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  • Author: Zsolt Darvas, Dirk Schoenmaker
  • Publication Date: 03-2017
  • Content Type: Working Paper
  • Institution: Bruegel
  • Abstract: Integrated capital markets facilitate risk sharing across countries. Lower home bias in financial investments is an indicator of risk sharing. We highlight that existing indicators of equity home bias in the literature suffer from incomplete coverage because they consider only listed equities. We also consider unlisted equites and show that equity home bias is much higher than previous studies perceived. We also analyse home bias in debt securities holdings, and euro-area bias. We conclude that European Union membership may foster financial integration and reduce information barriers, which sometimes limit cross-country diversification. We calculate home bias indicators for the aggregate of the euro area as if the euro area was a single country and report remarkable similarity between the euro area and the United States in terms of equity home bias, while there is a higher level of debt home bias in the United States than in the euro area as a whole. We develop a new pension fund foreign investment restrictions index to control for the impact of prudential regulations on the ability of institutional investors to diversify geographically across borders. Our panel regression estimates for 25 advanced and emerging countries in 2001-14 provide strong support for the hypothesis that the larger the assets managed by institutional investors (defined as pension funds, insurance companies and investment funds), the smaller the home bias and thereby the greater the scope for risk sharing.
  • Topic: International Political Economy, International Trade and Finance, Economic structure, Europe Union
  • Political Geography: Europe
  • Author: Yakov Ben-Haim, Maria Demertzis, Jan Willem Van Den End
  • Publication Date: 02-2017
  • Content Type: Working Paper
  • Institution: Bruegel
  • Abstract: This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it
  • Topic: Economics, International Political Economy, International Trade and Finance
  • Political Geography: Europe
  • Publication Date: 01-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: This special report is prepared for the North American Forum (NAF). In 2015, CIGI’s Global Security & Politics Program became the Secretariat for the Canadian leadership within the NAF. CIGI will be undertaking a program of research to support the Canadian contribution to the NAF in cooperation with our American and Mexican partners. In the coming months, CIGI will publish additional reports to support the work of the NAF. Since the 1994 North American Free Trade Agreement, trade, investment and migration flows among Canada, Mexico and the United States have helped turn North America into one of the most dynamic and prosperous trade blocs on the planet. With a new government in Ottawa, it is an ideal time for Canada to make a stronger, deeper relationship with Mexico a crucial plank of a plan to secure a prosperous future for North America. Better relations between Mexico and Canada not only means more opportunities to take advantage of the two countries’ economic and social complementarities, it also gives the two countries the opportunity to closely work together to get the United States on board with an ambitious North American agenda to secure the continent’s economic future.
  • Topic: Security, Economics, International Trade and Finance, Politics, Regional Cooperation
  • Political Geography: United States
  • Author: Bertrand de la Chapelle, Paul Fehlinger
  • Publication Date: 04-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The past 20 years have witnessed a profound change in the types of non-resident investors who provide funding to emerging market economies (EMEs) and the financial instruments through which emerging market (EM) corporations borrow from abroad. Until the beginning of the new millennium, private capital flows to EMEs were mainly intermediated by large global banks, and EMEs were subjected to massive volatility in their external payments balances, exchange rates and domestic financial systems. But since the early 2000s the role of bank-intermediated credit has declined, as the base of investors willing to take on exposure to EM corporate debt has become much larger and more diverse. These structural changes have encouraged a vast growth in flows of funds, not only from the mature economies to EMEs as a group, but also among EMEs themselves.
  • Topic: Debt, Economics, Emerging Markets, International Trade and Finance, Financial Crisis
  • Political Geography: Global Focus
  • Author: Jeff Rubin
  • Publication Date: 03-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: Canadian Prime Minister Justin Trudeau and Alberta premier Rachel Notley have both argued that improving Canada’s emissions record will safeguard the future development of the oil sands. The perspective offers little recognition of the current problems facing the country’s largest energy resource, and even less recognition of the problems that the oil sands will encounter as a result of actions taken by other countries to limit their own carbon emissions as pledged recently at the twenty-first session of the Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC). As climate change compels deep decarbonization of the global economy, emission restrictions around the world will destroy demand for billions of barrels of oil over the coming decades, severely impairing the economic viability of high-cost producers.
