An event study of institutions and currency crises

In this paper, I investigate the relationship between informal sector size and various institutional quality variables: government stability, external conflict, internal conflict, corruption control, military influence over politics, religious tensions, ethnic tensions, law-and-order, democratic quality, and bureaucratic accountability. To this end, I use annual cross-country panel data covering 130 countries from 1990 to 2018. Having conducted a correlation analysis, the size of informal economy and institutional quality indicators are inversely linked. The most crucial institutional quality determinants are law-and-order (-0.53), bureaucratic quality (-0.51), military in politics (-0.45), corruption control (-0.42), and internal conflict (-0.35).

Conflict is one of the most fundamental concepts in the interest group literature. The more conflict there is, the less likely it is that interest groups can impact policymaking. In this paper we systematically explore whether some types of conflict affect interest-group influence more than others. More precise whether conflict among organizations that are perceived by policymakers as homogenous (‘internal conflict’) is more detrimental for the influence interest groups have on policymaking than conflict among groups that are not perceived by policymakers as homogenous (‘external conflict’). Empirically we focus on four cases of EU policymaking with varying levels of internal and external interest group conflict. Our case studies highlight that agreement among similar types of lobby organizations is a necessary condition for these groups to influence policymaking, while external conflict still provides much opportunities for interest groups to influence policymaking.

This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the univariate behavior of a variety of macroeconomic variables, comparing crises with periods of tranquility. For ERM observations we cannot reject the null hypothesis that there are few significant differences in the behavior of key macroeconomic variables between crises and noncrisis periods. This null can be decisively rejected for non-ERM observations, however. Precisely the opposite pattern is evident in the behavior of actual realignments and changes in exchange rate regimes. We attempt to tie these findings to the theoretical literature on balance of payments crises.

PurposeIn this paper, the authors investigate the inbound tourism demand elasticities of the Middle East and North African (MENA) countries. The authors emphasize the role of external and internal conflicts, world gross domestic product and relative prices over the period 1995–2017.Design/methodology/approachThis study applies the heterogeneous panel data estimators based on the fully modified-OLS (FM-OLS), dynamic-OLS (DOLS) and the recently developed method of moments quantile regression (MMQR).FindingsThe empirical results indicate that the effect of external and internal conflicts on inbound tourism demand is negative and inelastic with external conflict having a stronger effect. The effect of both classifications of conflicts diminishes as the market share of the tourist destination increases. In addition, the role of the world GDP on tourism demand is positive and elastic, suggesting that tourism is a luxury good while an increase in relative prices diminishes inbound tourism demand.Originality/valueThe paper, therefore, concludes that if policy measures are not put in place to curtail incidences of conflicts, economic growth in these countries may suffer setbacks. This by implications could affect the attainment of the sustainable development goals (SDGs) targets.

The BRICS nations-Brazil, Russia, India, China, and South Africa-have grown significantly in importance over the past few decades, playing a vital role in the development and growth of the global economy. This expansion has not been without cost, either, since these countries' concern over environmental deterioration has risen sharply. Both researchers and decision-makers have focused a lot of attention on the connection between economic growth and ecological sustainability. By using nonlinear autoregressive distributed lag (NARDL) approach, the complex relationships were analyzed between important economic indicators-such as gross domestic product (GDP), ecological innovations (EI), energy consumption (ENC), institutional performance (IP), and trade openness (TOP)-and their effect on carbon emissions and nitrous oxide emissions in the BRICS countries from 1990 to 2021, this study seeks to contribute to this important dialog. Principal component analysis is formed for technological innovations and institutional performance using six (ICT service exports as a percentage of service exports, computer communications as a percentage of commercial service exports, fixed telephone subscriptions per 100 people, internet users as a percentage of the population, number of patent applications, and R&D expenditures as a percentage of GDP) and twelve (government stability, investment profile, socioeconomic conditions, internal conflict, external conflict, military in politics, control of corruption, religious tensions, ethnic tensions, law and order, bureaucracy quality, and democratic accountability) distinct indicators, respectively. The results of nonlinear autoregressive distributed lag estimation show that increase in economic growth would increase carbon dioxide and nitrous oxide emissions. The positive and negative shocks in trade openness have positive and significant impact on carbon dioxide and nitrous oxide emissions in BRICS countries. Furthermore, the positive shock energy consumptions have positive and significant effect on Brazil and India when carbon dioxide and nitrous oxide emissions are used. However, EKC exists in BRICS countries when carbon dioxide and nitrous oxide emissions are used. According to long-term estimation, energy consumption and technological innovations in the BRICS countries show a strong and adverse link with nitrous oxide and a favorable relationship with carbon dioxide emissions. In the long run, environmental indicators are seen to have a major and unfavorable impact in BRICS nations. Finally, it is proposed that BRICS nations can assure environmental sustainability if they support creative activities, enhance their institutions, and support free trade policies.

