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Author:Aizenman, Joshua 

Journal Article
Financial liberalization: how well has it worked for developing countries?

This Economic Letter gives a summary of another analysis of the impact of financial liberalization on the economic performance of developing countries from 1991 to 2001. It describes a new and simple method that measures the degree of international capital mobility and that also provides useful information about the degree to which a nation's domestic stock of capital is self-financed.
FRBSF Economic Letter

Working Paper
Military expenditure, threats, and growth

This paper clarifies one of the puzzling results of the economic growth literature: the impact of military expenditure is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. We start by empirical evaluation of the non- linear interactions between military expenditure, external threats, corruption, and other relevant controls. While growth falls with higher levels of military spending, given the values of the other independent variables, we show that military expenditure in the presence of threats increases ...
Working Paper Series , Paper 2003-08

Working Paper
The high demand for international reserves in the Far East: what's going on?

This paper explores econometric and theoretical interpretations for the relatively high demand for international reserves by countries in the Far East and the relatively low demand by some other developing countries. Using a sample of about 125 developing countries, we show that reserve holdings over the 1980-1996 period seem to be the predictable outcome of a few key factors, such as the size of international transactions, their volatility, the exchange-rate arrangement, and political considerations. The estimating equation also does a good job of predicting reserve holdings in Asia before ...
Pacific Basin Working Paper Series , Paper 2002-08

Conference Paper
The high demand for international reserves in the Far East: what's going on?

This paper explores econometric and theoretical interpretations for the relatively high demand for international reserves by countries in the Far East and the relatively low demand by some other developing countries. Using a sample of about 125 developing countries, we show that reserve holdings over the 1980-1996 period seem to be the predictable outcome of a few key factors, such as the size of international transactions, their volatility, the exchange-rate arrangement, and political considerations. The estimating equation also does a good job of predicting reserve holdings in Asia before ...
Proceedings , Issue Sep

Working Paper
Asset class diversification and delegation of responsibilities between central banks and sovereign wealth funds

This paper presents a model comparing the optimal degree of asset class diversification abroad by a central bank and a sovereign wealth fund. We show that if the central bank manages its foreign asset holdings in order to meet balance of payments needs, particularly in reducing the probability of sudden stops in foreign capital inflows, it will place a high weight on holding safer foreign assets. In contrast, if the sovereign wealth fund, acting on behalf of the Treasury, maximizes the expected utility of a representative domestic agent, it will opt for relatively greater holding of more ...
Working Paper Series , Paper 2010-20

Working Paper
Institutional efficiency, monitoring costs, and the investment share of FDI

This paper models and tests the implications of institutional efficiency on the pattern of foreign direct investment (FDI). We posit that domestic agents have a comparative advantage over foreign agents in overcoming some of the obstacles associated with corruption and weak institutions. We model these circumstances in a principal-agent framework with costly ex-post monitoring and enforcement of an ex-ante labor contract. Ex-post monitoring and enforcement costs are assumed to be lower for domestic entrepreneurs than for foreign ones, but foreign producers enjoy a countervailing productivity ...
Working Paper Series , Paper 2003-06

Conference Paper
International reserves: precautionary versus mercantilist views, theory and evidence

This paper tests the importance of precautionary and mercantilist motives in accounting for the hoarding of international reserves by developing countries, and provides a model that quantifies the welfare gains from optimal management of international reserves. While the variables associated with the mercantilist motive are statistically significant, their economic importance in accounting for reserve hoarding is close to zero and is dwarfed by other variables. Overall, the empirical results are in line with the precautionary demand. The effects of financial crises have been localized, ...
Proceedings

Working Paper
Sovereign wealth funds: stylized facts about their determinants and governance

This paper presents statistical analysis supporting stylized facts about sovereign wealth funds (SWFs). It discusses the forces leading to the growth of SWFs, including the role of fuel exports and ongoing current account surpluses, and large hoarding of international reserves. It analyzes the degree to which measures of SWF governance and transparency compare with national norms of behavior. We provide evidence that many countries with SWFs are characterized by effective governance but weak democratic institutions, as compared to other nonindustrial countries. We also present a model with ...
Working Paper Series , Paper 2008-33

Journal Article
Sovereign wealth funds: stumbling blocks or stepping stones to financial globalization?

Sovereign wealth funds (SWFs) are saving funds controlled by sovereign governments that hold and manage foreign assets. Private analysts put current sovereign wealth fund assets in the range of $1.5 to 2.5 trillion. This amount is projected to grow sevenfold to $15 trillion in the next ten years, an amount larger than the current global stock of foreign reserves of about $5 trillion (Jen 2007). While not a new phenomenon, the recent activities and projected growth of SWFs have stirred debate about the extent to which their size may allow them to destabilize financial markets and their ...
FRBSF Economic Letter

Working Paper
Takeoffs

This paper identifies factors associated with takeoff--a sustained period of high growth following a period of stagnation. We examine a panel of 241 "stagnation episodes" from 146 countries, 54% of these episodes are followed by takeoffs. Countries that experience takeoffs average 2.3% annual growth following their stagnation episodes, while those that do not average 0% growth; 46% of the takeoffs are "sustained," i.e. lasting 8 years or longer. Using probit estimation, we find that de jure trade openness is positively and significantly associated with takeoffs. A one standard deviation ...
Working Paper Series , Paper 2008-02

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