The political economy of sovereign debt

This dissertation examines international lending arrangements between a competitive foreign investor and a less-developed country. Given that the benefits and costs of borrowing are distributed unequally across society, it is of interest to examine the conditions under which borrowing occurs and how the borrowed funds are allocated. Three theoretical models are developed to consider optimal lending arrangements in the presence of sovereign risk. The models show how a society's level and distribution of wealth influences its access to loans and the terms of the loan agreements. Optimal loan contracts are established, which place either a debt ceiling or a debt floor on the amount of the loan that, will be offered. ^

The political economy of inequality and growth: Essays on sovereign debt, democracy and saving

This dissertation addresses three issues in the political economy of growth literature. The first study empirically tests the hypothesis that income inequality influences the size of a country's sovereign debt for a sample of developing countries for the period 1970–1990. The argument examined is that governments tend to yield to popular pressures to engage in redistributive policies, partially financed by foreign borrowing. Facing increased risk of default, international creditors limit the credit they extend, with the result that borrowing countries invest less and grow at a slower pace. The findings do not seem to support the negative relationship between inequality and sovereign debt, as there is evidence of increases in multilateral, countercyclical flows until the mid 1980s in Latin America. The hypothesis would hold for the period 1983–1990. Debt flows and levels seem to be positively correlated with growth as expected. ^ The second study empirically investigates the hypothesis that pronounced levels of inequality lead to unconsolidated democracies. We test the existence of a nonmonotonic relationship between inequality and democracy for a sample of Latin American countries for the period 1970–2000, where democracy appears to consolidate at some intermediate level of inequality. We find that the nonmonotonic relationship holds using instrumental variables methods. Bolivia seems to be a case of unconsolidated democracy. The positive relationship between per capita income and democracy disappears once fixed effects are introduced. ^ The third study explores the nonlinear relationship between per capita income and private saving levels in Latin America. Several estimation methods are presented; however, only the estimation of a dynamic specification through a state-of-the-art general method of moments estimator yields consistent estimates with increased efficiency. Results support the hypothesis that income positively affects private saving, while system GMM reveals nonlinear effects at income levels that exceed the ones included in this sample for the period 1960–1994. We also find that growth, government dissaving, and tightening of credit constraints have a highly significant and positive effect on private saving. ^

A history of a policy-level curriculum change in California

With the publication of A Nation at Risk (1983) educational reform has had a prominent place on the agenda of virtually every one of the sovereign states. As in many other states California focused much of its reform effort on the teaching of reading. In a political battle over the reading curriculum, California went from the English/Language Arts Framework of 1987, widely viewed as giving the state's imprimatur to whole language (an approach rooted in the learner's experience), to the English/Language Arts Frameworks (a more traditional or basic approach) of 1998 that called for the inclusion of phonemic awareness as the building block of reading instruction in all elementary schools. This study examined the historical record to determine the major forces behind this curriculum change. The results of this study are helpful to those who wish to better understand the relationship between political forces and curriculum change in the current age of educational reform. ^ This study utilized qualitative research methods and is presented as humanistic historical research (Landes & Tilly, 1971). The organizational framework for the study is taken from the work of M. Frances Klein (1991) which identifies seven different levels of curriculum decision-making. In this analysis particular attention was paid to the interaction of academic, formal, and societal levels, as the problem under consideration casts curriculum decision-making in the political realm. Three sources of information were used to provide the historical record. They include articles from popular newspapers and magazines, government documents, and interviews with individuals directly involved in the political process. ^ The results of this study demonstrate the power of societal forces over formal authority in making curriculum policy decisions. ^

Research on the influence of behavioral forces that motivate trader behavior and sentiment: A prospect theory exegesis

