Browsing BOFIT Discussion Papers (1999- ) by Publication Year

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  • Paustyan, Ekaterina (2021)
    BOFIT Discussion Papers 2/2021
    This paper studies the distribution of politically motivated intergovernmental transfers in Russia focusing on the case of the 2018 FIFA World Cup. It investigates what factors have accounted for the selection of the 2018 FIFA World Cup venues. Qualitative Comparative Analysis of 14 cases reveals that well-connected political elites were able to secure the right for their regions to host the championship and, as a result, to extract additional funds from the center. These findings are in line with the argument that the regional governments in Russia play an important role in the distribution of politically sensitive transfers. Taking into account that these transfers have been increasing over the past years, there is no surprise that the regional elites have developed various lobbying strategies and mechanisms for attracting them.
  • Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent (2021)
    BOFIT Discussion Papers 3/2021
    This work examines the impact of bank efficiency on the bank lending channel in China. Using a sample of 175 Chinese banks over the period 2006–2017, we investigate how the reaction of the loan supply to monetary policy actions depends on a bank’s efficiency. While bank efficiency does not exert an impact on the effectiveness of monetary policy transmission overall, it does favor the transmission of monetary policy for banks with low loan-to-deposit ratios. In addition, the expansion of shadow banking activities has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency may influence the bank lending channel in certain cases.
  • Kang, Shulong; Dong, Jianfeng; Yu, Haiyue; Cao, Jin; Dinger, Valeriya (2021)
    BOFIT Discussion Papers 4/2021
    This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial banks (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that the establishment of CCBs led to a 6–14 % drop in debt funding for private firms, as well as a 1–2 % rise in their funding costs. At the same time, private infrastructure firms enjoyed a nearly 6 % increase in debt funding and more than 100-basis-point drop in interest costs despite their inferior credit quality. The debt financing of private firm appears most severely affected in municipalities where officials face high promotional pressures or fiscal constraints.
  • Davydov, Denis; Sihvonen, Jukka; Solanko, Laura (2021)
    BOFIT Discussion Papers 5/2021
    This paper uses textual analysis to examine how European corporations assess sanctions in their annual reports. Using observations from a panel of almost 11,500 corporate annual reports from 2014–2017, we document significant cross-country variation in how firms perceive Russia-related sanctions. Even after controlling for firm-level characteristics, cross-country differences remain for sentiments about sanctions and contexts in which sanctions are mentioned. We also examine the role of macroeconomic linkages in explaining these differences. We show that the Russia’s inward and outward FDI stocks and high levels of imports and exports with Russia only partially explain the cross-country variation, leaving a nontrivial share of variation unexplained.
  • Yu, Haiyue; Cao, Jin; Kang, Shulong (2021)
    BOFIT Discussion Papers 7/2021
    Female post-childbirth labor market participation and labor intensity are extraordinarily high in China, given that public childcare subsidies are limited and supportive policies for childbearing female employees are largely absent. Establishing a panel dataset that tracks female employment and childbirth, we find that such a paradox is well-explained by the intra-family childcare support provided by grandparents. Correcting the selection bias that stems from women’s fertility choices using the propensity score matching difference-in-difference model, we find that women without grandparental support suffer a substantial drop in post-childbirth employment, while women with grandparental support even experience a rise in employment after childbirth. It takes women without grandparental support twice as long to recover their employment after childbirth. Finally, we find that childbirth does not decrease women's labor intensity due to a lack of labor market flexibility, and that women face a stay-or-quit dilemma when grandparental childcare support is absent.
  • Mäkinen, Mikko (2021)
    BOFIT Discussion Papers 8/2021
    Can a major financial crisis trigger changes in a bank’s risk-taking behavior? Using the 2008 Global Financial Crisis as a quasi-natural experiment and a difference-in-differences approach, I examine whether the worst crisis-hit Russian banks – the banks that have strong incentives to behavior-altering changes – can decrease their post-crisis exposure to risk. A shift in risk-taking behavior by these banks indicates the learning hypothesis. The findings are mixed. The evidence concerning credit risk is inconsistent with the learning hypothesis. On the other hand, the evidence concerning solvency risk is consistent with the learning hypothesis and corroborates evidence from the Nordic countries (Berglund and Mäkinen, 2019). As such, bank learning from a financial crisis may not depend on the institutional context and the level of development of national financial market. Several robustness checks with alternative regression specifications are provided.