This paper examines the importance of political risk, the financial risk, and economic risk in portfolio and direct investment decisions. In addition, the components (from the International Country Risk Guide) of each of these risk measures are examined. The components of political risk include: Government Stability, Socioeconomic Conditions, Investment Profile, Internal Conflict, External Conflict, Corruption, Military in Politics, Religion in Politics, Law and Order, Ethnic Tensions, Democratic Accountability, and Bureaucracy Quality. The financial risk components include: Foreign Debt as a Percentage of GDP, Foreign Debt Service as a Percentage of Exports of Goods and Services, Current Account as a Percentage of Exports of Goods and Services, Net International Liquidity as Months of Import Cover, and Exchange Rate Stability. The Economic Risk category includes: Per Capita GDP, Real GDP Growth, Annual Inflation Rate, Budget Balance as a Percentage of GDP, and Current Account as a Percentage of GDP. First, I explore whether any of these measures contain information about future expected stock returns by conducting trading simulations. Second, I show the relation between these measures and implied costs of capital based on earnings forecasts. My results suggest that the country risk measures are correlated future equity returns - but only in emerging markets. These results are consistent with emerging markets being to some degree segmented from world capital markets.

Political risk, institutions and foreign direct investment

We develop a theoretical model to study the relationship between climate change, migration, and conflicts from the perspective of the recipient countries, which we call collectively the North. The North chooses the number of immigrants it wants to accept together with the amount of climate change mitigation. The potential number of migrants is determined by the extent of climate change in the South. Accepting more migrants allows the North to increase local production but it also exacerbates climate change and gives rise to internal conflicts. Those potential migrants that want to migrate North due to climate change but are not allowed to immigrate may induce external conflicts. We find that a policymaker, subject to the threat of both internal and external conflicts, may either choose a policy that relies more on mitigation with less immigration, or less mitigation and more immigration. Which policy ought to be pursued depends on the relative cost of internal and external conflicts, and the mitigation cost. If either the threat of external or internal conflicts are negligible, then we find that the optimal mitigation and immigration policies are not interdependent any longer. We also discuss when mitigation and immigration policies are substitutes or complements.

In this article we attempt to replicate the hypothesis tested by Rummel and others that external and internal conflict are unrelated. We do this using data for 125 nations for the years 1966-1967. As did Rummel, we use exploratory factor analysis and regression analysis; in addition, we also employ confirmatory factor analysis. Results from confirmatory factor analysis contradict Rummel and reveal moderately strong correlations between internal and external conflict factors. Regression analysis and partial correlations, however, show that zero-order cross-country correlations between internal and external conflict are reduced to insignificance when a control variable, population size, is introduced in the analysis.

In this article a hypothesis proposed and tested by RUMMEL is taken up again: external and internal conflict are unrelated to each other. In our attempt at replication we use data for 125 nations and for the years 1966-67. Like RUMMEL we use exploratory factor analysis and regression, and, in addition, confirmatory factor analysis. Results from exploratory factor analysis seem to support RUMMEL’s conclusions. Yet confirmatory factor analysis reveals at least moderately strong relationships between internal and external conflict. Regression analysis and partial correlations show, however, that zero order cross-country correlations between internal and external conflict can both be accounted for by population size.

