On the determinants and resilience of bond flows to LDCs, 1990-1995: evidence from Argentina, Brazil and Mexico
Bond flows to Less Developed Countries (LDCs) proved more resilient than expected to the rising U.S. interest rates during 1994, raising hopes that the current episode of private capital flows to LDCs may not end in a widespread crisis as its predecessors in the 1920s and 1970s did. This paper attributes the surprising resilience of the flows to the fact that global bond issuance was a significant determinant of them, independently of U.S. (and world) interest rates. Briefly, global issuance, which recovered quickly from the shock of the first interest-rate rise in February 1994, helped ...
Export market diversification and productivity improvements: theory and evidence from Argentinean firms
This paper examines the relationship between trade and investment in technology adoption when firms face demand uncertainty. Our model predicts that, for a given overall market size, exporting to several countries reduces firms' demand uncertainty and, hence, raises incentives to invest in productivity improvements. The effects of diversification are heterogeneous across firms: An additional foreign market matters more for firms exporting to fewer destinations. We test the proposed theory using a large sample of Argentinean manufacturing exporters. The predictions of the model find strong ...
Implications of the globalization of the banking sector: the Latin American experience
Foreign entry into domestic banking markets remains a contentious issue. Whether privatizing a state bank in Brazil or selling a failed bank in Japan, the proposed sale of a large domestic financial institution, possibly to a foreign acquirer, frequently results in a major controversy. Many Asian countries have yet to experience major foreign penetration of domestic banking markets, while Latin American countries have privatized many of their banks and have encouraged foreign banks to enter their domestic markets. ; Because many Latin American countries opened their markets during the 1990s, ...
Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It's All Hebrew (and Aramaic) to Me
In this comment, we take a helicopter tour of the history of notions of ?equality? and ?justice? in sovereign debt restructuring in particular, and in the division of property more generally, and show that these concerns have existed for centuries, if not millennia. We argue that the issue at stake in the interpretation of the pari passu clause is not so much the treatment of holders of identical claims?it is now customary to treat them identically?but whether the holders of different claims should be treated differently. We show that exists a customary ?principle of differentiation? that ...
Politics of deposit insurance reform: the case of Argentina
Politics, economics and investment: explaining plant and equipment spending by U.S. direct investors in Argentina, Brazil, and Mexico
Few economists or laymen would deny that political events can have an important, sometimes even overwhelming, impact on economic decisions in general, and investment decisions in particular. The first goal of this paper was to integrate a number of political and non-traditional economic variables into the standard theory of investment based on the maximization of the expected value of the firm. The second goal was to test this generalized investment theory on a particularly fertile field for gauging the interaction of political and economic factors: the plant and equipment spending of foreign ...
Dollarization in Argentina
Argentina became highly "dollarized" during its hyperinflations of 1989 and early 1990. Although inflation has returned to very low rates, a high degree of dollarization has persisted during the early 1990s, counter to what the currency substitution hypothesis predicts. This paper provides new evidence that explains the continued dollarization of the Argentine economy. ; First, we develop a new measure of dollar currency circulating in foreign countries. This measure improves our ability to analyze dollarization and currency substitution by distinguishing between dollar currency holdings ...
Argentina's experience with parallel exchange markets: 1981-1990
This paper surveys the development and operation of the parallel exchange market in Argentina during the 1980s, and evaluates its impact upon macroeconomic performance and policy. The historical evolution of Argentina's exchange market policies is reviewed in order to understand the government's motives for imposing exchange controls. The parallel exchange market engendered by these controls is then analyzed, and econometric methods are used to evaluate the behavior of the parallel exchange rate and its impact upon the balance of payments. ; The main conclusion of the paper is that exchange ...
The Tequila effect: theory and evidence from Argentina
The Tequila Effect hypothesis states that the economic crisis that affected several South American countries in 1995 was caused by an exogenous capital flight triggered by the loss of confidence of foreign investors after the collapse of the Mexican peso in December 1994. I analyze the recent Argentine experience before and after the Mexican crisis and argue that the Tequila Effect played an important role in the 1995 crisis. I model the Tequila Effect in an optimizing, small, open economy, as a situation in which agents at time 0 learn that at some random future date foreign investors will ...