This document provides an abstract and introduction for a paper examining the strengthening of Latin American capital markets from 2001-2010. The abstract notes that Latin American countries have made efforts to improve economic conditions and stabilize their markets in recent years. The introduction discusses previous research that found Latin American capital markets to be underdeveloped compared to Asian markets. It indicates the paper will contribute new analysis by investigating the development of Latin American capital markets from 2005-2010, and examining the correlation between stabilization of corruption/credit risk and increases in market capitalization, external debt, and foreign direct investment. The introduction concludes by outlining the scope and importance of the research.
This document provides an abstract for a paper that investigates Costa Rica's strategy for attracting foreign direct investment over the past 30 years. The paper argues that while Costa Rica is often held up as a success story for foreign investment-led development, this strategy was heavily dependent on external resources from groups like the US Agency for International Development. Specifically, overcoming information gaps between investors and less developed countries requires extensive resources that many countries cannot afford. The experience of Costa Rica suggests that external actors like regional powers are often necessary to provide the funds and information needed to successfully attract growth-oriented foreign investment.
This document discusses the rise of state capitalism and its impact on the global economic crisis. It argues that while governments around the world are increasingly intervening in their economies, many business leaders still act as if globalization is dominant. However, political factors are playing a much greater role in markets than in decades past. State-owned enterprises now control most of the world's oil reserves, and governments are taking a more active role in strategic industries beyond energy. This trend is being driven by sovereign wealth funds and government stimulus spending in response to the crisis. It creates both winners and losers among countries and companies based on political conditions.
Financing flaws of proposed agreement kevin p gallagherWaqas Malik
The summary discusses how Chile and Malaysia successfully regulated cross-border finance in the 1990s to prevent financial crises, as shown in a new report. Their experience proved valuable after the 2008 crisis when many countries started regulating cross-border flows. However, the US is insisting TPP countries dismantle such regulations despite evidence they protect against crises. Emerging markets should avoid new trade agreements unless they can regulate cross-border finance to prevent instability that foreign investors could cause. The US needs to work with Chile and Malaysia on a TPP approach that gives all members tools to mitigate crises.
This article analyzes competition between Latin America and China for US direct investment. It uses time series econometric methods to examine whether increased FDI to China has influenced traditional FDI destinations in Latin America. The results suggest that long-run US investment in Latin America depends mainly on the US economy's performance. They also suggest a substitution effect between Latin American countries and China for US investment flows.
During the course of the second half of the twentieth century, the world economy has become increasingly interdependent as a result of the economic liberalization measures that have been taken by many countries, and the bilateral and multilateral trade promotion and cooperation agreements that have been reached by a majority of trading partners around the world. However, the benefits from the growth in international trade, and economic cooperation and interdependence, have not been shared equally by all nations. Some have benefited more than others, and some have lagged behind due to their inability to compete in a broader and increasingly dynamic global market. This paper examines the impact of economic interdependence from the perspectives of different national groupings, particularly the developed and the least developed countries. One of the questions to be addressed is: What factors contribute to the differences among those nations in taking advantage of open trade and capital mobility? It is expected that this study would be of value to economic planners and to students of international trade and globalization.
This document provides background information on international trade and finance rules and regulations. It discusses how various organizations like the World Trade Organization (WTO) and International Monetary Fund (IMF) govern trade and finance globally. While trade aims to benefit all countries, developing countries face challenges complying with rules due to their circumstances and lack of representation. As a result, the poorest members may not see fair gains from participating in international trade systems.
The document provides an overview and analysis of key market events and themes in the first quarter of 2018, including tariffs, technology, interest rates, and increased volatility. Tariffs imposed by the US administration aim to protect domestic industries but risk a trade war. Technology stocks declined due to company-specific issues, though the sector remains strong overall. The Federal Reserve raised interest rates in March and expects further hikes in 2018 as the economy remains healthy. Volatility rose in the first quarter as various pressures took hold in the market.
This document is a senior thesis analyzing whether Mexico's transition to a floating exchange rate in 1994 accelerated illicit financial outflows, known as capital flight. It begins with an introduction outlining the purpose and structure of the paper. The literature review then discusses previous research on Mexico's illicit financial outflows over time, how these outflows have affected the currency and economy, and how exchange rate regimes impact investors' incentives to hedge currency risk. The paper will apply modern portfolio theory and Krugman's investment function to model investor behavior and how capital flight has impacted Mexico's floating exchange rate. It will use empirical analysis to support the conclusion that a floating exchange rate increases capital flight.
This document provides an abstract for a paper that investigates Costa Rica's strategy for attracting foreign direct investment over the past 30 years. The paper argues that while Costa Rica is often held up as a success story for foreign investment-led development, this strategy was heavily dependent on external resources from groups like the US Agency for International Development. Specifically, overcoming information gaps between investors and less developed countries requires extensive resources that many countries cannot afford. The experience of Costa Rica suggests that external actors like regional powers are often necessary to provide the funds and information needed to successfully attract growth-oriented foreign investment.
This document discusses the rise of state capitalism and its impact on the global economic crisis. It argues that while governments around the world are increasingly intervening in their economies, many business leaders still act as if globalization is dominant. However, political factors are playing a much greater role in markets than in decades past. State-owned enterprises now control most of the world's oil reserves, and governments are taking a more active role in strategic industries beyond energy. This trend is being driven by sovereign wealth funds and government stimulus spending in response to the crisis. It creates both winners and losers among countries and companies based on political conditions.
Financing flaws of proposed agreement kevin p gallagherWaqas Malik
The summary discusses how Chile and Malaysia successfully regulated cross-border finance in the 1990s to prevent financial crises, as shown in a new report. Their experience proved valuable after the 2008 crisis when many countries started regulating cross-border flows. However, the US is insisting TPP countries dismantle such regulations despite evidence they protect against crises. Emerging markets should avoid new trade agreements unless they can regulate cross-border finance to prevent instability that foreign investors could cause. The US needs to work with Chile and Malaysia on a TPP approach that gives all members tools to mitigate crises.
This article analyzes competition between Latin America and China for US direct investment. It uses time series econometric methods to examine whether increased FDI to China has influenced traditional FDI destinations in Latin America. The results suggest that long-run US investment in Latin America depends mainly on the US economy's performance. They also suggest a substitution effect between Latin American countries and China for US investment flows.
During the course of the second half of the twentieth century, the world economy has become increasingly interdependent as a result of the economic liberalization measures that have been taken by many countries, and the bilateral and multilateral trade promotion and cooperation agreements that have been reached by a majority of trading partners around the world. However, the benefits from the growth in international trade, and economic cooperation and interdependence, have not been shared equally by all nations. Some have benefited more than others, and some have lagged behind due to their inability to compete in a broader and increasingly dynamic global market. This paper examines the impact of economic interdependence from the perspectives of different national groupings, particularly the developed and the least developed countries. One of the questions to be addressed is: What factors contribute to the differences among those nations in taking advantage of open trade and capital mobility? It is expected that this study would be of value to economic planners and to students of international trade and globalization.
This document provides background information on international trade and finance rules and regulations. It discusses how various organizations like the World Trade Organization (WTO) and International Monetary Fund (IMF) govern trade and finance globally. While trade aims to benefit all countries, developing countries face challenges complying with rules due to their circumstances and lack of representation. As a result, the poorest members may not see fair gains from participating in international trade systems.
The document provides an overview and analysis of key market events and themes in the first quarter of 2018, including tariffs, technology, interest rates, and increased volatility. Tariffs imposed by the US administration aim to protect domestic industries but risk a trade war. Technology stocks declined due to company-specific issues, though the sector remains strong overall. The Federal Reserve raised interest rates in March and expects further hikes in 2018 as the economy remains healthy. Volatility rose in the first quarter as various pressures took hold in the market.
This document is a senior thesis analyzing whether Mexico's transition to a floating exchange rate in 1994 accelerated illicit financial outflows, known as capital flight. It begins with an introduction outlining the purpose and structure of the paper. The literature review then discusses previous research on Mexico's illicit financial outflows over time, how these outflows have affected the currency and economy, and how exchange rate regimes impact investors' incentives to hedge currency risk. The paper will apply modern portfolio theory and Krugman's investment function to model investor behavior and how capital flight has impacted Mexico's floating exchange rate. It will use empirical analysis to support the conclusion that a floating exchange rate increases capital flight.
Executives from multilatinas in Latin America were interviewed about business perspectives in the region. While executives see short-term economic growth as stable and moderate, many are optimistic about 2018 and the future. Despite current uncertainty, multilatinas intend to actively grow their businesses through mergers and acquisitions. Executives see some differences between countries, with Chile and Peru viewed more positively than Colombia in the short-term, but executives expect Colombia's economy to improve in coming years.
This document provides an overview of real estate investment opportunities across several Latin American countries in 2011, focusing on Brazil, Mexico, Peru, Colombia, Panama, Argentina, and the agricultural sector. For Brazil, the commercial real estate market experienced little distress during the economic crisis due to low leverage. Office rents in major cities have increased substantially since 2009, and the residential and tourism sectors are also growing. Overall, Brazil is seen as one of the top markets in Latin America for real estate investment.
This document summarizes interviews from the Global Real Estate Investment (GRI) conferences in Mexico (2016), Colombia, Chile, and Peru (2015). The interviews discuss real estate investment opportunities and trends in these countries. Key points discussed include industrial and residential real estate being attractive sectors, as well as opportunities emerging in secondary cities beyond major markets like Mexico City and Santiago. International investors are increasingly active in Latin America looking for yield.
The document discusses why the United States attracts large amounts of foreign direct investment (FDI). It states that the U.S. is an attractive investment destination due to its political and economic stability, growing population and economy, vast resources, and recovery from the financial crisis through government intervention. New York leads other U.S. cities in attracting foreign investment, followed by Washington D.C., due to their positions as financial and political centers. The healthcare, technology, and real estate sectors in particular have seen large amounts of foreign investment in recent years.
Finance estonia development proposals for capital markets Terje Pällo
This document proposes measures to rejuvenate Estonia's capital markets. It finds that Estonia's stock market capitalization and volume have significantly decreased in recent years, making its capital markets very small compared to other countries. It recommends both supply-side and demand-side measures to improve the market. These include increasing investment product offerings, altering regulations to enable new asset classes, and making the state a more active issuer. The goal is to enact several impactful and coordinated measures simultaneously to significantly boost capital market activity in Estonia.
