Determinants for political risk insurance of direct investments in emerging markets

Esta dissertação analisa os principais determinantes para investidores contratarem seguro de proteção de riscos políticos (PRI) para seus investimentos diretos, assim com o racional de sair de um PRI não renovando suas políticas. Esta dissertação contribui para a literatura existente sobre PRI, investigando os principais motivadores para PRI, tais como, riscos políticos, riscos econômicos, capacidade do patrocinador, instrumento utilizado para realizar o investimento (horizonte do investimento) determina combinações de PRI utilizando um modelo binário de resposta não linear. Um banco de dados único da Multilateral Investment Guarantee Agency (MIGA) no período de 1990 até 2010, contendo informações sobre 693 investimentos incluindo sua cobertura para: seguro de risco de conversibilidade, seguro para risco de expropriação, riscos de guerras e distúrbios civis e riscos de quebra de contrato. Entretanto, percebemos que 47% destes seguros não permanecem ativos até o prazo originalmente contratado. Adicionalmente, instituições financeiras como garantidoras utilizam proporcionalmente mais dívida do que capital como instrumento de investimento e são largamente seguradas dentro da União Européia (EU). Por outro lado, investidores nos BRICs tendem a cobrir primariamente seus investimentos em infraestrutura. Resultados empíricos incluem que um aumento nos riscos de quebra de contrato e guerra civil estão totalmente correlacionados com a renovação de contratos de seguro, assim como um aumento da percepção de risco do pais que está recebendo o investimento.

Financial guarantees in Brazilian life insurance and pension plans

Recently regulated Brazilian life and pension products offer a benefit structure composed of minimum guaranteed annual rate, in°ation adjustment according to a price index and participation on an investment fund performance. We present a valuation model for these products. We establish a fair condition relationship between minimum guarantees and participation rates, and explore its behavior over a space of maturities, interest rates, and also fund and price index volatilities and correlation. Besides consistency to reference models, we found that the effect of the fund volatility is conditioned to the price index volatility level and the correlation between them.

Investment in human capital in a macrodynamic framework: redistributive taxation, public debt and welfare

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Foreign direct investment spillovers in Portugal: additional lessons from a country study

This paper investigates the impact of FDI on the productivity of Portuguese manufacturing sectors. Model specification is improved by considering the choice of the most appropriate interval of the technological gap for spillovers diffusion. We also allow for sectoral variation in the coefficients of the spillover effect; idiosyncratic sectoral factors are identified by means of a fixed effects model. Inter-sectoral positive spillover effects are examined. Significant spillovers require a proper technological differential between foreign and domestic producers and favourable sectoral characteristics. They may occur in modern industries in which the foreign firms have a clear, but not too sharp, edge on the domestic ones. Agglomeration effects are also one pertinent specific influence.

On the economic and fiscal effects of infrastructure investment in Brazil

This article studies the productive impact of infrastructure investment in Brazil. Public-capital expenditures in the country have decreased continuously over the last two decades, and this paper shows the significant impact this has had on infrastructure stocks. Cointegration analysis is used to investigate the long-run association between output and infrastructure, the results being then used to study the short-run dynamic of these variables. Whether in the short or long run, the productive impact of infrastructure was found to be relevant. Other group of simulations studies the impact of expanding capital expenditures through debt finance on debt to GDP ratio as well as on public cash áow and net worth.

Trade or investment? location decisions under regional integration

This paper studies the production and trade patterns that may arise between two different countries if plant location is introduced as a first step in the producers' decision making. A three-stage game is used: the first deals with location and the next two with capacity and final sales decisions. Demand and cost structures differ by country, and the latter contain specific elements related to the foreign operation. The structure of possible Nash-equilibria is examined and an analysis of the changes in the solution, if the countries engage in an integration process, is made. As in previous models, though global welfare gains may not be very high, single country ones may be considerable, due to changes in the location of the plants. However, even if full integration takes place, global Marshallian welfare may decrease. Conditions which determine a tendency towards multinationalisation are obtained. Assuming a move toward integration, conditions are also provided to characterize when exporting will be preferred to local production. The fact that producers may retain a certain discriminating power, notwithstanding the elimination of barriers to arbitrage, creates a tendency to locate production in the country where prices are higher. This explains why welfare gains may not be obvious. An empirical illustration, with real data from two MERCOSUL countries (Brazil and Argentina) illustrates the possible outcomes.