This study focuses on empirical investigations and seeks implications by utilizing three different methodologies to test various aspects of trader behavior. The first methodology utilizes Prospect Theory to determine trader behavior during periods of extreme wealth contracting periods. Secondly, a threshold model to examine the sentiment variable is formulated and thirdly a study is made of the contagion effect and trader behavior. ^ The connection between consumers' sense of financial well-being or sentiment and stock market performance has been studied at length. However, without data on actual versus experimental performance, implications based on this relationship are meaningless. The empirical agenda included examining a proprietary file of daily trader activities over a five-year period. Overall, during periods of extreme wealth altering conditions, traders "satisfice" rather than choose the "best" alternative. A trader's degree of loss aversion depends on his/her prior investment performance. A model that explains the behavior of traders during periods of turmoil is developed. Prospect Theory and the data file influenced the design of the model. ^ Additional research included testing a model that permitted the data to signal the crisis through a threshold model. The third empirical study sought to investigate the existence of contagion caused by declining global wealth effects using evidence from the mining industry in Canada. Contagion, where a financial crisis begins locally and subsequently spreads elsewhere, has been studied in terms of correlations among similar regions. The results provide support for Prospect Theory in two out of the three empirical studies. ^ The dissertation emphasizes the need for specifying precise, testable models of investors' expectations by providing tools to identify paradoxical behavior patterns. True enhancements in this field must include empirical research utilizing reliable data sources to mitigate data mining problems and allow researchers to distinguish between expectations-based and risk-based explanations of behavior. Through this type of research, it may be possible to systematically exploit "irrational" market behavior. ^

Essays on international lending and increasing returns to scale

Standard economic theory suggests that capital should flow from rich countries to poor countries. However, capital has predominantly flowed to rich countries. The three essays in this dissertation attempt to explain this phenomenon. The first two essays suggest theoretical explanations for why capital has not flowed to the poor countries. The third essay empirically tests the theoretical explanations.^ The first essay examines the effects of increasing returns to scale on international lending and borrowing with moral hazard. Introducing increasing returns in a two-country general equilibrium model yields possible multiple equilibria and helps explain the possibility of capital flows from a poor to a rich country. I find that a borrowing country may need to borrow sufficient amounts internationally to reach a minimum investment threshold in order to invest domestically.^ The second essay examines how a poor country may invest in sectors with low productivity because of sovereign risk, and how collateral differences across sectors may exacerbate the problem. I model sovereign borrowing with a two-sector economy: one sector with increasing returns to scale (IRS) and one sector with diminishing returns to scale (DRS). Countries with incomes below a threshold will only invest in the DRS sector, and countries with incomes above a threshold will invest mostly in the IRS sector. The results help explain the existence of a bimodal world income distribution.^ The third essay empirically tests the explanations for why capital has not flowed from the rich to the poor countries, with a focus on institutions and initial capital. I find that institutional variables are a very important factor, but in contrast to other studies, I show that institutions do not account for the Lucas Paradox. Evidence of increasing returns still exists, even when controlling for institutions and other variables. In addition, I find that the determinants of capital flows may depend on whether a country is rich or poor.^

Conceptualizing American power and security in a post -9/11 security context: Conflict, resistance, and global security, 2001–present

In a post-Cold War, post-9/11 world, the advent of US global supremacy resulted in the installation, perpetuation, and dissemination of an Absolutist Security Agenda (hereinafter, ASA). The US ASA explicitly and aggressively articulates and equates US national security interests with the security of all states in the international system, and replaced the bipolar, Cold War framework that defined international affairs from 1945-1992. Since the collapse of the USSR and the 11 September 2001 terrorist attacks, the US has unilaterally defined, implemented, and managed systemic security policy. The US ASA is indicative of a systemic category of knowledge (security) anchored in variegated conceptual and material components, such as morality, philosophy, and political rubrics. The US ASA is based on a logic that involves the following security components: (1) hyper militarization, (2) intimidation,(3) coercion, (4) criminalization, (5) panoptic surveillance, (6) plenary security measures, and (7) unabashed US interference in the domestic affairs of select states. Such interference has produced destabilizing tensions and conflicts that have, in turn, produced resistance, revolutions, proliferation, cults of personality, and militarization. This is the case because the US ASA rests on the notion that the international system of states is an extension, instrument of US power, rather than a system and/or society of states comprised of functionally sovereign entities. To analyze the US ASA, this study utilizes: (1) official government statements, legal doctrines, treaties, and policies pertaining to US foreign policy; (2) militarization rationales, budgets, and expenditures; and (3) case studies of rogue states. The data used in this study are drawn from information that is publicly available (academic journals, think-tank publications, government publications, and information provided by international organizations). The data supports the contention that global security is effectuated via a discrete set of hegemonic/imperialistic US values and interests, finding empirical expression in legal acts (USA Patriot ACT 2001) and the concept of rogue states. Rogue states, therefore, provide test cases to clarify the breadth, depth, and consequentialness of the US ASA in world affairs vis-à-vis the relationship between US security and global security.