Globalization Essay: The Role of State, The University of Cambridge, Mphil in...Milena Milicevic
This document provides a 3154 word summary of a student paper on whether developing countries need a strong and effective state to take advantage of opportunities in global markets. It begins by outlining the key factors that contribute to an effective state, including strong performance by various public and private actors working together. It then discusses how developing countries often need to improve governance to become more competitive globally. While an effective state is important, the role of the state declines in neo-liberal capitalism. The document examines the historical use of protectionism by now-developed countries and challenges for developing countries in globalization. It concludes by noting various policy challenges for developing country governments, such as gradual liberalization and managing monetary issues.
The document discusses the growth of stock exchanges around the world over the past few decades. It notes that in 1988 stock exchanges existed in 63 countries, but by 2005 that number had grown to 145 countries, representing 92% of the global population and 99% of global GDP. This growth has created opportunities for exchange operators to expand into new markets and for investors to diversify internationally. However, many of the newer exchanges are still immature with limited trading and foreign investment. As these markets continue developing, they have the potential to increase global liquidity and wealth.
The document summarizes the circular flow of income and expenditure in a market economy. It describes how households supply resources like labor to businesses in input markets in exchange for income, and then households use that income to demand goods and services from businesses in product markets. This circular flow results in continuous production, income, and demand. The document then notes that modern economies are mixed, with governments participating through taxes, spending, and policies that influence markets.
Asian economies have played a major role in global economic growth over the past decade, accounting for 25-50% of global growth. They have sustained strong growth and weathered the global financial crisis well. However, their continued growth is contributing to high global commodity and food prices, adding inflationary pressures worldwide. Looking ahead, Asian economies are well positioned to help lead the global recovery given their large foreign reserves and ability to continue domestic growth through public spending programs.
arifanee.com is world's leading website on the hottest financial news, perspectives and behind the scenes stories. arifanees.com brings you insight and information to inspire and transform your paradigm by enriching your with the best of facts and the vision.
arifanees.com
Information-Inspiration-Transformation
The document discusses the globalization of finance and its risks and challenges. It notes that while financial globalization has benefits like increased capital flows and more efficient allocation of resources, it also contributed to the global financial crisis. Countries with less integrated financial systems were less affected by the crisis. The document argues that truly global financial regulation would be difficult given that fiscal policy authority lies with independent governments, not global bodies, and coordinated regulation could impose the wrong models globally. Overall, the document provides an overview of financial globalization and examines its pros and cons based on the recent financial crisis experience.
Dr. Michael Hasenstab provides an analysis of factors that will differentiate the recoveries of various countries from the global economic crisis. He believes emerging markets will recover more quickly than developed markets due to emerging markets' stronger domestic economies and less reliance on exports, more effective policy responses, and avoidance of issues like high public debt and private sector leverage plaguing developed nations. Recent economic trends support this view, with emerging markets showing stronger growth, job creation, and capital inflows. Hasenstab also discusses opportunities in foreign exchange and bond markets stemming from divergence in recoveries.
Brookings: Looting: The Economic Underworld of Bankruptcy for Profit chaganomics
This paper analyzes the phenomenon of "bankruptcy for profit", or "looting", where owners of firms drive otherwise solvent companies bankrupt to extract value for themselves at a social cost. The authors develop a simple three-period model showing that limited liability gives owners the incentive to exploit lenders if debt contracts allow it. When M (the maximum owners can extract) exceeds V (the firm's true value), owners will intentionally bankrupt a profitable firm. Looting causes social losses far greater than private gains to owners. The authors argue this dynamic helps explain financial crises like the S&L crisis in the US and collapse of the junk bond market in the 1980s.
This document summarizes a paper that investigates export dynamics of Colombian firms. It finds that: (1) export fluctuations can be explained by firms that have exported for at least a year; (2) firms that export in years t and t+1 grow rapidly; (3) firms that first export to Latin American markets like Ecuador and Venezuela tend to later expand into markets like the US. However, the commenter questions the internal and external validity of the conclusions due to country-specific factors in Colombia, like political instability and civil conflict, that could differently impact firms. Robustness checks on neighboring countries are recommended to generalize the findings.
While the BRICS experienced rapid growth in the 2000s that narrowed the gap with developed economies, their growth has slowed significantly since 2010 due to supply-side constraints. The study identifies criteria for the countries most likely to take over from the BRICS as the next emerging market growth leaders. It first looks at countries with accelerating growth potential based on factors like investment, human capital, and productivity. It then considers the development of financial systems and quality of business climate to support production capacity expansion. Applying these criteria identifies 10 countries - Colombia, Indonesia, the Philippines, Peru, Sri Lanka, Kenya, Tanzania, Zambia, Bangladesh and Ethiopia - that have strong growth potential but may need to improve business environments to fully realize
This document provides an overview of real estate investment opportunities in Latin America, with a focus on Brazil, Mexico, Peru, and Colombia. For Brazil, it discusses strong growth in the commercial, leisure/tourism, and residential sectors. Commercial real estate experienced little distress during the economic crisis due to low debt levels. Demand is driving up rents in major cities. Leisure/tourism is benefitting from surging domestic Brazilian demand for vacation properties rather than international buyers. The residential sector is expected to see major growth due to population increases and an expanding middle class. Brazil's northeast region in particular is seen as an emerging frontier market for real estate.
This document provides an introduction to the book "Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond" which examines new forms of state capitalism that have emerged around the world. It discusses two new models - Leviathan as a majority investor, where the state remains the controlling shareholder but allows private investment, and Leviathan as a minority investor, where the state takes minority stakes or provides loans while relinquishing control. The introduction uses examples from China and Brazil to illustrate these models and argues that state-linked companies now account for a significant portion of stock market capitalization globally. While some view these new forms of state capitalism critically, the book aims to provide a nuanced analysis of when and how state intervention can
Foreign Takeovers & The Canadian EconomyColinbest
The document discusses foreign takeovers and ownership in Canada and its effects on the Canadian economy. It notes that foreign ownership has increased significantly over the past century as trade barriers were reduced. While some argue this "hollows out" Canadian industry, the document finds that foreign investment has actually increased productivity, wages, and head office employment in Canada. It concludes that fears over loss of national identity must be balanced with the economic benefits of foreign capital.
1) Global financial assets have grown to $225 trillion but growth has slowed significantly since the financial crisis, increasing at an annual rate of only 1.9% compared to 7.9% pre-crisis.
2) Cross-border capital flows collapsed during the crisis, falling over 60% from their 2007 peak, and remain well below pre-crisis levels as financial integration has reversed in some areas like the Eurozone.
3) The report finds that the financial crisis has stalled the processes of financial deepening and globalization, with lingering effects on the availability of financing for corporations, households, and economic growth. The future path of these trends will influence prospects for recovery.
This document analyzes China's strategic partnerships with Latin American countries from 1991 to 2015 through case studies of China's oil diplomacy in Argentina, Brazil, Mexico, and Venezuela. It aims to understand what these partnerships entail in practice and the degree of convergence or divergence among them. The author conducts a literature review on relevant international relations theories and uses a mixed methodology of qualitative and quantitative analysis to compare the cases. The findings show the partnerships are characterized by unequal gains that benefit China more, and that countries had varying levels of leverage and vulnerability in their relations with China depending on economic and political factors.
Jamestown Latin America | Trends + Views | Currency AnalysisFerhat Guven
The document discusses currency risk for US dollar-based real estate investors in Latin America. It finds that:
1) Currencies in the region have depreciated significantly against the US dollar this year, improving purchasing power for US investors.
2) Currency risk is reduced as currencies like the Brazilian real that were previously overvalued have moved closer to fair value.
3) Holding real estate assets in a basket of Latin American countries provides diversification benefits, as the currencies do not move in perfect tandem and have correlations below 1.
Executives from multilatinas in Latin America were interviewed about business perspectives in the region. While executives see short-term economic growth as stable and moderate, many are optimistic about 2018 and the future. Despite current uncertainty, multilatinas intend to actively grow their businesses through mergers and acquisitions. Executives see some differences between countries, with Chile and Peru viewed more positively than Colombia in the short-term, but executives expect Colombia's economy to improve in coming years.
This document provides an overview of real estate investment opportunities across several Latin American countries in 2011, focusing on Brazil, Mexico, Peru, Colombia, Panama, Argentina, and the agricultural sector. For Brazil, the commercial real estate market experienced little distress during the economic crisis due to low leverage. Office rents in major cities have increased substantially since 2009, and the residential and tourism sectors are also growing. Overall, Brazil is seen as one of the top markets in Latin America for real estate investment.
This document summarizes interviews from the Global Real Estate Investment (GRI) conferences in Mexico (2016), Colombia, Chile, and Peru (2015). The interviews discuss real estate investment opportunities and trends in these countries. Key points discussed include industrial and residential real estate being attractive sectors, as well as opportunities emerging in secondary cities beyond major markets like Mexico City and Santiago. International investors are increasingly active in Latin America looking for yield.
The document discusses why the United States attracts large amounts of foreign direct investment (FDI). It states that the U.S. is an attractive investment destination due to its political and economic stability, growing population and economy, vast resources, and recovery from the financial crisis through government intervention. New York leads other U.S. cities in attracting foreign investment, followed by Washington D.C., due to their positions as financial and political centers. The healthcare, technology, and real estate sectors in particular have seen large amounts of foreign investment in recent years.
Finance estonia development proposals for capital markets Terje Pällo
This document proposes measures to rejuvenate Estonia's capital markets. It finds that Estonia's stock market capitalization and volume have significantly decreased in recent years, making its capital markets very small compared to other countries. It recommends both supply-side and demand-side measures to improve the market. These include increasing investment product offerings, altering regulations to enable new asset classes, and making the state a more active issuer. The goal is to enact several impactful and coordinated measures simultaneously to significantly boost capital market activity in Estonia.
Globalization Essay: The Role of State, The University of Cambridge, Mphil in...Milena Milicevic
This document provides a 3154 word summary of a student paper on whether developing countries need a strong and effective state to take advantage of opportunities in global markets. It begins by outlining the key factors that contribute to an effective state, including strong performance by various public and private actors working together. It then discusses how developing countries often need to improve governance to become more competitive globally. While an effective state is important, the role of the state declines in neo-liberal capitalism. The document examines the historical use of protectionism by now-developed countries and challenges for developing countries in globalization. It concludes by noting various policy challenges for developing country governments, such as gradual liberalization and managing monetary issues.