  • Topic: Climate Change, Energy Policy, Environment, International Trade and Finance, Oil, United Nations, Natural Resources
  • Political Geography: Canada
  • Author: Patricia Goff
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is noteworthy for the expanded role that Canadian provinces and territories played in the negotiation. In this particular instance, these sub-federal actors had a seat at the negotiating table at the request of their European Union partners. However, this paper argues that CETA is exceptional in this regard. Despite the fact that regional trade agreements increasingly contain provisions that relate to areas of provincial and territorial jurisdiction, each trade negotiation is distinct. The CETA experience should not create the expectation that provinces and territories will always participate in the same capacity. Any enhanced role will depend on the federal government’s strategic assessment of any specific trade negotiation.
  • Topic: International Trade and Finance, Markets, Political Economy, Treaties and Agreements, Regulation
  • Political Geography: Canada, European Union
  • Author: John Whalley, Daqing Yao
  • Publication Date: 03-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The effects of the termination of the Multifibre Arrangement (MFA) on the trade of clothing and textiles are assessed in this paper, based on world trade date and US trade data. The findings from the data analyzed indicate that the effects of the termination of the MFA on the clothing trade was more significant for clothing than for the textiles trade. With the end of the MFA, the freer trade in these sectors shed light on other sectors that are still protected under trade agreements.
  • Topic: International Trade and Finance, Markets, Treaties and Agreements, Regulation
  • Political Geography: Global Focus
  • Author: James M. Boughton
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The International Monetary Fund (IMF) has 188 member countries. The United Nations has 193. The difference is not economically or politically trivial. Although none of the members missing from the IMF is a large country, two of the five are potentially important in their regions: Cuba and North Korea. What would it take to complete the process to have both countries included as IMF member countries? What are the obstacles to becoming members, and how can they be overcome? For three years, 1997 to 2000, tentative moves toward membership for North Korea were encouraged by South Korea and were tolerated by most Western powers. The détente did not last, but the episode offers a model for a resumption of progress if conditions improve. Notably, the IMF could provide technical assistance and training, collect economic data and provide information on its membership requirements and obligations. Cuban membership faces additional hurdles because of US laws that were targeted specifically at the government of Fidel Castro. Moreover, to this date, neither country has applied to join the IMF. Because every other country in the world, aside from the very smallest and those not generally recognized as states, has joined the IMF, it is virtually certain that Cuba will apply eventually, as will North Korea, unless that prospect is preempted by reunification of the Korean Peninsula. When they do apply, a concerted political commitment will be needed to overcome the remaining technical obstacles.
  • Topic: Economics, International Trade and Finance, Political Economy, United Nations, International Monetary Fund
  • Political Geography: North Korea, Cuba
  • Author: Wendy Dobson
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: This paper reviews Indonesia’s economic prospects and what these imply for a closer relationship with Canada. By posing the question “Is Indonesia the next China?,” the author suggests that Indonesia has the considerable economic potential envisaged by foreign investors, but conveys uncertainty as to whether Southeast Asia’s most populous country can make the changes necessary to realize that potential. A review of the economic record and comparison of China’s and Indonesia’s economic structures, endowments and institutions show major differences between the two countries. The paper further questions what it will take to realize Indonesia’s potential, finding the answers to be: human capital development; increased participation in the region’s global value chains; meeting the growing middle-class demand for modern services; raising productivity in agriculture and fishing; and increasing use of the Internet. Failure to make these changes will increase the chances of Indonesia’s growth in per capita incomes slowing and falling into the middle-income trap. Canada’s role will be to monitor closely how Indonesia tackles its five priorities at the same time as it responds to the opportunities to exploit Indonesia’s abundant natural resources, urbanization and its expanding consumer demand for modern services and educational opportunities.
  • Topic: Economics, Emerging Markets, Human Welfare, International Trade and Finance, Natural Resources, Regulation
  • Political Geography: China, Indonesia
  • Author: Patrick Leblond
  • Publication Date: 02-2016
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is possibly the most ambitious regional free trade agreement that Canada and the European Union have negotiated so far. One of its main components is a chapter that seeks to liberalize trade and investment in financial services between Canada and the European Union, while ensuring that markets and their agents will be properly regulated and protected through prudential regulation. However, this chapter is unlikely to have a significant impact on the financial services sector in Canada and the European Union in the short and medium term. Although some observers fear that CETA might undermine the high quality of financial regulations in Canada or the European Union, this paper’s analysis demonstrates that such concerns are unfounded.
  • Topic: International Trade and Finance, Markets, Treaties and Agreements, Regulation
  • Political Geography: Canada, European Union