: An age,class, and gender lens

Research on the socio-economic transition in and subsequent pension reforms in Eastern and Central Europe tend to view age as a social status, not a power relation. In addition, studies that explore the policy consequences for old people tend to homogenize them or focus on only one form of inequality. However, State actions, articulated in pension reforms, can distribute the economic costs of reforms unevenly across different groups.This paper considers the present and the future ramifications of the Polish pension reforms on the economic well being of diverse groups of old people. Poland provides an especially interesting case because the new system, which will take full effect in 2006, includes mandatory personal accounts. Throughout our analysis, we attend to inequality and the class- and gender-specific implications of the reforms. We argue that age, gender, and class relations underlie social policies related to pensions. Old people are depicted and manipulated by State officials in ways that allow the latter to attain economic stability and legitimate their authority among other constituencies, especially the young. Finally, analysis of the expected outcomes of the Polish new pension system that includes personal accounts provides a reference point against which proposals in other countries, such as the U.S., debating the introduction of similar systems can be assessed. Thus, we conclude by discussing some trends relevant to future Polish retirees and briefly state the implications of our discussion for these debates.     

Comparative analysis of aging policy reforms in Argentina,Chile, Costa Rica,and Mexico

This investigation uses case studies and comparative analysis to review and analyze aging policy in Argentina, Chile, Costa Rica, and Mexico and uncovers similarities and relevant trends in the substance of historical and current aging policy across countries. Initial charity-based approaches to poverty and illness have been gradually replaced by a rights-based approach considering broader notions of well-being, and recent reforms emphasize the need for national, intersectoral, evidence-based policy. The results of this study have implications for understanding aging policy in Latin America from a welfare regime and policy makers’ perspective, identifying priorities for intervention and informing policy reforms in developing countries worldwide.     

Another ‘Lost Decade’? Crisis and Structural Adjustment in Europe and Latin America

With the recent economic crisis, conditional lending and mandatory structural reforms arrived in the European Union. Greece and a number of other crisis countries were subjected to a rigorous process of economic adjustment in exchange for emergency credits from the troika (European Commission, European Central Bank, and International Monetary Fund). Conditionality and structural adjustment were first tested in Latin America. This article compares the European adjustment programmes with the structural reforms introduced in Latin American countries several decades earlier. By doing so, the article reveals strong parallels in spite of the fact that the initial adjustment programmes are rarely considered a success story and that the neoliberal ideology which inspired the related reforms is widely made responsible for the recent crisis. The fact that there are differences in the adjustment programmes is not the result of a re-think of the neoliberal agenda, but of the specific dynamics of European integration and of pragmatic responses to financial threats. However, the article also shows parallels in the outcome of structural adjustment. Some European crisis countries face a ‘lost decade’ quite similar to the one experienced in Latin America in the 1980s.     

Domestic Credit and Diversification of Manufactured Exports from Developing Countries

This article uses panel data to analyse the effect of domestic credit on the diversification of manufactured exports from developing countries. Given the evidence that export variety of manufactured goods affects productivity positively, the results imply that policy reforms that improve access to domestic credit for firms can raise productivity and hence economic growth in many poor countries. In addition, the results also show that building infrastructure and implementing reforms in governance that improve the quality of government regulations are important for encouraging diversification of manufactured export products in developing countries.     

Informality and Contributory and Non‐Contributory Programmes. Recent Reforms of the Social‐Protection System in Uruguay

Several countries in Latin America are expanding their social‐protection systems. There is an on‐going debate about the trade‐offs implied by these expansions, and by the resulting interactions between contributory and non‐contributory programmes with informality in the labour market. This article analyses the potential incentive effects for formal and informal employment from a set of social‐protection reforms implemented in Uruguay in the 1990s and 2000s. It presents empirical evidence of the expansion of health insurance to formal workers' dependants, and finds that this reform significantly increased formal employment. Finally, it discusses possible alternatives to extend social‐protection systems while maintaining incentives for formal work in Latin America's labour markets.     

INTRODUCTION TO THE SYMPOSIUM ON CONTEMPORARY BANKING RESEARCH: THE USE OF FIXED EFFECTS TO DISENTANGLE LOAN DEMAND FROM LOAN SUPPLY

With the onset of the financial crisis, disentangling the effects of loan demand and supply in contemporary banking research has become vital for a proper assessment of supply-related banking shocks. These shocks may negatively affect the real economy through many channels, such as the lending channel of monetary policy transmission, the bank risk-taking channel or the evaluation of macroprudential policy efficiency. All these rely on separating the two lending components. Empirical identification has largely relied on the use of demand-related fixed effects, which has also been applied in several analyses within this symposium. (JEL G21)     

How Do Workers’ Remittances Respond to Lending Rates?