The document discusses the growth of stock exchanges around the world over the past few decades. It notes that in 1988 stock exchanges existed in 63 countries, but by 2005 that number had grown to 145 countries, representing 92% of the global population and 99% of global GDP. This growth has created opportunities for exchange operators to expand into new markets and for investors to diversify internationally. However, many of the newer exchanges are still immature with limited trading and foreign investment. As these markets continue developing, they have the potential to increase global liquidity and wealth.
The document summarizes the circular flow of income and expenditure in a market economy. It describes how households supply resources like labor to businesses in input markets in exchange for income, and then households use that income to demand goods and services from businesses in product markets. This circular flow results in continuous production, income, and demand. The document then notes that modern economies are mixed, with governments participating through taxes, spending, and policies that influence markets.
Asian economies have played a major role in global economic growth over the past decade, accounting for 25-50% of global growth. They have sustained strong growth and weathered the global financial crisis well. However, their continued growth is contributing to high global commodity and food prices, adding inflationary pressures worldwide. Looking ahead, Asian economies are well positioned to help lead the global recovery given their large foreign reserves and ability to continue domestic growth through public spending programs.
arifanee.com is world's leading website on the hottest financial news, perspectives and behind the scenes stories. arifanees.com brings you insight and information to inspire and transform your paradigm by enriching your with the best of facts and the vision.
arifanees.com
Information-Inspiration-Transformation
The document discusses the globalization of finance and its risks and challenges. It notes that while financial globalization has benefits like increased capital flows and more efficient allocation of resources, it also contributed to the global financial crisis. Countries with less integrated financial systems were less affected by the crisis. The document argues that truly global financial regulation would be difficult given that fiscal policy authority lies with independent governments, not global bodies, and coordinated regulation could impose the wrong models globally. Overall, the document provides an overview of financial globalization and examines its pros and cons based on the recent financial crisis experience.
Dr. Michael Hasenstab provides an analysis of factors that will differentiate the recoveries of various countries from the global economic crisis. He believes emerging markets will recover more quickly than developed markets due to emerging markets' stronger domestic economies and less reliance on exports, more effective policy responses, and avoidance of issues like high public debt and private sector leverage plaguing developed nations. Recent economic trends support this view, with emerging markets showing stronger growth, job creation, and capital inflows. Hasenstab also discusses opportunities in foreign exchange and bond markets stemming from divergence in recoveries.
Brookings: Looting: The Economic Underworld of Bankruptcy for Profit chaganomics
This paper analyzes the phenomenon of "bankruptcy for profit", or "looting", where owners of firms drive otherwise solvent companies bankrupt to extract value for themselves at a social cost. The authors develop a simple three-period model showing that limited liability gives owners the incentive to exploit lenders if debt contracts allow it. When M (the maximum owners can extract) exceeds V (the firm's true value), owners will intentionally bankrupt a profitable firm. Looting causes social losses far greater than private gains to owners. The authors argue this dynamic helps explain financial crises like the S&L crisis in the US and collapse of the junk bond market in the 1980s.
This document summarizes a paper that investigates export dynamics of Colombian firms. It finds that: (1) export fluctuations can be explained by firms that have exported for at least a year; (2) firms that export in years t and t+1 grow rapidly; (3) firms that first export to Latin American markets like Ecuador and Venezuela tend to later expand into markets like the US. However, the commenter questions the internal and external validity of the conclusions due to country-specific factors in Colombia, like political instability and civil conflict, that could differently impact firms. Robustness checks on neighboring countries are recommended to generalize the findings.
While the BRICS experienced rapid growth in the 2000s that narrowed the gap with developed economies, their growth has slowed significantly since 2010 due to supply-side constraints. The study identifies criteria for the countries most likely to take over from the BRICS as the next emerging market growth leaders. It first looks at countries with accelerating growth potential based on factors like investment, human capital, and productivity. It then considers the development of financial systems and quality of business climate to support production capacity expansion. Applying these criteria identifies 10 countries - Colombia, Indonesia, the Philippines, Peru, Sri Lanka, Kenya, Tanzania, Zambia, Bangladesh and Ethiopia - that have strong growth potential but may need to improve business environments to fully realize
This document provides an overview of real estate investment opportunities in Latin America, with a focus on Brazil, Mexico, Peru, and Colombia. For Brazil, it discusses strong growth in the commercial, leisure/tourism, and residential sectors. Commercial real estate experienced little distress during the economic crisis due to low debt levels. Demand is driving up rents in major cities. Leisure/tourism is benefitting from surging domestic Brazilian demand for vacation properties rather than international buyers. The residential sector is expected to see major growth due to population increases and an expanding middle class. Brazil's northeast region in particular is seen as an emerging frontier market for real estate.
This document provides an introduction to the book "Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond" which examines new forms of state capitalism that have emerged around the world. It discusses two new models - Leviathan as a majority investor, where the state remains the controlling shareholder but allows private investment, and Leviathan as a minority investor, where the state takes minority stakes or provides loans while relinquishing control. The introduction uses examples from China and Brazil to illustrate these models and argues that state-linked companies now account for a significant portion of stock market capitalization globally. While some view these new forms of state capitalism critically, the book aims to provide a nuanced analysis of when and how state intervention can
Foreign Takeovers & The Canadian EconomyColinbest
The document discusses foreign takeovers and ownership in Canada and its effects on the Canadian economy. It notes that foreign ownership has increased significantly over the past century as trade barriers were reduced. While some argue this "hollows out" Canadian industry, the document finds that foreign investment has actually increased productivity, wages, and head office employment in Canada. It concludes that fears over loss of national identity must be balanced with the economic benefits of foreign capital.
1) Global financial assets have grown to $225 trillion but growth has slowed significantly since the financial crisis, increasing at an annual rate of only 1.9% compared to 7.9% pre-crisis.
2) Cross-border capital flows collapsed during the crisis, falling over 60% from their 2007 peak, and remain well below pre-crisis levels as financial integration has reversed in some areas like the Eurozone.
3) The report finds that the financial crisis has stalled the processes of financial deepening and globalization, with lingering effects on the availability of financing for corporations, households, and economic growth. The future path of these trends will influence prospects for recovery.
This document analyzes China's strategic partnerships with Latin American countries from 1991 to 2015 through case studies of China's oil diplomacy in Argentina, Brazil, Mexico, and Venezuela. It aims to understand what these partnerships entail in practice and the degree of convergence or divergence among them. The author conducts a literature review on relevant international relations theories and uses a mixed methodology of qualitative and quantitative analysis to compare the cases. The findings show the partnerships are characterized by unequal gains that benefit China more, and that countries had varying levels of leverage and vulnerability in their relations with China depending on economic and political factors.
Jamestown Latin America | Trends + Views | Currency AnalysisFerhat Guven
The document discusses currency risk for US dollar-based real estate investors in Latin America. It finds that:
1) Currencies in the region have depreciated significantly against the US dollar this year, improving purchasing power for US investors.
2) Currency risk is reduced as currencies like the Brazilian real that were previously overvalued have moved closer to fair value.
3) Holding real estate assets in a basket of Latin American countries provides diversification benefits, as the currencies do not move in perfect tandem and have correlations below 1.
Ping Jiang discusses ways in which political unrest and economic uncertainty affect markets. Post recession, less developed markets have recovered more quickly than those with more wealth. Ping Jiang explores why seeing these differently might change thoughts on investment.
Instructions1. On the top of the page, provide the article citat.docxnormanibarber20063
Instructions
1. On the top of the page, provide the article citation in current APA format.
On the next line down, type the topic of your articles: (Gross Domestic Product (GDP)
in all caps and bold format.
2. In a double-spaced document, briefly explain the author’s purpose for writing the article. One way to understand the author’s purpose is to ask yourself why he or she wrote it. (For example, consider current and future events, politics, or anything else that may have inspired the article.)
3. Summarize the article(The criminality of Wall Street), focusing on the discussion of the topic the article addresses. Incorporate relevant economic theory that is present so that discussion of the article content is clear.
Article: The Criminality of Wall Street
Tabb, William K. Monthly Review66.4 (Sep 2014): 13-22.
The current stage of capitalism is characterized by the increased power of finance capital. How to understand the economics of this shift and its political implications is now central for both the left and the larger society. There can be little doubt that a signature development of our time is the growth of finance and monopoly power.1
In 1980 the nominal value of global financial assets almost equaled global GDP. In 2005 they were more than three times global GDP.2 The nominal value of foreign exchange trading increased from eleven times the value of global trade in 1980 to seventy-three times in 2009.3 Of course it is not certain what this increase means, since such nominal values can fluctuate widely, as we saw in the Great Financial Crisis. They cannot be compared directly and without all sorts of qualifications to the value added in the real economy. But they do give an impressionistic sense of the enormous magnitude by which finance grew and came to dominate the economy. Between 1980 and 2007, derivative contracts of all kinds expanded from $1 trillion globally to $600 trillion.4 Hedge funds and private equity groups, special investment vehicles, and mega-bank holding companies changed the face of Western capitalism. They also brought on the collapse from which we still suffer. Ordinary people may not be acquainted with the numbers (and even those best informed are not sure of their significance), but people generally understand in different and often deep ways what has been happening: namely, an ongoing process of financialization that has come to dwarf production.
What is particularly important is that despite the huge bubble created by this metastasizing growth of finance, the economy did not expand as rapidly as it had in the postwar years, before the goods producing industries lost ground in terms of employment to other sectors of the economy, and when government spending was used actively to promote growth. While the nature of much of the growth that occurred then is certainly open to criticism from all sorts of standpoints, at the time there was widespread understanding in policy circles that government spending was.
An Analysis of Emerging Markets". = Honors Thesisdre101
This document is the Honors Thesis that was done during my final semester at Hofstra University. This Honors Thesis received High Departmental Honors from the Finance Department at Hofstra University. The Honors Thesis was an analysis of the status of emerging markets at the time of the thesis. My research on emerging markets was done primarily through an analysis of emerging market equity mutual funds.
