In this paper, we investigate whether a firm’s composition of foreign liabilities matters for their resilience during economic turmoil and examine which characteristics determine a firm’s foreign capital structure. Using firm-level data, we corroborate previous findings from the (international) macroeconomic literature that the composition of foreign liabilities matters for a country’s susceptibility to external shocks. We find that firms with a positive equity share in their foreign liabilities were less affected by the global financial crisis and also less likely to default in the aftermath of the crisis. In addition, we show that larger, more open, and more productive firms tend to have a higher equity share in total foreign liabilities.
FDI has played a strong role in the export-led growth of eastern European countries that are now members of the European Union (EU). Largely sourced from advanced Europe, FDI inflows were motivated by the intention to pursue new markets and cost efficiency. Over time, foreign investment has restructured the exports sector in these countries in favor of products that are considered more technology-intensive. As these countries face skills shortage and rising wages, what is needed for FDI to continue playing a strong role? Can the Western Balkan countries, who are not yet EU members and have in recent years stepped up financial incentives and policy initiatives to court investors, emulate the experience? This paper takes stock of the FDI experience of both these groups and tries to estimate their potential gains from additional policy efforts.
Superficial examination of aggregate gross cross-border capital inflow data suggests that there was no substitution between portfolio inflows and bank loans in recent years. However, our novel analysis of disaggregate inflows (both by types of instrument and borrower) shows interesting heterogeneity. There has been substitution of bank loans for portfolio debt securities not only in the case of corporate and sovereign borrowers in advanced countries, but also sovereign borrowers in emerging countries. In the case of corporate borrowers in emerging markets, the relationship corresponds to complementarity across types of gross capital inflows, especially during periods of positive capital gross inflows after the global financial crisis. A large part of these patterns does not seem to be driven by a common phenomenon across countries associated with the global financial cycle, but rather by country-specific factors.
When the euro was introduced in 1998, one objective was to create an alternative global reserve currency that would grant benefits to euro area countries similar to the U.S. dollar’s “exorbitant privliege”: i.e., a boost to the perceived quality of euro denominated assets that would increase demand for such assets and reduce euro area members’ funding costs. This paper uses risk perceptions as revelaed in investor surveys to extract a measure of privilege asscociated with euro membership, and traces its evolution over time. It finds that in the 2000s, euro area assets benefited indeed from a significant perceptions premium. While this premium disappeared in the wake of the euro crisis, it has recently returned, although at a reduced size. The paper also produces time-varying estimates of the weights that investors place on macro-economic fundmentals in their assessments of country risk. It finds that the weights of public debt, the current account and real growth increased considerably during the euro crisis, and that these shifts have remained in place even after the immediate financial stress subsided.
This Selected Issues paper takes the case of Slovenia to analyze credit growth and economic recovery in Europe. The findings reveal that following the global financial crisis recovery in Slovenia significantly lags typical postrecession recoveries for both typical and financial-crisis-driven recessions. Credit dynamics have also been much more subdued. Controlling for Slovenia’s double-dip recession and the slowdown in global growth after the global financial crisis reveals that Slovenia’s recovery is not atypical. The cross-country study also finds that bank-specific factors are the key determinants of bank lending. Bank credit to the private sector also has a positive but modest impact on economic activity, mainly through the investment channel.
This paper focuses on the following key issues of the Slovenian economy: export competitiveness, corporate financial health and investment, European Central Bank (ECB) quantitative easing, and financial sector development issues and prospects. Slovenia’s exports have been the main contributor to GDP growth in recent years. In particular, by 2015 exports of goods and services had increased by 20 percentage points of GDP compared to their postcrisis low in 2009. Preceding the global economic slump in 2008, bank credit in Slovenia fueled corporate investment. The past few years have witnessed substantial monetary easing by the ECB. With inflation running well below target, the ECB has been pursuing unconventional monetary policy-easing actions.
This Selected Issues paper examines inflation dynamics in Bulgaria from January 2012 to February 2015 and highlights some stylized facts about inflation in the country. January 2012 to February 2015 is the most relevant period for identifying factors contributing to recent deflation in Bulgaria, as well as their relative importance. Regression analysis suggests that during this period the inward spillover of low inflationary pressure from the European Union to Bulgaria has been the most significant factor, which was further exacerbated by consecutive electricity price cuts in 2013 and fast-falling global commodity prices, especially since late 2014.