  • Kerola, Eeva; Mojon, Benoît (2021)
    BOFIT Discussion Papers 1/2021
    Data available at
    It is important to understand the growth process under way in China. However, analyses of Chinese growth became increasingly more difficult after the real GDP doubling target was announced in 2012 and the official real GDP statistics lost their fluctuations. With a dataset covering 31 Chinese provinces from two decades, we have substantially more variation to work with. We find robust evidence that the richness of the provincial data provides information relevant to understand and project Chinese aggregates. Using this provincial data, we build an alternative indicator for Chinese growth that is able to reveal fluctuations not present in the official statistical series. Additionally, we concentrate on the determinants of Chinese growth and show how the drivers have gone through a substantial change over time both across economic variables and provinces. We introduce a method to understand the changing nature of Chinese growth that can be updated regularly using principal components derived from the provincial data.
  • Saka, Orkun; Ji, Yuemei; De Grauwe, Paul (2021)
    BOFIT Discussion Papers 10/2021
    We first present a simple model of post-crisis policymaking driven by both public and private interests. Using a novel dataset covering 94 countries between 1973 and 2015, we then establish that financial crises can lead to government interventions in financial markets. Consistent with a public interest channel, we find post-crisis interventions occur only in democratic countries. However, by using a plausibly exogenous setting -i.e., term limits- muting political accountability, we show that democratic leaders who do not have re-election concerns are substantially more likely to intervene in financial markets after crises, in ways that may promote (obstruct) private (public) interests.
  • Borisova, Ekaterina; Ivanov, Denis (2021)
    BOFIT Discussion Papers 09/2021
    In this study, we use random assignment of vignettes that feature optimistic and pessimistic scenarios with respect to vaccine safety and efficacy on a sample of roughly 1,600 Russians in order to gauge public support for anti-pandemic measures under various scenarios. Negative information on vaccine safety and efficacy reduces support for the anti-pandemic measures among individuals who fear Covid-19 and were initially supportive of government restrictions. These individuals tend to be old, and therefore vulnerable to Covid-19, and politically active. This loss of support is strongest for economically costly measures such as banning of large gatherings and the shuttering of non-essential businesses. Mask-wearing, which involves only minor costs, finds broad acceptance. We interpret the reactions in light of adaptation, fatigue over Covid-19 restrictions, and fatalism. The political consequences of non-pharmaceutical measures to deal with a pandemic include loss of public support over time, erosion of trust in government, and political backlash.
  • De Haas, Ralph; Martin, Ralf; Muûls, Mirabelle; Schweiger, Helena (2021)
    BOFIT Discussion Papers 6/2021
    We use data on 11,233 firms across 22 emerging markets to analyze how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions.
  • Beckmann, Joscha; Comunale, Mariarosaria (2021)
    BOFIT Discussion Papers 11/2021
    This paper assesses the financial channel of exchange rate fluctuations for emerging countries and the link to the conventional trade channel. We analyze whether the effective exchange rate affects GDP growth, the domestic credit and the global liquidity measure as the credit in foreign currencies, and how global liquidity affects GDP growth. We make use of local projections in order to look at the shocks’ transmission covering 11 emerging market countries for the period 2000Q1–2016Q3. We find that foreign denominated credit plays an important macroeconomic role, operating through various transmission channels. The direction of effects depends on country characteristics and is also related to the policy stance among countries. We find that domestic appreciations increase demand regarding foreign credit, implying positive effects on investment and GDP growth. However, this is valid only in the short-run; in the medium-long run, an increase of credit denominated in foreign currency (for instance, due to apeiation) decreases GDP. The financial channel works mostly in the short run except for Brazil, Malaysia, and Mexico, where the trade channel always dominates. Possibly there is a substitution effect between domestic and foreign credit in the case of shocks in exchange rate.
  • Ma, Chang; Rogers, John; Zhou, Sili (2020)
    BOFIT Discussion Papers 1/2020
    We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China’s overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.
  • Hake, Mariya; Poyntner, Philipp (2020)
    BOFIT Discussion Papers 3/2020
    This paper constitutes an initial attempt to shed light on the role of income distribution in household debt and financial market access in Central, Eastern and Southeastern Europe (CESEE). Using household-level data from the OeNB’s Euro Survey for the period 2009-2018, we address the question whether interpersonal comparisons (“keeping up with the CESEE Joneses" i.e. "the Novaks”) affect the probability of having and planning a loan. Applying multilevel probit modeling to take into account the hierarchical structure of the data, our results support the notion that higher income inequality is negatively correlated with the probability of having a loan at the bottom of the distribution, and positively at the top. We show this impact for almost all components of household debt, but evidence is strongest for mortgage, car and foreign currency loans. Interpersonal comparisons turn out to drive loan intentions, however, mainly on the very top of the income distribution.