- Brazil is experiencing rapid growth in its residential property market as its economy grows, with an estimated 1-1.2 million new homes being constructed in 2010 alone.
- The housing deficit is estimated at over 8 million homes, indicating significant need and opportunity for growth.
- Brazil has developed innovative methods to finance homes for low-income households, including government subsidies and programs through state-owned banks.
The global financial stock grew by $11 trillion in 2010 to $212 trillion total, surpassing pre-crisis levels. Nearly half of the growth came from a $6 trillion increase in global stock market capitalization. Global credit markets also grew by $5.5 trillion to $158 trillion total, with most growth coming from a $4.4 trillion increase in government debt as budget deficits rose in many countries. Bank lending grew by $2.6 trillion while bond issuance by corporations and financial institutions was mixed.
World crisis of 2008 and its economic, social and geopolitical consequencesFernando Alcoforado
The global economic and financial crisis of 2008 had wide-ranging economic, social, and geopolitical consequences according to experts. The crisis originated from risky lending practices and over-complex financial innovations in the US that spread worldwide. It resulted in massive losses, a collapse in credit markets, and a severe global recession. Experts argue this could lead to prolonged fiscal deficits, protectionism, and a shift away from US dominance on the global stage. The crisis also hit developing economies hard through falling trade and commodity prices, with serious social impacts. It marked the end of the era of financial liberalization and globalization as governments intervened extensively to stabilize markets.
October 2010 - Construction takes a great leap forwardFGV Brazil
The Brazilian Economy is one of the oldest publications for expert economic analysis of both the Brazilian and international economies. Through this publication, FGV’s Brazilian Institute of Economics and Finance (FGV/IBRE) compares different periods of the economy, assessing both macroeconomic considerations and scenarios related to finance, administration, marketing, management, insurance, statistics, and price indices.
For more information, and Brazilian economic index results, visit: http://bit.ly/1EA1Loz
This document introduces the concept of financialization and its implications. It defines financialization as the increasing role of financial motives, markets, actors and institutions in domestic and international economies. Some key points:
1) Since the 1970s/1980s, structural shifts have led to increases in financial transactions, real interest rates, and the profitability and shares of national income going to financial firms and asset holders in countries like the US and France.
2) These trends reflect the phenomenon of financialization in world economies. Financialization has implications for economic stability, growth, income distribution, and political/economic policy.
3) While financialization has detrimental effects, the financial sector benefits from economic crises that hurt many
The document discusses factors that influence the economic success of small countries compared to larger countries. It finds:
- There is a negative correlation between country size and GDP per capita, indicating smaller countries tend to have higher GDP per capita.
- Older, established small countries make up a large share of the top-ranked countries in terms of GDP per capita, wealth per adult, and human development index scores.
- While new small countries have lower average GDP and wealth than old small countries, wealth inequality tends to be less pronounced in small countries overall compared to larger countries.
- Trade openness, homogeneity of the population, and globalization are positively correlated with economic success for small countries. Intang
“The Success of Small States,” the latest study by the Credit Suisse Research Institute, sheds light on an important trend: the rise of small countries. Covering a variety of factors from the age of countries to trade openness, the report determines the features that make small, independent countries successful on their own.
Fasanara Capital | Investment Outlook
1. Fake Markets: How Artificial Money Flows Kill Data Dependency, Affect Market Functioning and Change the Structure of the Market
Hard data ceased to be a driver for markets, valuation metrics for bonds and equities which held valid for over a century are now deemed secondary. Narratives and money flows trump hard data, overwhelmingly.
‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles have managed to overwhelm and narcotize data-dependency and macro factors. A stuporous state of durable, un-volatile over-valuation, arrested activity, unconsciousness produced by the influence of artificial money flows.
- Passive Flows: The Prehistoric Elephant In The Room
- ETFs Are Taking Over Markets
- The Impact of Passive Investors on Active Investors: the Induction Trap
- How Narratives Evolve To Cover For Fake Markets
- Defendit Numerus: There is Safety in Numbers
- What Could We Get Wrong
2. Be Short, Be Patient, Be Ready
Markets driven by Central Banks, passive investment vehicles and retail investors are unfit to price any premium for any risk. If we are right and this is indeed a bubble (both in equity and in bonds), it will eventually bust; it is only a matter of time. The higher it goes, the higher it can go, as more swathes of private investors are pulled in. The more violently it can subsequently bust.
The risk of a combined bust of equity and bonds is a plausible one. It matters all the more as 90%+ of investors still work under the basic framework of a balanced portfolio, exposed in different proportions to equity and bonds, both long. That includes risk parity funds, a leveraged version of balanced portfolio. That includes alternative risk premia funds, a nice commercial disguise for a mostly long-only beta risk, where premia is extracted from record rich markets that made those premia tautologically minuscule.
East Asia experienced extensive economic growth in the second half of the 20th century while Latin America saw stagnated growth and decline. This was largely due to differences in total factor productivity. Latin America adopted import substitution industrialization which led to inefficient state-owned enterprises, high inflation, and vulnerability to external shocks. In contrast, East Asian countries limited government intervention and inflation while promoting exports, education, savings, and sustainable growth through balanced budgets and market policies. As a result, East Asia saw investment exceed 20% of GDP annually and rapid growth, while Latin America suffered from low productivity following economic shocks.
This newsletter introduces a new publication called "EYE ON THE MARKETS" that will analyze macroeconomic trends, investment management, and equity market movements. The author argues that macro events have an overwhelming influence on stock markets, and periods of calm have been interrupted by market sell-offs due to crises in Europe, the US, and Asia. Investors need to carefully manage their portfolios and prepare contingency plans for different scenarios. Some positive factors are signs of recovery in corporate earnings, manufacturing, and technology, though continued global uncertainties remain.
Creative economy america report_sb_v6_engBijeli zec
This report analyzes the economic impact of the creative industries in countries in the Americas. It finds that the creative industries are growing rapidly and contribute significantly to GDP and employment in many countries. However, measuring the sector faces challenges due to its dynamic nature and lack of standardized definitions. The report calls for improved data collection and common statistical frameworks to better understand and support the creative industries through evidence-based policymaking.
FINANCE AND LABOR PERSPECTIVES ONRISK, INEQUALITY, AND DEMO.docxericn8
FINANCE AND LABOR: PERSPECTIVES ON
RISK, INEQUALITY, AND DEMOCRACY
Sanford M. Jacobyt
We live in an era of financial development. Since 1980, capital
markets have expanded around the world; capital shuttles the globe
instantaneously. Shareholder concerns drive executive decision
making and compensation, while the fluctuations of stock markets are
a source of public anxiety. So are the financial scandals that have
regularly occurred since 1980: junk bonds in the late 1980s;
accounting and stock options in the early 2000s; and debt
securitization today.
We also live in an era of rising income inequality and
employment risk. The gaps between top and bottom incomes and
between top and middle incomes have widened since 1980. Greater
risk takes various forms, such as wage and employment volatility and
the shift from employers to employees of responsibility for
occupational pensions.
There is an enormous literature on financial development as
there is on inequality and risk. But relatively few studies consider the
intersection of these phenomena. Standard explanations for rising
inequality--skill-biased technological change and trade--explain only
30% of the variation in aggregate inequality. What else matters? We
argue here that an omitted factor is financial development.1 This
study explores the relationship between financial markets and labor
markets along three dimensions: contemporary, historical, and
comparative. For the world's industrialized nations, we find that
financial development waxes and wanes in line with top income
t Howard Noble Professor of Management, Public Policy, & History, UCLA. Thanks to
J.R. DeShazo, Stanley Engerman, Steve Foresti, Dana Frank, Mark Garmaise, Teresa
Ghilarducci, John Logan, James Livingston, Adair Morse, David Montgomery, Paul Osterman,
Grace Palladino, Peter Rappoport, Hugh Rockoff, Dani Rodrik, Emmanuel Saez, Richard
Sylla, Ryan Utsumi, Fred Whittlesey, Robert Zieger, and various interviewees. The usual
disclaimer applies. I am grateful for support from the Price Center at the UCLA Anderson
School and from the Institute for Technology, Enterprise, and Competitiveness at Doshisha
University. This paper is dedicated to Lloyd Ulman: scholar, teacher, mensch.
1. IMF, WORLD ECONOMIC OUTLOOK: GLOBALIZATION AND INEQUALITY 48
(Washington, D.C. 2007).
17
COMP. LABOR LAW & POL'Y JOURNAL
shares. Since 1980, however, there have been national divergences
between financial development--defined here as the economic
prominence of equity and credit markets-and inequality. In the
United States and United Kingdom, there remains a strong positive
correlation but in other parts of Europe and in Japan the relationship
is weaker.
What accounts for swings in financial development and inequality
and the relationship between them? Economic growth is one factor.
Another is the politics of finance. The model presented here is simple
but consistent with the evidence: Upswings in financial development
are related to politi.
This document provides a summary of a conference on development, foreign direct investment, and investment treaties in Latin America. The conference brought together economists, lawyers, political scientists, and policymakers from around the world.
The key conclusions from the conference included that laissez-faire economic policies are not always the best for growth, that foreign investment should support national development goals rather than be pursued as an end, and that investment treaties need reform to better balance investor protections with policy flexibility for governments. Presentations covered topics like the history of globalization and development strategies, trends in foreign investment, challenges of investment treaties, and case studies from investment arbitrations. Overall, the conference highlighted the need for more balanced and nu
A small airline recently sold to a private equity group for $145 m.docxannetnash8266
A small airline recently sold to a private equity group for $145 million. The airline has earned profits of $9 million last year. The new managers believe they can grow profits at 5% per year. The private equity group borrows money from wealthy individuals to invest in acquisitions. Because of the significant risk involved, lenders are promised a 12% return on their loans to the equity group. Is the purchase price of the new airline reasonable? Explain
ISSN 0143-6597 print/ISSN 1360-2241 online/02/040607-1 4 q 2002 Third World Quarterly
DOI: 10.1080 /014365902200000529 2 607
Third World Quarterly, Vol 23, No 4, pp 607–620, 2002
Eager to defend the feasibilit y, indeed desirability, of continued mobility of cross-
border financial flows, especially after the advent of the Asian crisis (1997–98),
the G-7 countries established a series of institutions and networks, encompassin g
both state and non-state actors, in the hope of strengthening the internationa l
financial system. This strategy has been referred to as the New Internationa l
Financial Architecture (NIFA). While there are many dimensions to the NIFA, we
can identify at least three important features: the Group of Twenty (G-20), the
Financial Stability Forum (FSF), and 11 standards and codes which are collec-
tively known as the Reports on Observances of Standards and Codes (ROSCs).
