Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuition provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated, when MNEs have been faced with poor institutional quality at home.

The Known Unknowns of Governance.

Empirical researchers interested in how governance shapes various aspects of economic development frequently use the Worldwide Governance indicators (WGI). These variables come in the form of an estimate along with a standard error reflecting the uncertainty of this estimate. Existing empirical work simply uses the estimates as an explanatory variable and discards the information provided by the standard errors. In this paper, we argue that the appropriate practice should be to take into account the uncertainty around the WGI estimates through the use of multiple imputation. We investigate the importance of our proposed approach by revisiting in three applications the results of recently published studies. These applications cover the impact of governance on (i) capital flows; (ii) international trade; (iii) income levels around the world. We generally find that the estimated effects of governance are highly sensitive to the use of multiple imputation. We also show that model misspecification is a concern for the results of our reference studies. We conclude that the effects of governance are hard to establish once we take into account uncertainty around both the WGI estimates and the correct model specification.

The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds, especially for the emerging Asian market. In this paper, we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995-2009 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity, we show that financial variables appear to be both statistically and quantitatively more important for financially constrained firms. Finally, when we examine the effects of the 1997-98 Asian crisis and the 2007-09 global financial crisis, we find that the sensitivity of the premium is greater for constrained firms during the Asian crisis compared to other times.

Private Governance of Financial Markets: the US Regulatory Regime on Hedge Funds

The article investigates the private governance of financial markets by looking at the evolution of the regulatory debate on hedge funds in the US market. It starts from the premise that the privatization of regulation is always the result of a political decision and analyzes how this decision came about and was implemented in the case of hedge funds. The starting point is the failure of two initiatives on hedge funds that US regulators launched between 1999 an 2004, which the analysis explains by elaborating the concept of self-capture. Facing a trade off between the need to tackle publicly demonized issues and the difficulty of monitoring increasingly sophisticated and powerful private markets, regulators purposefully designed initiatives that were not meant to succeed, that is, they “self-captured” their own activity. By formulating initiatives that were inherently flawed, regulators saved their public role and at the same time paved the way for the privatization of hedge fund regulation. This explanation identifies a link between the failure of public initiatives and the success of private ones. It illustrates a specific case of formation of private authority in financial markets that points to a more general practice emerging in the regulation of finance.

Conflict prevention and decentralized governance: some remarks about the state of the art in theory and practice

Is there a link between decentralized governance and conflict prevention? This article tries to answer the question by presenting the state of the art of the intersection of both concepts. Provided that social conflict is inevitable and given the appearance of new threats and types of violence, as well as new demands for security based on people (human security), our societies should focus on promoting peaceful changes. Through an extensive analysis of the existing literature and the study of several cases, this paper suggests that decentralized governance can contribute to these efforts by transforming conflicts, bringing about power-sharing and inclusion incentives of minority groups. Albeit the complexity of assessing its impact on conflict prevention, it can be contended that decentralized governance might have very positive effects on the reduction of causes that bring about conflicts due to its ability to foster the creation of war/violence preventors. More specifically, this paper argues that decentralization can have a positive impact on the so-called triggers and accelerators (short- and medium-term causes).

The Barcelona Forum: on decentralized governance and conflict prevention 6-8 july 2009

The Barcelona Forum aimed to generate both a theoretical and practical discussion on decentralized governance and its capacity to promote peace, prevent conflict, advance human security and ensure greater governmental accountability. The Forum intended to review the theoretical strength of decentralization as a political tool and discuss how it can be properly implemented. Eight case studies were selected to be covered during the two days in order to draw conclusions and offer proposals for the future implementation of decentralization. The case of Catalonia and the decentralized experience of Spain was given special attention, as an example of successful decentralization. The other cases presented achievements and challenges and prompted discussions on both the validity and universality of decentralization as a way to promote and preserve peace. Topics such as ethnic and territorial divisions, democratic accountability, financial decentralization and distribution, resource sharing, and external implementation of decentralization through peace processes were discussed.