Journal of International Economics最新文献

Democracy matters for international merger activity. Using a sample of 101,834 cross-border deals announced between 1985 and 2018, we show that merger flows predominantly involve acquirers from more democratic countries than their targets. This result is primarily driven by a “pull” factor: firms in countries with weaker democratic institutions attract more cross-border deals. We find evidence of bonding as the key mechanism behind this effect. The democracy effect is stronger when target countries have weaker corporate governance standards. Furthermore, target abnormal returns around deal announcements increase with the difference in democracy between acquirer and target countries. Importantly, differences in investor protection or economic development do not directly explain the democracy effect. Combined, our findings imply that democracy is a fundamental, yet previously overlooked, determinant of cross-border mergers.

Bilateral trade is considered a key driver of business-cycle transmission, as countries with higher bilateral trade have more correlated business cycles. We show, however, that when we account for the common trade exposure of a country pair to similar foreign cycles, the effect of bilateral trade on comovement falls sharply. Furthermore, common trade exposure is also a robust predictor of comovement. We conclude that trade is indeed a driver of business-cycle transmission, but often through common exposure to foreign cycles rather than just bilateral linkages. Finally, we consider the implications of these empirical results for the “trade-comovement puzzle.”

Why do prices differ among regions without significant trade frictions, such as the euro area? This study examines the impact of a national border on grocery prices in the economically and culturally integrated German–Austrian border region. Based on retail transactions from a large household panel, we analyse price differences of identical products sold within a narrow band along the border. We show that even retailers operating in both countries charge different prices for identical products on each side of the border. Over all products, prices are on average more than 14% higher on the Austrian side. The underlying absolute price differences average to around 20%, but vary over products and time, suggesting limits to arbitrage in cross-border shopping. This study demonstrates that even in highly integrated areas, national borders continue to matter for retail pricing.

Clustered sovereign default is a recurring phenomenon, but there is a lack of quantitative models to study it. This paper introduces a quantitative framework aimed at untangling latent shocks and examining the mechanisms that precipitate clustered defaults. The model incorporates financial frictions into a sovereign default framework and accommodates global shocks that impact both borrowing countries and lenders. By jointly estimating structural parameters governing the output process of multiple countries, the global shocks are extracted. The framework’s ability to effectively capture multiple crisis episodes, such as the 1980s Latin American debt crisis, validates the joint robustness of the model and the estimation process. The framework uncovers the crucial role of global transitory shocks in producing clustered defaults, particularly when convex default costs are present. Additionally, contrary to what is commonly believed, the framework shows that the Volcker interest rate hike was not a decisive factor in the 1980s clustered default.

How can monetary and fiscal policy sustain a currency union when member states have an exit option? This paper derives an interest rate rule that features state-dependent country weights with which the central bank can prevent a break-up. A simulation reveals that this policy rule lacks firepower and can only extend the lifetime of the union for a while. While monetary policy is more potent in unions with more member states or setups with local currency pricing, it is still true that even a simple fiscal union with lump-sum transfers is better suited to prevent a break-up. Environments with lower risk sharing, the ZLB or wage rigidity make monetary policy even less effective.

Using unique tick-by-tick data from an exchange, this paper examines the relationship between the US dollar and liquidity in the Korean government (Treasury) bond market. We find that a strong US dollar deteriorates the Treasury market's liquidity by increasing the bid-ask spread and the price impact and lowering market depth. The effects of fluctuations in the broad US dollar index on Treasury market liquidity become more pronounced when funding liquidity conditions are tighter, when banks' total capital ratio is lower with greater foreign currency risk, or when there is a larger sell-off of Korea Treasury bonds by foreign investors. The empirical evidence supports the financial channel of exchange rates affecting Treasury market liquidity. In particular, a strong dollar as a barometer of global financial conditions is likely to limit the market intermediation capacity of emerging market dealers and thus tighten emerging market conditions.

This paper studies consequences of the large exchange rate depreciation occurring when the UK electorate unexpectedly voted to leave the European Union. Sterling plummeted, recording the biggest one-day depreciation of any of the world's four major currencies since Bretton Woods. The prospect of Brexit happening generated sizable differences in how much sterling depreciated against different currencies. Coupled with pre-referendum cross-country trade patterns, this generated variations in exchange rates facing businesses in different industries. The paper offers evidence of a cost shock from the prices of intermediate imports rising by more in higher depreciation industries, but with no revenue offset from exports. Workers were impacted by these increased cost pressures, not in terms of job loss but through relative real wage declines in higher depreciation, larger cost shock industries. This resulted in an aggregate fall in real wage growth of 3 to 3.6% cumulatively over the three years after the referendum.

We exploit exogenous shocks to flight distances over time to estimate the distance effect in airborne trade within panel regressions. We find a negative distance effect, which we interpret as evidence of a link between transportation costs and airborne trade. Notably, this relationship is driven almost entirely by changes at the extensive margin. Specifically, trade in HS 6 product categories with intermittent trading histories becomes dormant when flight distances increase. Conversely, the intensive margin of trade remains largely unaffected.

We study how financial frictions affect the importance of trend productivity shocks for macroeconomic fluctuations. Using long-run data from 17 small open economies (SOEs), we compare two variants of a workhorse SOE real business cycle model featuring a debt-elastic interest rate (DEIR), a measure of financial frictions. The first variant estimates the DEIR parameter, while the second fixes it to 0.001, effectively abstracting from financial frictions. On average, ignoring financial frictions doubles the contribution of trend shocks to output fluctuations. This suggests that a proper assessment of the quantitative effects of trend shocks requires reasonable DEIR values.

China's outsized real estate sector has long been a key engine of growth. However, with decades of construction at break-neck speeds having produced a massive increase in the quantity and quality of China's housing stock, the question arises as to whether diminishing returns are beginning to set in. At the same time, there is the question of whether real estate has been a major driver of today's high levels of local government debt, which may create heightened financial vulnerabilities. We investigate these questions using a new database that includes city level estimates of China's housing stock. Our formal statistical results suggest that real estate is indeed running into diminishing returns to growth while at the same time being a significant driver of local government debt, with both effects being driven mainly by China's smaller and less prosperous tier 3 cities (which nevertheless account for 60% of GDP).