Briefly, the G-20 brings together, for the first time, finance ministers and central
bank governors not only of the G-7 and the European Union, but also their
counterparts of ‘systematically important’ emerging market economies. The FSF,
on the other hand, seeks to provide regular scheduled meetings involvi ng
important national authorities from G-7 countries in order to enhance discussion s
On the contradictions of the New
International Financial Architecture:
another procrustean bed for
emerging markets?
SUSANNE SOEDERBERG
ABSTRACT The New International Financial Architecture (NIFA) was created by
powerful G-7 countries in response to the growing volatility in the developing
world. Some key components of the NIFA include: the G-20, the Financial Stabilit y
Forum and the Reports on Observance of Standards and Codes, the latte r
involving areas such as corporate governanc e. The aim of this article is to
address some important yet largely neglected questions. Why the new building ?
Who benefits from this construct ion? Unlike most accounts of the NIFA, the
following analysis does not remain focused on its institutio nal terrain; but
instead draws linkages between these structures and the paradoxes inherent in
global capitalism. One such contradiction is the constant promotion of financia l
liberalisation in emerging markets by US-led international financial institution s
(IFIs), on the one hand, and the frequency of financial crises in the developing
world, on the other. The article suggests that the NIFA is an attempt to strengthe n
(stabilise and legitimate) the scaffolding of the existing imper.
Similar to Strengthening Of Latin American Capital Markets (20)
A small airline recently sold to a private equity group for $145 m.docx
Strengthening Of Latin American Capital Markets
1. Examination of the Strengthening of Latin American Capital Markets
Ryan Flynn
August 24, 2011
INT 750
Dr. Aysun Ficici
Southern New Hampshire University
Abstract:
Latin America is a rapidly emerging economic region. As such, it is competing with Asian
markets for attention and attractiveness. For decades, news about Latin America was not
promising. However, in recent years, the major nations of Argentina, Brazil, Chile, Colombia,
and Mexico have made great efforts to improve their economic conditions and stabilize their
markets. One fault of many Latin American countries in the past has been a high perceived level
of corruption. Another fault of many Latin American countries has been a low perception of
their ability to maintain stable capital markets and service their external debt. This paper intends
to examine and compare the relationship between the stabilization of perceived corruption and
country credit risk and increases (improvements) in market capitalization, levels of external debt,
and foreign direct investment in nine emerging markets in two regions, Latin America and Asia.
Latin American Capital Markets Strengthening
1
2. Introduction
Latin American capital markets have been subject to extreme volatility through the past
several decades, 1970 – 2010. And, during this time, Latin American countries, primarily Chile,
Brazil, Colombia, Mexico and Argentina have been the focus of foreign direct investment in the
region. However, the capital markets have never seemed to stabilize, despite efforts to liberalize
the economies of the aforementioned countries and develop stable capital markets. The approach
of liberalization and market reform was undertaken over the past 30 years in the hopes of
developing stable capital markets, intended to drive economic development and establish an
economic center of gravity that would attract, nurture, and development investors in the region.
According to a research effort, Capital Market Development Whither Latin America, published
in 2008 by de la Torre, Gozzi and Schmukler, it claims capital markets in Latin America are
underdeveloped compared to other emerging markets, i.e. East Asia, and that stock markets are
below expected levels, despite the presence of the necessary economic and institutional
fundamentals that facilitate stock market usage. The study also identifies a shortfall in domestic
stock market activity when considering per capita income, macroeconomic policies, and legal
and institutional provisions. Using research from their peers, de la Torre, Gozzi and Schmukler
(2008) arrived at a “de facto measure of openness by using both equity flows from portfolio
equity flows and foreign direct investment (FDI) flows relative to GDP” (de la Torre, p. 6, 7).
According to them, this variable reflects the degree of openness of the stock market and
its “effective integration with international capital markets” (de la Torre, p. 7). Moreover, the
team identified and compensated for the factor that “local market development is affected by the
growth opportunities that firms face…” which may be, “particularly relevant for explaining
capital raising behavior” (de la Torre, p. 13). The claim here is that the better growth
Latin American Capital Markets Strengthening
2
3. opportunities will require larger stock markets to develop a cycle of attracting, maintaining, and
expanding increasing demand for foreign funds. The research by this team also indicates that
size of an economy, measured by GDP, leads to efficiency gains in securities markets by
expanding volume and participants; in turn, leading to increasing development of liquid,
operating securities markets.
But, the most important thing to establish is a stabilized market that facilitates domestic
and foreign investment. The research indicates that this requires an open stock exchange, the
issuance of public/external debt securitized in local currency, and the presence of foreign direct
investment. Most of the research collected for this particular examination stopped its exploration
of data with the year 2005. This is a slightly more progressive study seeking to evaluate
developments in Latin American capital markets up through 2010, while providing a quantitative
comparison to corresponding data for Asian markets. The years of observation are 2001 through
2010, as the last half of the decade created some very interesting activity in world markets, and
at least chatter in the news indicated Latin America was a place to observe. Chile has long been
the darling of Austrian School liberal economists, while Brazil has been a very intriguing market
for investment and economic development. Argentina and Mexico have had their share of
turbulent activity through the years, and have made great strides in the past decade, as has
Colombia. The developments in these markets are significant and have added depth to the
capital markets in the region through stabilization of their economies.
This paper will contribute to the world of International Business by investigating the
development of Latin American capital markets over the past decade, most importantly in the
years 2005 – 2010. The evaluation will draw a correlation between the stabilization of
Latin American Capital Markets Strengthening
3
4. perception of corruption and country and credit risk to increases in market capitalization,
issuance of external debt and foreign direct investment.
Literature Review
Supporting and expounding on the research of de la Torre, Gozzi and Schmukler (2008)
is a 2007 effort undertaken by Ananchorikul and Eichengreen1 (2007), while showing a different
and more promising picture that reflects the buzz in the international news, a medium which
measures by rates of change, rather than comparable levels. It is noted that the seven large Latin
American markets experienced dramatic growth in capitalization of domestic bond markets in
the ten year period between 1995 and 2005, wherein it more than doubled (See Appendix A,
charts). Additionally, in the five year period between 2000 and 2005, those seven countries
experienced over 60% increase, while capitalization of the stock market 1 jumped by 52%;
complemented by an 86% rise in trading value, averaged across countries. However, in reality,
Ananchorikul and Eichengreen show stagnant movement in the Latin American capital markets.
The study cites a lack of current price quotes as a limit for institutional investors to invest as
required to sustain the markets, limiting liquidity and creating what they indicate is a
“destructive loop” (Ananchorikul and Eichengreen, p. 2, 3).
Part of the problem, as indicated, is that Latin American equity markets are controlled by
a relatively small number of companies. When reviewing charts presented in the research, it is
clear that the number of listings in Latin American stock markets is nearly flat over the fifteen
year period of 1990 through 2005. Citing that only Chile and Brazil are home to successful
1
Important to note, Ananchorikul and Eichengreen did reference the de la Torre, et al. 2007 unpublished
manuscript from the World Bank, which was published in 2008, as a basis for their research. The value is that
Ananchorikul and Eichengreen’s points are further substantiated and substantiating the research efforts of de la
Torre, et al.
Latin American Capital Markets Strengthening
4
5. capital markets, but even they lag behind other emerging markets. Ananchorikul and
Eichengreen are quick to point out that as of 2007, there are fewer than twenty five percent as
many companies listed in Latin American exchanges as there are in East Asia, but that Latin
American markets are starting behind other regions. Widespread regional macroeconomic
instability has played a heavy role in the depressed development of capital markets as an
extension of the lack of institutional provisions needed to provide security to markets in the
forms of corporate debt, stock market capitalization, and regional stock market turnover, as
indicated in the literature.
Debt Issuance: Progress and Breaking Procyclical Financial Cycles
Tovar and Qulspe-Agnoli (2007) acknowledge the difficulties facing Latin American
markets, but are optimistic that shifts in financing trends, primarily away from cross-border
flows and towards domestic investment. While Tovar and Qulspe-Agnoll (2007) agree that Latin
American capital markets are depressed, their literature indicates domestic policies in the region
are improving, which enable citizens to increase their marginal savings, in turn making available
capital for investments. The article points out that Latin American policies are trending towards
reduced debt ratios, current account surpluses, and increasing international reserves. This type of
activity is what it will take to put Latin American markets on par with other emerging markets,
as indicated in the Ananchorikul and Eichengreen literature. Tovar and Qulspe-Agnoli point out
that Chile, Brazil and Peru have implemented fiscal responsibility laws aimed at reducing
“procyclicality” of fiscal policies (Tovar and Qulspe-Agnoli 2007 ). In other words, set the
fiscal policies on a track that is more linear in nature, and works in tandem with debt
Latin American Capital Markets Strengthening
5
6. management policies to improve prospects and debt profiles. Additionally, exchange rate
regimes have been called in to question as a source of instability. Restructuring those regimes
alongside financial reforms is working to improve the picture and prospect of deepening and
strengthening Latin American capital markets. These policies improve the competitive stance
and reduce the risk and uncertainty discussed as a set-back in the Ananchorikul and Eichengreen
literature.