The literature on migrants’ motivation to remit ranges from self‐interest to altruism where studies analyse the impact from home country interest rates or interest differentials between home and host countries. We reinterpret the interest rate elasticity of remittances as a form of debt‐repayment responsiveness rather than based on opportunistic motivation. Modelling altruistic transfer and debt‐repayment, we find that, for a panel of countries, the long‐run responsiveness of remittances to changes in real lending rates is negative. This suggests that an expansionary (contractionary) monetary policy is most likely to lead to an increase (reduction) in remittances in the long‐run. In contrast to this, the short‐run impact of interest rate changes on remittances is positive.     

The ‘New Approach’ to Public Sector Reforms in Ghana: A Case of Politics as Usual or a Genuine Attempt at Reform?

Public sector reforms continue to preoccupy governments all over the world, compelled by the need to ‘get the state right’ through better policy development and implementation. Developing countries see this as the path to a developmental state. This article examines Ghana's quest to build such a state through its new public sector reforms, originally hailed in hyperbolic terms. We argue that the rejection of a top‐down and bottom‐up synergy in favour of an exclusively top‐down approach dooms this effort to failure.     

AN ANALYSIS OF INFORMATIONAL RESTRICTIONS ON THE LENDING DECISIONS OF FINANCIAL INSTITUTIONS

Lenders are assumed to use formal credit scoring schemes in order to evaluate borrower credit worthiness. Variables used in these schemes may be measured with error resulting in credit scores which include the effects of biased parameter estimates, and in lending decisions that appear to be discriminatory although lenders are not prejudiced. Regulations which restrict the information used in credit scoring schemes may produce undesirable credit supply results. Theoretical models are supplemented with illustrative empirical analysis of mortgage lending in which use of information on property location is prohibited. The empirical results indicate that the quantitative impact of such regulations is modest.     

Out of the shadows: Classifying economies by the extent and nature of employment in the informal economy

Given the prevalence of informality, this article proposes a typology for classifying countries by the extent and nature of employment in the informal economy, rather than by the composition of their formal economies. The author analyses ILO data on employment in the informal economy in 36 developing countries, and shows that there is a significant correlation between cross‐national variations in the degree and intensity of informalization and cross‐national variations in social and economic indicators such as levels of GNP per capita, corruption, poverty, taxation and social contributions. The article concludes by discussing implications for theory and policy.     

Re‐Forming the School: Taking Swedish Lessons

In the context of government decentralisation and integration of services, over the last 15 years Sweden has been developing an all‐day school based on inter‐professional teamworking and adopting a holistic approach to working with children. The article describes these recent educational reforms in Sweden, which have sought to re‐structure the school and develop new ways of working, offers some evaluative comments on this process and considers possible implications of these reforms for other countries. It compares Swedish school reforms with recent English policy developments intended to make ‘extended schools’ a universal provision by 2010.     

Analysing the effects of tax-benefit reforms on income distribution: a decomposition approach

To assess the impact of tax-benefit policy changes on income distribution over time, we suggest a methodology based on counterfactual tax-benefit simulations. Changes in inequality/poverty indices are decomposed into three contributions: changes in the tax-benefit structure, changes in nominal levels of market incomes and tax-benefit money parameters, and all other changes, including shifts in market income inequality and demographic composition. The policy effect can be evaluated conditionally on base-period data or end-period data; it is also possible to average the two measures, which corresponds to an application of the Shapley value method as reinterpreted by Shorrocks (Decomposition Procedures for Distributional Analysis: A Unified Framework Based on the Shapley Value, University of Essex and Institute for Fiscal Studies, Wivenhoe Park, 1999). The decomposition is used to quantify the relative role of policy changes on inequality/poverty trends in France and Ireland in the 1990s. When end-period data are not available, e.g., for forward looking analysis of possible reforms, the base weighted decomposition helps to extract an absolute measure of the impact of tax-benefit changes on income distribution as evaluated against a distributionally neutral benchmark; in our application, it is not significantly different from the policy effect stemming from the Shorrocks-Shapley decomposition. Estimates of this type are derived to assess recent policy changes in twelve European countries.     