Three essays on the microstructure of exchange traded funds

Exchange traded funds (ETFs) have increased significantly in popularity since they were first introduced in 1993. However, there is still much that is unknown about ETFs in the extant literature. This dissertation attempts to fill gaps in the ETF literature by using three related essays. In these three essays, we compare ETFs to closed ended mutual funds (CEFs) by decomposing the bid-ask spread into its three components; we look at the intraday shape of ETFs and compare it to the intraday shape of equities as well as examine the co-integration factor between ETFs on the London Stock Exchange and the New York Stock Exchange; we also examine the differences between leveraged ETFs and unleveraged ETFs by analyzing the impact of liquidity and volatility. These three essays are presented in Chapters 1, 2, and 3, respectively. ^ Chapter one uses the Huang and Stoll (1997) model to decompose the bid-ask spread in CEFs and ETFs for two distinct periods—a normal and a volatile period. We show a higher adverse selection component for CEFs than for ETFs without regard to volatility. However, both ETFs and CEFs increased in magnitude of the adverse selection component in the period of high volatility. Chapter two uses a mix of the Werner and Kleidon (1993) and the Hupperets and Menkveld (2002) methods to get the intraday shape of ETFs and analyze co-integration between London and New York trading. We find two different shapes for New York and London ETFs. There also appears to be evidence of co-integration in the overlapping two-hour trading period but not over the entire trading day for the two locations. The third chapter discusses the new class of ETFs called leveraged ETFs. We examine the liquidity and depth differences between unleveraged and leveraged ETFs at the aggregate level and when the leveraged ETFs are classified by the leveraged multiples of -3, -2, -1, 2, and 3, both for a normal and a volatile period. We find distinct differences between leveraged and unleveraged ETFs at the aggregate level, with leveraged ETFs having larger spreads than unleveraged ETFs. Furthermore, while both leveraged and unleveraged ETFs have larger spreads in high volatility, for the leveraged ETFs the change in magnitude is significantly larger than for the unleveraged ETFs. Among the multiples, the -2 leveraged ETF is the most pronounced in its liquidity characteristics, more so in volatile times. ^

The Argentine Dilemma: “Vulture Funds” and the Risks Posed to Developing Economies

Post-crisis Argentina is a case study of crisis management through debt restructuring. This article examines how Argentina negotiated the external debt in the wake of the sovereign default in December 2001 and now confronts challenges posed by holdout creditors—the so called “vulture funds”. It argues that debt restructuring has put a straitjacket on the national economy, making it virtually impossible for healthy growth short of a break with the international economic order. While Argentina has successfully restructured a $95 billion debt with an unprecedented “hair cut” (around 70% reduction in “net value of debt”), a sustainable growth appears out of reach as long as reliance on the government debt market prevails. In this cycle, the transmission belt of financial crisis to developing countries is characterized by the entry of highly speculative players such as hedge funds, conflicts of interests embedded in “sovereign debt restructuring” (SDR) and vulnerabilities associated with “emerging market debt”.

The Modern State and the Re-Creation of the Indigenous Other: The Case of the Authentic Sámi in Sweden and the White Man’s Indian in the United States of America.