Tovar and Qulspe-Agnoli (2007) also provides examples of how LAC’s are emerging
with tools to help squelch fears of currency risk coupled with country risk. Brazil, Colombia,
Peru, and Uruguay are issuing sovereign (country) bonds in local currency as one measure to
attract investors with diversified portfolios. According to the literature, this action enables these
countries to extend the yield curve and limit currency and country risk entanglement because
investors will not be subject to the quirks of investing in local markets. The critical drawback,
however, is that issuing country bonds could have the negative side-effect of segmenting
investors. Yet, the positives, as outlined in the literature are that the domestic currency bonds can
help break the procyclical fiscal pressures of foreign currency denominated bonds, which also
has the effect of improving sustainability in markets. Moreover, as the paper points out,
“Sovereign global bonds in local currency also improve the depth of private domestic debt
markets by (1) allowing the expansion of the longer part of the yield curve in local currency (as
in Brazil and Peru); (2) setting benchmarks for domestic markets, which can be relevant for
domestic credit markets if longer-term credit in local currency is nonexistent; (3) creating
incentives for the expansion of derivative markets; and, finally, (4) by diversifying the investor
base” (Tovar, p.5). This is further enhanced by the ability of global bonds issued in sovereign
currency afford to effectively predict inflation. However, the main problem of limited private
Latin American Capital Markets Strengthening
6
7. sector debt issuance remains. Hindered in part because it is overshadowed by better securitized
public debt, and also because there is a deep lack of corporate governance, yet another issue
discussed in the Ananchorikul and Eichengreen (2007) literature. While long term debt issuance
still favors international markets, short-term debt is being issued domestically, and there is a rise
in asset-backed securities (ABS), particularly in Brazil and Mexico. The caveat is that most of
the ABS are in fact, mortgage backed securities (MBS). The significance of ABS development
is that it signals a sign of confidence in the domestic capital markets, enough at least, to
securitize debt domestically. This finding was uncovered in Scatigna and Tovar (2007).
Supporting Tovar’s concept of ABS indicating strength in markets is a research
conducted observing herding mentality. Hsieh, Yang, and Vu (2008) research indicates two
interesting things. First, interest rate differentials actually act as a magnet for attracting investors
to a particular market. This is reflected in ABS’s when bond yield curves are projected to
stabilize on an increasing trend. Second, this research indicates, “This finding also amplifies the
point that, before their respective crisis, it was more profitable to invest in most of the selected
Latin American countries than in the Asian ones” (Hsieh, et. al, p.24).
Macroeconomic Controls: Policy Considerations for the Attraction of Investment
The research on Latin American capital markets continually reverts back to the
importance and effects of macroeconomic policies on the flow of investments to the various
Latin American capital markets. Chile is a stand out example of a country with a strong and
deep (comparative) capital market, and with strong macroeconomic policies designed to attract
foreign and domestic investment. Pablo E. Guidotti (2007) indicates that the emerging market
Latin American Capital Markets Strengthening
7
8. economic crises of the 1990’s actually derailed any momentum Latin American markets had
developed coming out of the 1980’s and into the 1990’s during their initial exposure to
globalization. As the Latin American economies moved to protect their markets from the havoc
created by capital flow stoppages, most Latin American markets began “deleveraging” (Guidotti,
p. 284).
Rocked by two major recessions stemming from global activity – the Asian financial
crisis and the Russian default crisis – Latin America was hit especially hard by an evaporative
effect on capital inflows. Guidotti (2007) indicates that the near wholesale loss of capital inflows
left Latin American countries over extended in public services, and the fear of inflation took over
as the most significant target of domestic policy. Aiming to keep inflation in check, yet tied to a
variety of rigid currency regimes, much of the Latin American region found itself at odds with
public versus private sector concerns. Policy shifts targeted the private sector in order to retain
the public obligations, leaving public debt and deficit relatively high.
According to a Fostel and Kaminsky (2007), Latin American governments in need of
some relief to prevent default of their own were saved, in large part by the graces of the Brady
Plan. The problems were not entirely based on capital flows. In fact, Fostel and Kaminsky
argue that measuring value of the market based on capital flows is a misnomer. Their paper
argues that fundamentals are the reason at least Brazil, Chile and Argentina performed well in
capital markets during the 1990s. But that strong performance in the 2000’s was more a result of
the dramatic increase in global liquidity. Also, the research focuses on “international primary
gross issuance” (Fostel and Kaminsky, p.1).
Latin American Capital Markets Strengthening
8
9. Lane and Milesi-Ferreti (2006) describe financial globalization as, “the accumulation of
larger stocks of gross foreign assets and liabilities.” Bond issuance is the benchmark of strength
of a nation’s capital markets and a litmus test of investor confidence in the market. By receiving
debt relief from the Brady Plan, Latin American markets were enabled to refocus on
fundamentals, and were thereby enabled to begin to lift out of the crisis. Because the Brady Plan
effectively restructured defaulted loans into debt collateralized by U.S. Treasury Bonds, it
facilitated the development of a syndicated loan market (Fostel and Kaminsky (2007)). Latin
American markets had issued only $1 billion USD in bonds in 1990; but after the restructuring,
Latin American markets had issued $54 billion USD in bonds by 1997. Fostel and Kaminsky
(2007) also point out that the side-effect of the Brady Plan securitization and rise in investor
confidence in emerging markets, particularly Latin American markets, was the “forceful
development of an international equity market.” This period of the late 1990’s and early 2000’s
saw an increase in Latin American private corporations accessing unregulated bond markets and
syndicated loan markets to raise capital, but these same types of corporations were also reaching
out to the regulated equity markets of various financial sectors for capital (Fostel and Kaminsky,
p.7) Using a supply and demand model, Fostel and Kaminsky expound on their findings,
claiming that, “the effect of shocks in world capital markets on the supply of funds to emerging
economies is quite intuitive” (Fostel and Kaminsky, p. 9). Low world interest rates increase
supply, assuming emerging market assets and world assets are substitutes. Furthermore, risky
emerging-market assets supply will decrease as risk aversion increases and will increase with
world liquidity. Contagion literature, such as Kaminsky and Reinhart, 2000, indicates that crises
may rapidly spread, limiting emerging market access to international capital markets, having
Latin American Capital Markets Strengthening
9
10. negative effects in their domestic capital markets. Moreover to that point, certain market and
economic fundamentals of the emerging market countries can be signals to the impact and reach
of the financial crises. Fostel and Kaminsky (2007) claims that while stability in macroeconomic
policy reduces the probability of crises, low political risk raises the likelihood of
repayment/decreased chance of default. This dynamic creates confidence, and will lead to
increased capital flows. Conversely, it argues that from the demand side, there is an almost
“Fisherian” effect when there are currency mismatches; suggesting the more open an economy,
the more able it is to generate foreign currency denominated assets (Jeanne, 2003). Declining
currency mismatches increase demand for foreign currency denominated assets. However, as
currency mismatches increase alongside real exchange rate volatility, domestic firms will limit
exposure to foreign markets by pulling back on foreign investments.
Capital Account Liberalization Results in Uncertain Capital Inflows
Ferreiro, Correa, and Gomez (2008) undertook the task of understanding the effects of
capital account liberalization on capital inflows. What was discovered and supported by
Eichengreen and Voth (2003) and others is that current account liberalization have no conclusive
impact on economic growth, size and stability of capital flows, and financial and banking
development. Ferreiro, et al. states that the, “lack of consensus also raises concern about the
kind of economies that would benefit from financial liberalization” (Ferreiro, et al., p.32). This
questions the very premise of the Chicago Boys school of thought. Though, it does indicate that
the effectiveness of current account liberalization rests totally on the institutional framework of
the country in which it is enacted. “Capital account liberalization should be the final step in the
more general liberalization processes once product markets have been liberalized and the
Latin American Capital Markets Strengthening
10
11. domestic financial and banking system has been successfully transformed, thereby ensuring an
efficient resource allocation mechanism” (Ferreiro, et al., p.33).
Securitization as Policy in Latin American Markets
One component of macro and microeconomic policy that has significant ramifications on
capital markets is the effectiveness of securitization. As securitization is a method of reducing
the risk associated with an asset, securitized assets can attract investors to the market. As
Scatigna and Tovar (2007) indicates, “Structured finance can have a positive influence on the
financial system because it can transform ordinarily illiquid or risky assets into more liquid or
less risky ones. It thus offers an alternative source of long-term funding in both domestic and
cross-border markets, and can foster the development of domestic bond markets. In turn, this
could promote greater bank and financial market efficiency, as it implies greater competition to
meet customer financing needs” (Scatigna and Tovar, p.71). Consequently, structured
transactions have expanded rapidly in Latin America. New securitized transactions in 2006
rocketed from $6 Billion in 2002 to $20 Billion. Only $3.6 Billion of that was in cross border
transactions, indicating a rapid increase in domestic transactions. However, compared to Asia,
this is still a relatively small amount of securitized products (Gyntelberg and Remolona (2006)).
Scatagna and Tovar (2007) explain the added value of use of securitization in the region can add
depth to financial markets. This is accomplished by largely improving the resilience of the
markets by mitigating sovereign risk, and providing a source of funding for the housing finance
system.
Latin American Capital Markets Strengthening
11
12. The article makes the important distinction that securitization can create liquid assets
from relatively illiquid assets; things such as mortgages, credits, and receivables. And, more
importantly, it can improve the credit quality of the structured asset using credit enhancement
techniques. This is a means to offer investors more attractive products. Yet, it remains limited
with only such instruments accounting for, “3%, 10% and 6% of total assets in Argentina, Brazil
and Mexico, respectively,” in 2006 (Scatagna and Tovar, p. 77). As a means of mitigating
sovereign risk, securitized products enabled many firms to open to international markets using
products such as future flow securitizations (FFSs). Traditionally, FFSs have been a means for
evading domestic regulation. As the use of these products declines, it indicates an expansion and
deepening of domestic bond markets and attractiveness to both domestic and foreign investors.
Interdependence of Markets and the Resulting Successes and Failures
Pimenta and Fama (2002) presents a unique research in the interdependence of markets.
Using impulse response functions (IRF) models show that the despite liberalization of the
boundaries in Latin American countries, there was little difference between market
interdependence in 2002 than earlier periods with greater market barriers. The importance of
interdependence stems from Eun and Shim (1989) research on the U.S. stock market’s effects on
other markets. Intuitively, the largest market at that time, was the gravitational center,
influencing developments in other large markets. Eun and Shim (1989) showed the influence of
the U.S. Stock market expanding rapidly after the Black Monday crash. In no cases was it
shown that the other large markets, or any of the middle, i.e. Latin markets and Asian markets,
had any effect on the U.S. market. What is interesting, however, is the limited impact the middle
markets have on each other. Counter-intuitively, as Pimenta and Fama (2002) finds, despite
Latin American Capital Markets Strengthening
12
13. barriers or lack thereof, that there is limited, inconsequential, interdependency between Latin
American markets themselves, and Asian markets.