Keywords: Political Instability, Corruption, Economic Growth, Political Conflict1.IntroductionThe major aim of this paper is to examine the empirical relations between economic growth and a broad group of political instability factors including corruption, government instability, internal and external conflicts, religious and ethnic tensions, democratic accountability and bureaucracy quality. Moreover, one of the main objectives of our paper is to explore the effects of serious problems such as political instability and corruption on economic growth for Organisation for Economic Co-operation and Development (OECD) countries during the period 1984-2012. Thus, most of the countries in our sample are developed countries of the world.The main contribution and distinctive characteristic of this article is to focus not only on the relationship between political stability and economic growth, but also on the relations between some specific categories of political instability and economic growth. It is generally accepted that corruption is an element of political instability as well. In this paper, we employ system GMM estimator for linear dynamic panel data models in order to overcome a potential endogeneity problem.The relationship between political instability and economic growth has been an issue of concern for long. Political instability is one of the conventional themes of the modern political economy theory. Modern theory of political economy suggests that political stability plays a significant role in economic growth of a country. Thus, an unstable political system could seriously hinder economic growth. Within the theoretical framework of modern political economy, a government is considered to be inefficient if policy objectives vary over a short period of time. Thus, coalition governments are a serious threat and to be more prone to the political stability. Moreover, modern political economy theory emphasizes that political instability also affects the level of economic growth in the country as the rates of economic growth are correlated with persistent policies of government and how government perform these policies (Barro, 2013).On the other hand, corruption is a widespread phenomenon in several countries around the world, which are regarded by economists as seriously harmful to economic growth (Aisen & Veiga, 2011). The majority of academic research reveals that corruption impedes economic growth, creates political instability, weakens the state's capacity to tax, undermines spending programs, increases the cost and lowers the quality of public investment (IMF, 2016). Some economists consider that corruption can also have distributional consequences. Corruption increases income inequality and poverty through lower economic growth, biased tax systems favoring the rich, and lower social spending (Gupta, Davoodi & Alonso-Terme, 2002). However, some researchers suggest that the impact of corruption on economic growth is related with factors such as the country's legal and institutional framework, quality of governance and political regime. Thus, in some highly regulated countries, corruption can compensate for red tape and institutional weaknesses and overcome the government failure in the economy (Campos, Dimova & Saleh, 2010). Since there is a large consensus that corruption hinders economic growth and increases socio-economic inequalities, international organizations such as the World Bank and OECD emphasize that corruption is among the greatest obstacles to economic and social development (OECD, 2013).The remaining part of this paper is organized as follows. Section 2 presents a brief literature review. Section 3 provides information about the data, empirical model, and empirical methodology. Section 4 contains empirical results. Section 5 includes a summary and concluding remarks.2.Brief Literature ReviewAlesina, Ozler, Roubini, & Swagel (1992) define political instability narrowly as the tendency of the change in cabinet either by constitutional or unconstitutional means. …

ABSTRACTUsing the traditional gravity model, this paper aims to analyze the determinants of Turkish exports to 43 Islamic Development Bank member countries for the period from 1996 to 2015. The paper specifically investigates the effects of 12 political risk measures (bureaucracy quality, corruption, democratic accountability, government stability, internal and external conflict, investment profile, law and order, military in politics, religious and ethnic tensions, and socioeconomic conditions) in the importing countries on the total volume of exports of Turkey. After implementing various robustness checks, the paper finds that the government instability in the importing countries is negatively associated with the Turkish exports.

In spite of the similarities between Sub-Saharan Africa and the Arab Gulf Cooperation Council states, development policies in these two regions of the world have produced markedly divergent outcomes. The remarkable increase in personal income and large current account surpluses in Arab Gulf states contrast with widespread poverty and balance of payments crises in Sub-Saharan Africa. This paper reviews the causes of these divergent development paths and discusses the prospects for economic convergence in the growing trade ties between the two regions. It shows that development models underpinned by institutional continuity and intergenerational accountability could enhance long-run growth in Sub-Saharan Africa and income convergence between the two regions.

In this study we develop an early warning system (EWS) to forecast currency crises in emerging countries in Asia and Latin America, using logit regression on monthly data from 1992 to 2011. We found that macroeconomic and institutional variables are valuable indicators for forecasting crises. Our results show that a low level of export growth, current account surplus/GDP, GDP growth, a high level of real exchange rate growth, import growth, and short-term debt/reserves can explain the advent of a possible currency crisis. We found that a poor law and order scenario and high external conflict can lead to a currency crisis. Additional findings include high government stability and the absence of internal conflict, which contribute to an absence of democracy, ultimately leading to a currency crisis. The policy-makers can consider taking the effective pre-emptive actions to prevent the currency crises occurring in the future.

In this study, we examine the correlation between stock returns of Export-oriented (EOIs) and Import-oriented (IOIs) industries and exchange rates, to derive stock-exchange optimal weights, attempting to manage the risk of investors in the capital market. To do so, the ADCC and DCC models are used. The data consists of the stock return of the listed industries, and the daily exchange rate from 2008 to 2020. The results suggest that EOIs have a dynamic asymmetric conditional correlation, and IOIs have a dynamic symmetric conditional correlation with the exchange rate. Moreover, the results indicate that in both currency crises, the weight of optimal portfolio in all industries except pharmaceuticals, in non-crisis period is over 50% and in the crisis period is less than 50%. Accordingly, and to reduce the risk of the portfolio, in the non-crisis period, investors should invest more than half of a one-Rial portfolio to dollar exchange, and in the crisis period, they should allocate less than half of a one-Rial portfolio to this currency. In case of the currency crisis, it is suggested that investors invest in the stock of basic metals, because this industry is a pioneer in attracting currency crisis and increasing stock value of the industry through future cash flow and replacement value, and reduce the stock of pharmaceuticals and computers in their portfolio, due to attracting negative effects of the exchange market.