The present study comparatively examined the socio-political and economic transformation of the indigenous Sámi in Sweden and the Indian American in the United States of America occurring first as a consequence of colonization and later as a product of interaction with the modern territorial and industrial state, from approximately 1500 to 1900. The first colonial encounters of the Europeans with these autochthonous populations ultimately created an imagery of the exotic Other and of the noble savage. Despite these disparaging representations, the cross-cultural settings in which these interactions took place also produced the hybrid communities and syncretic life that allowed levels of cultural accommodation, autonomous space, and indigenous agency to emerge. By the nineteenth century, however, the modern territorial and industrial state rearranges the dynamics and reaches of power across a redefined territorial sovereign space, consequently, remapping belongingness and identity. In this context, the status of indigenous peoples, as in the case of Sámi and of Indian Americans, began to change at par with industrialization and with modernity. At this point in time, indigenous populations became a hindrance to be dealt with the legal re-codification of Indigenousness into a vacuumed limbo of disenfranchisement. It is, thus, the modern territorial and industrial state that re-creates the exotic into an indigenous Other. The present research showed how the initial interaction between indigenous and Europeans changed with the emergence of the modern state, demonstrating that the nineteenth century, with its fundamental impulses of industrialism and modernity, not only excluded and marginalized indigenous populations because they were considered unfit to join modern society, it also re-conceptualized indigenous identity into a constructed authenticity.

Research on the influence of behavioral forces that motivate trader behavior and sentiment- a prospect theory exegesis

This study focuses on empirical investigations and seeks implications by utilizing three different methodologies to test various aspects of trader behavior. The first methodology utilizes Prospect Theory to determine trader behavior during periods of extreme wealth contracting periods. Secondly, a threshold model to examine the sentiment variable is formulated and thirdly a study is made of the contagion effect and trader behavior. The connection between consumers' sense of financial well-being or sentiment and stock market performance has been studied at length. However, without data on actual versus experimental performance, implications based on this relationship are meaningless. The empirical agenda included examining a proprietary file of daily trader activities over a five-year period. Overall, during periods of extreme wealth altering conditions, traders "satisfice" rather than choose the "best" alternative. A trader's degree of loss aversion depends on his/her prior investment performance. A model that explains the behavior of traders during periods of turmoil is developed. Prospect Theory and the data file influenced the design of the model. Additional research included testing a model that permitted the data to signal the crisis through a threshold model. The third empirical study sought to investigate the existence of contagion caused by declining global wealth effects using evidence from the mining industry in Canada. Contagion, where a financial crisis begins locally and subsequently spreads elsewhere, has been studied in terms of correlations among similar regions. The results provide support for Prospect Theory in two out of the three empirical studies. The dissertation emphasizes the need for specifying precise, testable models of investors' expectations by providing tools to identify paradoxical behavior patterns. True enhancements in this field must include empirical research utilizing reliable data sources to mitigate data mining problems and allow researchers to distinguish between expectations-based and risk-based explanations of behavior. Through this type of research, it may be possible to systematically exploit "irrational" market behavior.

Conceptualizing American power and security in a post-9/11 security context : conflict, resistance, and global security, 2001-present

In a post-Cold War, post-9/11 world, the advent of US global supremacy resulted in the installation, perpetuation, and dissemination of an Absolutist Security Agenda (hereinafter, ASA). The US ASA explicitly and aggressively articulates and equates US national security interests with the security of all states in the international system, and replaced the bipolar, Cold War framework that defined international affairs from 1945-1992. Since the collapse of the USSR and the 11 September 2001 terrorist attacks, the US has unilaterally defined, implemented, and managed systemic security policy. The US ASA is indicative of a systemic category of knowledge (security) anchored in variegated conceptual and material components, such as morality, philosophy, and political rubrics. The US ASA is based on a logic that involves the following security components: 1., hyper militarization, 2., intimidation, 3., coercion, 4., criminalization, 5., panoptic surveillance, 6., plenary security measures, and 7., unabashed US interference in the domestic affairs of select states. Such interference has produced destabilizing tensions and conflicts that have, in turn, produced resistance, revolutions, proliferation, cults of personality, and militarization. This is the case because the US ASA rests on the notion that the international system of states is an extension, instrument of US power, rather than a system and/or society of states comprised of functionally sovereign entities. To analyze the US ASA, this study utilizes: 1., official government statements, legal doctrines, treaties, and policies pertaining to US foreign policy; 2., militarization rationales, budgets, and expenditures; and 3., case studies of rogue states. The data used in this study are drawn from information that is publicly available (academic journals, think-tank publications, government publications, and information provided by international organizations). The data supports the contention that global security is effectuated via a discrete set of hegemonic/imperialistic US values and interests, finding empirical expression in legal acts (USA Patriot ACT 2001) and the concept of rogue states. Rogue states, therefore, provide test cases to clarify the breadth, depth, and consequentialness of the US ASA in world affairs vis-a-vis the relationship between US security and global security.