Deposit Insurance,Institutions, and Bank Interest Rates

Many recent institutional reforms of the financial system have relied on the introduction of an explicit scheme of deposit insurance. This instrument aims at two main targets, contributing to systemic stability and protecting depositors. However, it may also affect the interest rate spread in the banking system, which can be viewed as an indicator of either inefficiency or market power in this financial segment. This paper provides an empirical investigation of the effect of deposit insurance and other institutional and economic variables on bank interest rates across countries. We find that deposit insurance increases the lending–deposit spread in banking. The main effect seems to arise not from the deposit side though, but from an increase in the lending rate. We interpret this result as evidence of the presence of moral hazard problems related to this instrument. We also find that higher quality of institutions is associated with lower spreads, thus contributing to eroding sources of market power in the banking sector.     

The Legal Status of Turks in Germany

Turks in Germany constitute the single largest non-national group living in the member states of the European Union. This essay examines the legal dimensions of their entry, residence and integration in Germany during the 1990s up to 2002. The evidence shows that, despite long-term settlement patterns, Turks in Germany have not achieved a high level of formal inclusion. However, recent policy reforms have already gone some way to improving their situation, and the impact of planned reforms should equally ensure that this process continues in the future.     

The Legal Status of Turks in Germany

Turks in Germany constitute the single largest non-national group living in the member states of the European Union. This essay examines the legal dimensions of their entry, residence and integration in Germany during the 1990s up to 2002. The evidence shows that, despite long-term settlement patterns, Turks in Germany have not achieved a high level of formal inclusion. However, recent policy reforms have already gone some way to improving their situation, and the impact of planned reforms should equally ensure that this process continues in the future.     

THE ROLE OF REGULATORY ARBITRAGE IN U.S. BANKS' INTERNATIONAL FLOWS: BANK‐LEVEL EVIDENCE

I study the prevalence and profitability of regulatory arbitrage in U.S. banks' foreign activities. I analyze a publicly available bank‐level data set on bilateral lending flows to 75 countries over 2003–2013. U.S. banks' affiliates lend less to borrowers in host countries with stricter bank capital regulations, and are less likely to maintain affiliates in such countries. Banks substitute from (host‐regulated) affiliate toward (U.S.‐regulated) cross‐border lending in hosts with strict bank capital rules. This is particularly so for low‐capitalized banks with lower foreign ownership shares. Banks that reduce their exposure to stricter host capital rules are more profitable in foreign activities. (JEL F3, F4, G2)     

FOREIGN BANKS AND THE BANK LENDING CHANNEL

We provide new evidence on bank ownership and transmission of monetary policy using bank‐level data on 453 banks in Central and Eastern European economies between 1998 and 2012. Only domestic banks adjust loans to changes in monetary policy, while foreign banks do not. Conventional wisdom says that this is because foreign banks can rely on parent banks' funding to insulate against monetary policy shocks. In this paper we document an alternative explanation. Deposits in foreign banks do not react to monetary policy, hence the bank lending channel is only triggered in domestic banks. (JEL E50, F36, G21)     

Foreign aid and the rule of law: Institutional diffusion versus legal reach

This paper examines the role of bilateral foreign aid in supporting the diffusion and enactment of common models and institutions of the rule of law among aid-recipient low- and middle-income countries. We ask whether aid targeted at security-sector reform and the rule of law influences the adoption of constitutional and legal reforms over time (institutional diffusion), and whether aid also supports more effective implementation of the rule of law, writ large (legal reach). We use event history and fixed-effects panel regression models to examine a sample of 154 countries between 1995 and 2013 to answer these questions. Our findings suggest that aid does increase the likelihood of adopting several rule of law reforms, but its effect on increasing the depth or quality of rule of law over time within countries is much less substantial. These findings suggest that though aid may play a role in supporting the diffusion of models contributing to state isomorphism among countries, it is less effective at increasing the pervasiveness and quality of such model’s implementation. This discrepancy between the effectiveness of bilateral aid in promoting law on the books versus law in action in aid recipient countries calls into question the current approach to rule of law reforms.     

Family support for the elderly in China: issues and challenges

With the introduction of economic reforms, families in China are challenged by a variety of family-related problems. Demographic and social changes are affecting both the capacity and willingness of the family to provide care for the elderly. The Chinese Government is aware of the importance of the family in the welfare of its citizens, and has promulgated a series of laws and regulations prescribing family obligations. Yet formal services supporting families are extremely underdeveloped, and it is urgent that the government formulate an effective policy to facilitate, support, and maximize family care.