The impact of public capital and public investment on economic growth: an empirical investigation

in this anicle we measure the impact of public sector capital and investment on economic growth. Initially, traditional growth accounting regressions are run for a cross-country data set. A simple endogenous growth model is then constructed in order to take into account the determinants of labor, private capital and public capital. In both cases, public capital is a separate argument of the production function. An additional data-set constructed with quarterly American data was used in the estimations of the growth mode!. The results indicate lhat public capital and public investment play a significant role in determining growth rates and have a significant impact on capital and labor returns. Furthermore, the impact of public investment on productivity growth was found to be positive and always significant for bolh samples. Hence. in a fully optimizing modelo we confmn previous results in the literature that lhe failure of public investment to keep pace with output growlh during the Seventies and Eighties may have played a major role in the slowdown of lhe productivity growth in the period. Anolher main outcome concems the output elasticity wilh respect to public capital. The coefficiem estimates are always positive and significant but magnitudes depend on each of lhe two data set used.

Non-monotone insurance contracts and their empirical consequences

The goal of this paper is to show the possibility of a non-monotone relation between coverage ans risk which has been considered in the literature of insurance models since the work of Rothschild and Stiglitz (1976). We present an insurance model where the insured agents have heterogeneity in risk aversion and in lenience (a prevention cost parameter). Risk aversion is described by a continuous parameter which is correlated with lenience and for the sake of simplicity, we assume perfect correlation. In the case of positive correlation, the more risk averse agent has higher cosr of prevention leading to a higher demand for coverage. Equivalently, the single crossing property (SCP) is valid and iplies a positive correlation between overage and risk in equilibrium. On the other hand, if the correlation between risk aversion and lenience is negative, not only may the SCP be broken, but also the monotonocity of contracts, i.e., the prediction that high (low) risk averse types choose full (partial) insurance. In both cases riskiness is monotonic in risk aversion, but in the last case there are some coverage levels associated with two different risks (low and high), which implies that the ex-ante (with respect to the risk aversion distribution) correlation between coverage and riskiness may have every sign (even though the ex-post correlation is always positive). Moreover, using another instrument (a proxy for riskiness), we give a testable implication to desentangle single crossing ans non single croosing under an ex-post zero correlation result: the monotonicity of coverage as a function os riskiness. Since by controlling for risk aversion (no asymmetric information), coverage is monotone function of riskiness, this also fives a test for asymmetric information. Finally, we relate this theoretical results to empirical tests in the recent literature, specially the Dionne, Gouruéroux and Vanasse (2001) work. In particular, they found an empirical evidence that seems to be compatible with asymmetric information and non single crossing in our framework. More generally, we build a hidden information model showing how omitted variables (asymmetric information) can bias the sign of the correlation of equilibrium variables conditioning on all observable variables. We show that this may be the case when the omitted variables have a non-monotonic relation with the observable ones. Moreover, because this non-dimensional does not capture this deature. Hence, our main results is to point out the importance of the SPC in testing predictions of the hidden information models.

A few more moments to finance theory: introducing higher moments in investment theory and econometrics

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The insurance function of contracts

One of the central problems in contract law is to define the frontier between legal and illegal breaches of promises. The distinction between good and bad faith is perhaps the conceptual tool most commonly used to tell one from the other. Lawyers spend a lot of energy trying to frame better definitions of the concepts of good and bad faith based on principles of ethics or justice, but often pay much less attention to theories dealing with the incentives that can engender good faith behavior in contractual relationships. By describing the economics of what Stiglitz defined as “explicit” and “implicit” insurance, I highlight the “insurance function” hidden in any promise with basically no mathematical notation. My aim is to render the subject intelligible and useful to lawyers with little familiarity with economics.