Microstructure Characteristics of U.S. Futures Markets

Prior finance literature lacks a comprehensive analysis of microstructure characteristics of U.S. futures markets due to the lack of data availability. Utilizing a unique data set for five different futures contract this dissertation fills this gap in the finance literature. In three essays price discovery, resiliency and the components of bid-ask spreads in electronic futures markets are examined. In order to provide comprehensive and robust analysis, both moderately volatile pre-crisis and volatile crisis periods are included in the analysis. The first essay entitled “Price Discovery and Liquidity Characteristics for U.S. Electronic Futures and ETF Markets” explores the price discovery process in U.S. futures and ETF markets. Hasbrouck’s information share method is applied to futures and ETF instruments. The information share results show that futures markets dominate the price discovery process. The results on the factors that affect the price discovery process show that when volatility increases, the price leadership of futures markets declines. Furthermore, when the relative size of bid-ask spread in one market increases, its information share decreases. The second essay, entitled “The Resiliency of Large Trades for U.S. Electronic Futures Markets,“ examines the effects of large trades in futures markets. How quickly prices and liquidity recovers after large trades is an important characteristic of financial markets. The price effects of large trades are greater during the crisis period compared to the pre-crisis period. Furthermore, relative to the pre-crisis period, during the crisis period it takes more trades until liquidity returns to the pre-block trade levels. The third essay, entitled “Components of Quoted Bid-Ask Spreads in U.S. Electronic Futures Markets,” investigates the bid-ask spread components in futures market. The components of bid-ask spreads is one of the most important subjects of microstructure studies. Utilizing Huang and Stoll’s (1997) method the third essay of this dissertation provides the first analysis of the components of quoted bid-ask spreads in U.S. electronic futures markets. The results show that order processing cost is the largest component of bid-ask spreads, followed by inventory holding costs. During the crisis period market makers increase bid-ask spreads due to increasing inventory holding and adverse selection risks.

The modern state and the re-creation of the indigenous other: The case of the authentic Sami in Sweden and the white man's Indian in the United States of America

The present study comparatively examined the socio-political and economic transformation of the indigenous Sámi in Sweden and the Indian American in the United States of America occurring first as a consequence of colonization and later as a product of interaction with the modern territorial and industrial state, from approximately 1500 to 1900. ^ The first colonial encounters of the Europeans with these autochthonous populations ultimately created an imagery of the exotic Other and of the noble savage. Despite these disparaging representations, the cross-cultural settings in which these interactions took place also produced the hybrid communities and syncretic life that allowed levels of cultural accommodation, autonomous space, and indigenous agency to emerge. By the nineteenth century, however, the modern territorial and industrial state rearranges the dynamics and reaches of power across a redefined territorial sovereign space, consequently, remapping belongingness and identity. In this context, the status of indigenous peoples, as in the case of Sámi and of Indian Americans, began to change at par with industrialization and with modernity. At this point in time, indigenous populations became a hindrance to be dealt with the legal re-codification of Indigenousness into a vacuumed limbo of disenfranchisement. It is, thus, the modern territorial and industrial state that re-creates the exotic into an indigenous Other. ^ The present research showed how the initial interaction between indigenous and Europeans changed with the emergence of the modern state, demonstrating that the nineteenth century, with its fundamental impulses of industrialism and modernity, not only excluded and marginalized indigenous populations because they were considered unfit to join modern society, it also re-conceptualized indigenous identity into a constructed authenticity.^