Hypotheses
Research up to year end 2005 indicates the top five Latin American capital markets are
not as strong as their Asian counterparts, as shown by Ananchorikul and Eichengreen (2007) and
Tovar (2007). And, Pimenta and Fama (2002) shows there is little, if any, interdependence
between the two markets. Previous research points to a multitude of reasons for the disparity and
lack of depth and strength in Latin American markets. While Ananchorikul and Eichengreen
(2007) does accept measures of market depth by increases of capitalization, it claims the
faltering macroeconomic policies of Latin American economies through the 1990’s and prior
have been significant setbacks in this regions’ capital market development. While economic
policy plays a significant role in the development of capital markets, the issuance of sovereign
debt adds depth to capital markets, breaking the “destructive loop” (Scatigna and Tovar, 2007;
Fostel and Kaminsky, 2007). Tovar and Qulspe-Agnoli (2007) indicates the issuance of
sovereign debt issuance in local currency has a deepening effect on private capital
markets. What is not shown in previous research is the effects strengthening macroeconomic
policy has created through stabilization of the perception of corruption, measured using the
corruption perception index (CPI) from Transparency International. And, more importantly,
stabilizing and improving OECD Knaepen Package scores over the period from 2000 to 2010 has,
in fact, facilitated an overall deepening of Latin American capital markets.
Latin American Capital Markets Strengthening
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14. It is intuitive to assume that low perceived corruption will lead to investments and
increased capitalization, as that also indicates an increase in transparency. It is also intuitive to
assume that a Knaepen Package score (scores rank between 0 – 7, the lower number, the lower
risk) between zero and three might attract investment in capital markets. Yet, what isn’t
considered is a stabilization of these factors in the capitalization of markets. This investigation is
related to the stabilization of perceived corruption and the stabilization of Knaepen Package
scores as a reflection on the level of capitalization of a particular market.
Hypothesis one:
Stabilization of CPI scores, despite some consistently low scores, has increased
attractiveness of Latin America’s five key markets, Argentina , Brazil, Chile, Colombia,
and Mexico measured by increases in market capitalization, compared to the top four
performing Asian markets, Singapore, China, Taiwan, and Republic of Korea (S. Korea).
Corruption levels are measured against the Transparency International criteria and the
scores are taken directly from the Transparency International data base. Scores range
from 0 to 10, the lower the score, the higher the perceived corruption.
Hypothesis two:
Intuitively, the stabilization and decrease of World Bank Knaepen Package scores of
Latin American markets has been a co-contributor to the steady capitalization of markets,
increases in external debt, and increases in FDI compared to the top four Asian markets.
Latin American Capital Markets Strengthening
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15. The expectation is that just stabilizing Knaepen Package scores will bode well for a
market. As the market stabilizes, and expectations are built around the stability,
investments will increase in a particular market as there is an increased level of
predictability. Lower scores, or countries displaying a move toward lowering scores
should experience further increases in market capitalization, as the Knaepen Package
measures country risk for repaying and servicing external debt using eight criteria.
Because the index has only been in existence since 1999, it does not have a long enough
history to have been used to assess previous research.
The criteria for which the Knaepen Package is scored is as follows:
The Country Risk Classification Method measures the country credit risk, i.e. the likelihood
that a country will service its external debt.
The classification of countries is achieved through the application of a methodology comprised
of two basic components: (1) the Country Risk Assessment Model (CRAM), which produces a
quantitative assessment of country credit risk, based on three groups of risk indicators (the
payment experience of the Participants, the financial situation and the economic situation) and
(2) the qualitative assessment of the Model results, considered country-by-country to
integrate political risk and/or other risk factors not taken (fully) into account by the Model.
The details of the CRAM are confidential and not published.
The final classification, based only on valid country risk elements, is a consensus decision of
the sub-Group of Country Risk Experts that involves the country risk experts of the
participating Export Credit Agencies.
The sub-Group of Country Risk Experts meets several times a year. These meetings are
organised so as to guarantee that every country is reviewed whenever a fundamental change
is observed and at least once a year. Whilst the meetings are confidential and no official
reports of the deliberations are made, the list of country risk classifications is published after
each meeting.
A number of Multilateral/Regional Financial Institutions are also classified in relation to Article
26 of the Arrangement.
(http://www.oecd.org/dataoecd/59/4/1910218.pdf)
Data
The data in this study is associated with nine countries, five Latin American countries
and four Asian countries. The Latin American countries are Argentina, Brazil, Chile, Colombia,
and Mexico. The four Asian countries are China, Korea, Singapore, and Taiwan. There are five
Latin American Capital Markets Strengthening
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16. sets of data collected for each country. The data collected for these countries includes the
Transparency International Corruption Perception Index (CPI) for the years of 2001 through
2010 as published on the Transparency International website list. Next is the Knaepen Package
Index, taken directly from the Organization for Economic Cooperation and Development (OECD)
listings, used as a measure of country credit risk and worthiness using the unique 7 level criteria
and ratings for establishing credit worthiness. This data is for the same 2001 through 2010 time
period. The next data sets come directly from the World Bank catalog of market capitalization,
foreign direct investment, and external debt levels for the ten year period.
Method
First, there is a scatter plot comparison of all data correlated between year and data set –
CPI Index score, Knaepen Package score, market capitalization, external debt, and FDI. There
are five charts showing the relationship between the data, in many cases it is near linear. This is
in response to the great work of Ananchorikul and Eichengreen (2007), Tovar and Scatigna
(2008), and Tovar and Qulspe-Agnoli (2007). While previous research indicates that the five
major Latin American markets are not as well capitalized as the four major Asian markets, these
relationships show otherwise, but account for a more recent time period. Important to note in
these relationships is that the Chinese data set returns values of market capitalization and FDI
significantly higher than others. This is to be expected for the time period 2001 through 2010,
but it also includes the data for Taiwan, as that is not separated by the World Bank.
Latin American Capital Markets Strengthening
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17. Corruption Perception Index Scores – Transparency International
Chart 1
CPI Scores are a scale of 0 – 10. Zero is the lowest possible score. Ten is the best possible score
indicating a near complete transparent system. Scores appear to be stable over the ten year period of
observation. There is no significant movement in scores by any one country. Interestingly,
China, Brazil, Mexico, and Colombia have very closely connected scores. Argentina rides on the
low edge of the group, while South Korea rides on the high edge, and has the most noticeable
increase of all observed countries. Singapore is the most transparent nation in the survey, with
Chile as the second most transparent. According to hypothesis one, this should indicate
increased capitalization for countries with high CPI scores. However, this was not the case. In
direct comparisons, the CPI score had a minimal effect on a correlation between overall market
capitalization and CPI.
Latin American Capital Markets Strengthening
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18. Knaepen Package Scores – Transparency International
8
Argentina
7
Brazil
6
Chile
5
Columbia
4
Mexico
3
Singapore
2
China
1
Taiwan
0
S. Korea
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chart 2
Knaepen Package scores are fairly consistent. However, in 2004 – 2005, Brazil,
Columbia, and Mexico all made improvements in that pushed their Knaepen package scores
lower, and closer to those of Chile and China and the other Asian countries. These moves
translated to improvements in those countries market capitalization. For example, between 2005
and 2010, Brazil increased its market capitalization by 325%, from $474.64mn to $1.545bn.
Chile increased market capitalization by 250.35% in the five year period, from $136.445mn to
$341.584mn. Colombia may be the most impressive, increasing market capitalization by 453%
while lowering its Knaepen Package score by one point and stabilizing that score for five years.
And, Mexico increased its market capitalization by 190% while stabilizing its Knaepen Package
and CPI scores.
The Asian markets, on the other hand did not show such success, save China. Singapore
only increased its market capitalization by 116.8% from $316mn to $370mn, South Korea
increased its market capitalization by 151.6% from $718mn to $1.089bn. And, China, the
Latin American Capital Markets Strengthening
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19. complete outlier, and whose data set also includes Taiwan’s figures, grew by 609.96% in the
same period.
Market Capitalization
7,000,000,000,000
Argentina
6,000,000,000,000
Brazil
5,000,000,000,000
Chile
4,000,000,000,000
Columbia
3,000,000,000,000
Mexico
2,000,000,000,000
Singapore
1,000,000,000,000
China
0
Taiwan
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chart 3
With the exception of China, which only spiked in 2005 – 2006 years, market
capitalization of all nine emerging markets is fairly closely related, despite the reduced number
of listings in Latin American markets Ananchorikul and Eichengreen (2007) highlights. Market
capitalization seems rather closely related in all markets, with a few obvious exceptions. Not
accounting for any of the factors that will be used in a fixed effects regression analysis, this
particular scatter plot seems to have little-to-no preference for CPI or Knaepen Index rankings
when viewed as group, even though the Asian countries appear to have stronger relative ratings
in charts 1 and 2 than their Latin American counter parts. However, on a case-by-case basis as
previously described, each country, particularly the Latin American countries, have shown
significant improvements in market capitalization.
Latin American Capital Markets Strengthening
19
20. External Debt
120,000,000,000
100,000,000,000 Argentina
Brazil
80,000,000,000 Chile
Columbia
60,000,000,000
Mexico
Singapore
40,000,000,000
China
20,000,000,000 Taiwan
S. Korea
0
2000 2002 2004 2006 2008 2010
Chart 4
Numbers for 2010 are not available at the time of writing. Singapore has no external debt
to report, and the Taiwanese data is bundled with the Chinese figures. The missing Taiwanese
data skews the comparison as that may have some effect on the level of Chinese external debt.
Interesting to note is that despite the lower CPI scores and higher Knaepen Package scores, Latin
America has, on the whole, a higher issuance of external debt. This is an important factor for
assessing market depth and strength, addressed by Tovar and Qulspe-Agnoli (2007). As
described in the section titled Debt Issuance difficulties facing Latin American markets are
methods for breaking procyclacilty. Tovar and Qulspe-Agnoli indicate Chile, Brazil and Peru
have implemented fiscal responsibility laws aimed at reducing the phenomenon of
“procyclicality” of fiscal policies (Tovar and Qulspe-Agnoli 2007 ). The government efforts to
set the fiscal policies on a track that is more linear in nature, and works in tandem with debt
Latin American Capital Markets Strengthening
20
21. management policies to improve prospects and debt profiles seems to be the case as indicated in
charts 3 - 5.