  • Kauko, Karlo (2020)
    BOFIT Discussion Papers 2/2020
    Chinese banks likely have more non-performing loans (NPLs) than officially reported. As hidden NPLs earn no interest income, loan quality problems may erode the gross interest income of banks. Using stochastic frontier analysis, we estimate the interest income of a hypothetical profit-maximising Chinese bank with no credit quality problems. Taking the deviation of actual interest income from the calculated efficient income, we then attempt to reveal the amount of hidden NPLs in Chinese banks. Our results uncover a substantial weakening in the quality of Chinese bank loan portfolios in 2016. Big banks are found to have the largest reservoirs of hidden NPLs. Dependence on interbank funding also seems to be a determinant in the size of hidden NPL portfolios.
  • Li, Weijia; Roland, Gérard; Xie, Yang (2020)
    BOFIT Discussion Papers 5/2020
    How do corruption and the state apparatus interact, and how are they connected to the political and economic dimensions of state capacity? Motivated by historians' analysis of powerful empires, we build a model that emphasizes the corrosive effect of corruption on state power. Under general assumptions about fat-tailed risk, we show that, if fiscal capacity is strong, then the optimal response for the head of the state apparatus will be an endogenous lexicographic rule whereby local corruption is maintained at such a level that no erosion of state power is tolerated. Comparative statics shows the impacts of additional risk of crisis on corruption tolerance as well as the complementarity between personalistic rule and corruption. Implications of corruption at the head of the state apparatus are also analyzed. If fiscal capacity is not sufficiently strong, however, the state will have to over-tolerate corruption to retain its affiliates, risking its control in crises. Our model predicts that the correlation between state's political stability and corruption is non-monotonic across different levels of fiscal capacity, and this prediction is robustly consistent with recent cross-country panel-data.
  • Banerjee, Ryan; Hofmann, Boris; Mehrotra, Aaron (2020)
    BOFIT Discussion Papers 6/2020
    Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies.
  • Gregg, Amanda; Nafziger, Steven (2020)
    BOFIT Discussion Papers 7/2020
    This paper explores the dynamics of corporate finance during the early stages of industrial growth by examining a newly constructed panel database of Imperial Russian industrial corporations’ balance sheets. We document large differences in financial strategies and outcomes across industries, over time, over firms’ life cycles, and between two Russian corporation types. Russian corporations’ profits and dividend payouts followed the Russian business cycle. Russian corporate debt ratios mostly follow modern capital structure theories, but tangible assets were not associated with higher debt levels, suggesting that Russian corporate debt was short-term, that collateral was irrelevant, or that agency problems dominated. We also find evidence that investors needed to be compensated for poor protections, since dividends were valued and widely-held corporations enjoyed greater returns. While the evidence suggests the presence of these and other frictions, our findings are consistent with the Imperial Russian financial system functioning well enough to enable early industrial development.
  • Fungáčová, Zuzana; Schoors, Koen; Solanko, Laura; Weill, Laurent (2020)
    BOFIT Discussion Papers 8/2020
    State-owned banks tend to increase lending before elections for the purpose of boosting the reelection odds of incumbent politicians. We employ monthly data on individual banks to study whether Russian banks increased their lending before presidential elections during 2004–2019, a period covering four presidential elections. In contrast to the literature, we find that both state-owned and private banks increased their lending before presidential elections. This result stands for all loans, as well as separately for firm and household loans. The pre-election lending surge is followed by a deterioration of loan quality the following year, indicating the lending increase was not driven by higher growth prospects or some positive economic shock. The effect is substantially greater for large banks and banks more involved in lending activities. Our main finding that all types of banks in Russia increase their lending before presidential elections supports the view that the authorities in an electoral autocracy like Russia can influence lending of both private and state-owned banks for political reasons.
  • Brada, Josef C.; Chen, Chunda; Jia, Jingyi; Kutan, Ali M. (2020)
    BOFIT Discussion Papers 10/2020
    Using event study methodology, we investigate whether bilateral investment protection treaties afford protection to foreign investors. Examining arbitral decisions for firms from six countries shows that firms that received awards from arbitrators gained in market value by as much as 3%. Per dollar awarded, firms gained over $20 in market value. Thus, we conclude that the system of arbitration does afford significant benefits to firms that can demonstrate that they have been injured by host governments who violated the terms of the relevant investor protection treaty. We also find some evidence that arbitral decisions are anticipated by stock markets.
  • Perugini, Cristiano (2020)
    BOFIT Discussion Papers 11/2020
    The microeconomic drivers of medium- and short-term income mobility in Russia over the period 1996–2016 are investigated using data from the Russian Longitudinal Monitoring Survey (RLMS). Focusing on the role of access to credit in triggering household income growth, the descriptive analysis suggests that high levels of mobility materialising in pro-poor patterns of growth may accompany Russia’s notoriously high levels of inequality. Controlling for other personal and household characteristics, the econometric model for drivers of income mobility indicates that access to credit boosts income mobility. Complementary empirical evidence suggests that this effect may unfold through channels related to the labour market and non-labour sources of income.