Euclid Tsakalotos

The scope and limits of financial liberalisation in developing countries: A critical survey

This article reviews the growing literature on financial reform in developing countries. We draw both on the theoretical contributions outlining the case for and against liberalisation as well as on the experience of many developing countries with liberalisation. We argue that the existence of market failures in financial markets hampers the liberalisation process and indeed suggests that the simple liberalising strategy envisaged in much of the literature is inappropriate. We argue instead for an alternative strategy which integrates some aspects of liberalisation with the development of appropriate financial institutions designed to serve best the needs of the real economy.

Business Cycle Correspondence in the European Union

This paper examines whether there exists a close correspondence in the business cycles of the EU economies. We focus on the timing and magnitude of business cycles and propose criteria for defining close correspondence. We suggest that any correspondence that does exist is confined to the EU core and that, contrary to some of the existing literature, there exists a clear core-periphery distinction. This makes us less optimistic about the prospects for EMU if it is not accompanied by institutional arrangements that take into account the differences between EU economies.

Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s

Abstract This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results are consistent with the view that the market for corporate control disciplines poorly performing companies, and suggest that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of 25%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free-cash-flow theory of takeovers.

Takeover Risk and Dividend Strategy: A Study of UK Firms

The authors investigate the relationship between a companys dividend strategy and its risk of takeover. Their results from a large panel of U.K. quoted companies suggest that higher dividend payments are associated with a significantly lower conditional probability (hazard) of takeover. Moreover, firms that wish to avoid takeover would be better to distribute the marginal L1 of earnings in dividends rather than investing it in the company. The authors consider two explanations for these findings. They suggest that the presence of an active market for corporate control could encourage firms to raise dividends to maintain shareholder loyalty. Copyright 1998 by Blackwell Publishing Ltd

Economic Theory and the Limits to Financial Liberalization: Domestic Financial Liberalization in Greece, Portugal and Spain

In the post-war era, moves towards domestic financial liberalization began in the 1970s and took place in a variety of countries with different levels of economic and financial development. An early example is the UK, which in 1970–1 undertook a series of measures aimed at increasing competition in the banking industry. In the 1970s and early 1980s, a number of Latin American countries, such as Chile, Argentina and Uruguay, liberalized their financial markets, albeit without much success. Spain started to liberalize in the 1970s while Greece and Portugal followed suit in the 1980s.

Macroeconomic Policy and Capital Controls

In this chapter we turn to the issue of how European financial liberalization will affect monetary and fiscal policy. There is a large and growing literature on the consequences for macroeconomic policy of moving towards economic and monetary union (EMU). Much of this literature stems from, and seeks to extend, the analysis of the experience of ERM (exchange rate mechanism) countries in the 1980s. The central question addressed is what is entailed in going from the ERM to EMU. The removal of capital controls is seen as the critical intermediate step.

Narrowing the Options: The Macroeconomic and Financial Framework for EU Enlargement

This valuable and engaging new book bears eloquent testimony to A.P. Thirlwall’s substantial contribution to economics over the last 40 years. The volume does not attempt to provide a comprehensive review of such a prolific figure, but rather demonstrates the considerable influence that his work on economic theory has had on his contemporaries, and the profession as a whole.

Social Conflict and Macroeconomics: What Determines the Effectiveness of Aggregate Demand Policies?

This paper examines the role of social conflict in explaining macroeconomic phenomena and, especially, the effectiveness of aggregate demand policies as a means of raising real output. The social conflict approach to macroeconomic phenomena is compared with a Keynesian view along with Ball, Mankiw and Romer’s (1988) and Lucas’ (1973) models of the determinants of the effectiveness of aggregate demand policies (or the slope of the Phillips curve). Empirical analysis over the period from the 1950s to the 1990s for 15 OECD countries provides significant evidence that the social conflict view of inflation has much to offer in explaining differences in the effectiveness of aggregate demand policies both across countries and through time.

The Changing Role of Finance in Southern European Economies: Will There be an Improvement in Economic Performance?

The financial sector in any economy is crucial to the health of the whole economy. Financial intermediaries and markets act to bring together those who wish to save with those who wish to invest. Savers usually want immediate access to their funds, they often require some certainty about the return and they may wish to save in small amounts. Investors, by contrast, require long-term loans, often in large amounts for projects which may have uncertain returns. The raison d’etre of financial intermediaries is that they act to satisfy both savers and investors. As such, changes that take place in the financial sector are important not only in and of themselves but also because they affect the potential performance of the economy as a whole and the real economy in particular.

ERM-II: Problems for the ‘Outs' and their Relationship with the ‘Ins'

This highly topical book examines the development and future prospects for economic and monetary union in Europe. European Monetary Integration examines the background to economic and monetary union from a historical perspective that distinguishes between national and supranational currency areas, and an optimal currency area theory. The gradualist transition process is also considered.