The issuance of external debt is one way in which Tovar and Qulspe-Agnoli (2007)
explain how LAC’s are emerging with tools to help squelch fears of currency risk coupled with
country risk. Perhaps the reason Latin American countries have experienced an upward trend in
external debt is because CPI and Knaepen Package scores, these countries are able to extend the
yield curve and limit currency and country risk entanglement.
As indicated previously, the critical drawback is that issuing country bonds could have
the negative side-effect of segmenting investors. However, market capitalization in Latin
America appears consistent and on a growth or expansion track, as does foreign direct
investment as evidenced in chart 5.
Foreign Direct Investment
160,000,000,000
140,000,000,000 Argentina
120,000,000,000 Brazil
Chile
100,000,000,000
Columbia
80,000,000,000
Mexico
60,000,000,000 Singapore
40,000,000,000 China
Taiwan
20,000,000,000
S. Korea
0
2000 2002 2004 2006 2008 2010
Chart 5
Latin American Capital Markets Strengthening
21
22. Numbers for 2010 are not available at the time of writing. The interactive chart will show
the precise value for foreign direct investment. There appears to be a very stable trend in FDI in
Latin America, with Brazil experiencing the most noticeable movement in investment. China, as
is the case in charts 3 and 5 is a complete outlier. For future reference it would be interesting to
distill the Chinese data to extrapolate the Taiwanese contribution. However, considering China
its’ own unique circumstance, the remaining FDI trends slightly favor Latin America. This
supports the Tovar and Qulspe-Agnoli (2007) research. For a three year period between 2005
and 2008, FDI levels appear to be increasing in Latin America. However, the global financial
crisis of 2008 seems to have immediate and noticeable effects in the 2009 FDI levels which have
decreased, with the exception of Singapore.
Finally, an initial and simple two-way-fixed-effects regression provides a quantitative
examination of the data appears to lend some credibility to the hypothesis that depth of capital
markets, as measured by market capitalization in each of the nine countries is affected by
perception of sovereign stability and credit worthiness, as measured by the OECD’s Knaepen
Index. Using a selection of data spanning the years 2001 through 2010 and including the five
major Latin American markets, Argentina, Brazil, Chile, Colombia, and Mexico and the four
major Asian markets, China, Korea (South), Singapore, and Taiwan, I have compiled a two way
fixed-effects regression, controlling for levels of FDI, external debt, and CPI with the following
basic logarithmic formula:
The dependent variable, measured as a logarithmic transformation for ease of
interpretation and due to the heavy rightward skew in the data, is highly statistically significantly
Latin American Capital Markets Strengthening
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23. associated with the Knaepen Index. As Table 1 shows, without any controls, every unit increase
in the Knaepen Index is associated with a 67.1% decline in Market Cap size. Controlling for FDI,
external debt, and CPI, Knaepen Package Index is still significant at the 1% level and associated
with a 60% decrease in investment for every unit increase in the index. As one would expect,
levels of FDI are also significantly associated with levels of investment (at the 1% level), albeit
in extremely small magnitude2. Holding the other covariates constant, neither CPI nor levels of
external debt appear to be associated with Market Cap size in any statistically significant manner.
Table 1: Full Regression
Dependent Variable: ln(MarketCap)
(1) (2) (3) (4)
VARIABLES logMktCap logMktCap logMktCap logMktCap
Knaepen Index -0.671*** -0.569*** -0.607*** -0.600***
-0.106 -0.0948 -0.117 -0.117
FDI 1.91e-11*** 1.88e-11*** 1.89e-11***
4.22E-12 4.67E-12 4.69E-12
External Debt 6.71E-12 7.54E-12
9.45E-12 9.54E-12
CPI -0.288
-0.358
Constant 28.13*** 27.36*** 27.38*** 28.48***
-0.315 -0.313 -0.75 -1.556
Observations 80 72 54 54
R-squared 0.362 0.527 0.544 0.551
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Table 2 includes only the Latin American countries run with the same regression, and we can
see the same relationship emerge between the Knaepen Index and Market Cap size, with every
2
Every one million dollar increase in FDI associated with a 1.89e11 % increase in Market Cap size.
Latin American Capital Markets Strengthening
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24. unit increase in the index associated with a 74.1% decline in Market Cap size. Within Latin
American countries, neither FDI, CPI, nor external debt are associated with Market Cap in any
significant manner, holding each of the others constant.
Table 2: Latin America
Latin America
Dependent Variable: ln(MarketCap)
(1) (2) (3) (4)
VARIABLES logMktCap logMktCap logMktCap logMktCap
Knaepen Index -0.707*** -0.723*** -0.742*** -0.741***
-0.104 -0.132 -0.13 -0.132
FDI -5.96E-12 -1.26E-11 -1.17E-11
1.60E-11 1.63E-11 1.71E-11
CPI -0.524 -0.525
-0.34 -0.344
External Debt 1.84E-12
8.92E-12
Constant 28.58*** 28.66*** 31.04*** 30.92***
-0.443 -0.708 -1.691 -1.813
Observations 50 45 45 45
R-squared 0.511 0.543 0.571 0.572
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Table 3 shows the same regressions run with only the Asian countries in the sample.
Given the lack of sovereign debt issuance among those nations, a control for external debt was
not possible. Holding constant levels of FDI, a 1-point increase in the Knaepen Index is
associated with a 48.2% lower market cap value at the 5% level of significance. However, some
of this appears to have been due to inflation, as adding a control for CPI dissipates the
statistically significant relationship.
Latin American Capital Markets Strengthening
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25. Table 3: Asia
Asia
Dependent Variable: ln(MarketCap)
(1) (2) (3)
VARIABLES logMktCap logMktCap logMktCap
Knaepen Index -0.529* -0.482** -0.264
-0.279 -0.203 -0.232
FDI 2.07e-11*** 2.02e-11***
-4.49E-12 -4.31E-12
CPI 0.658*
-0.382
Constant 29.13*** 27.26*** 24.60***
-0.601 -0.57 -1.638
Observations 30 27 27
R-squared 0.605 0.796 0.821
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Caveats: While the tables and regression analysis is useful to the discussion of
strengthening Latin American markets, in that it provides a level of quantitative support to the
ideas discussed here, it must be understood the data presented is limited. For one, the sample size
of countries (9) is relatively small, and spread across a short period of time (2001 through 2010),
for which some 2010 data was unavailable. Although, going any further back than 1999 is
impossible considering the Knaepen Package is so new. Second, compounding the issue, data
availability is spotty in the case of China and Taiwan. Many of the statistical inferences drawn
from these regressions are undoubtedly overstated (while supportive of my hypothesis, it is
basically absurd to think that every one unit increase in the Knaepen Index corresponds to a 60%
Latin American Capital Markets Strengthening
25
26. decrease in market capitalization. However, future research will show that the correlation exists,
just in more reasonable associations).
Conclusions
This study has examined and evaluated two important factors on the success of markets:
perceived corruption and country credit risk. The previous research up through 2005 suggested
that Latin America’s economic problems had been so deep rooted that Latin American markets
were not going to offer the same depth of be as well capitalized as their Asian counterparts.
Perceived corruption levels and transparency in Latin American countries are clearly higher, on
average, than those of their Asian counterparts, while the average Knaepen Package score of
Latin America is higher than that of Asia. Yet, this does not appear to have a negative impact on
success of capital markets after 2005.
The data in the charts clearly indicates that Latin America, and the Asian countries for
which data was available, are relatively equally matched in capitalization levels and FDI flows,
with the obvious exception of China. However, as the literature indicated, “Sovereign global
bonds in local currency also improve the depth of private domestic debt markets by (1) allowing
the expansion of the longer part of the yield curve in local currency (as in Brazil and Peru); (2)
setting benchmarks for domestic markets, which can be relevant for domestic credit markets if
longer-term credit in local currency is nonexistent; (3) creating incentives for the expansion of
derivative markets; and, finally, (4) by diversifying the investor base” (Tovar, p.5). This research
has showed that if external debt is any measure of capital market depth, then Latin America, on
average is exceeding its four Asian counterparts.
Latin American Capital Markets Strengthening
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27. The study certainly is not a complete examination, and is missing data sets that could
strengthen the study. However, as a preliminary investigation of the strengthening of Latin
American markets shows that the five major markets are, in fact, showing signs of strengthening
at a macro level. Future research can dissect the micro elements of market capitalization, but for
the purposes of understanding what most effects a country’s market capitalization, it is clear that
the factors incorporated in measuring country credit risk are the factors most important in
understanding the strength of a market. The reason for this is any movement in Knaepen
Package score can have strong impacts on the level of market capitalization for a particular
country.
In response to the hypotheses, the study concludes that stability is favored with regard to
perceived levels of corruption and country credit risk, not just favorable scores in either index.
Contrary to the first hypothesis, lowering perceived corruption (raising the scores) has a minimal
effect on levels of market capitalization. However, lowering the Knaepen Package score
(increasing attractiveness) has a dramatic effect on the level of market capitalization. This is
perhaps due to the strengthening of economic and trade policy aimed at servicing external debt.
Overall, Latin American capital markets appear to have the same relative strength as their Asian
counterparts, despite the lack of interdependency and the slower start and hiccups Latin America
had in developing world class markets. The scatter plots, save China, show a tight grouping of
the 8 countries, and a slight incline in favor of Latin American markets as corruption scores are
improved, and especially as country credit risk is reduced vis-à-vis Knaepen Package scores.
Latin American markets have, in deed, made great progress in the past decade, and
appear to be every bit as stable and strong as their Asian counterparts. Latin American markets
will most likely continue on a path of strengthening given the trends presented in the data.
Latin American Capital Markets Strengthening
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28. REFERENCES
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Eun, Cheol S., and Sangdal Shim (1989). “The International Transmission of Stock
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Ferreiro, Jesus & Eugenia Correa, and Carmen Gomez (2008); Has Capital Account
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Fostel, Ana and Kaminsky (2007); Latin America’s Access to International Capital Markets:
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29. Qulspe-Agnoli, Myriam & Diego Vilan (2006); Financing Trends in Latin America; BIS Papers
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Review, September 2007
Tovar, Camilo and Myriam Qulspe-Agnoli (2007); New Financing Trends in Latin America: An
Overview of Selected Issues and Policy Challenges;
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http://www.oecd.org/dataoecd/59/4/1910218.pdf
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