Galina Hale

Sovereign Debt Crises and Credit to the Private Sector

We argue that, through its effect on aggregate demand and country risk premia, sovereign debt restructuring can adversely affect the private sectors access to foreign capital markets. Using fixed effect analysis, we estimate that sovereign debt rescheduling episodes are indeed systematically accompanied by a decline in foreign credit to emerging market private firms, both during debt renegotiations and for over two years after the agreements are reached. This decline is large (over 20%), statistically significant, and robust when we control for a host of fundamentals. We find that this effect is different for financial sector firms, for exporters, and for nonfinancial firms in the non-exporting sector. We also find that the effect depends on the type of debt rescheduling agreement.

Are There Productivity Spillovers from Foreign Direct Investment in China

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm-level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 2500 specifications which take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI.

Bank Relationships, Business Cycles, and Financial Crises

The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. We posit that effects of such asymmetries may be reduced through relationships between banks established through bank-to-bank lending and provide evidence to support this claim. To analyze dynamics of formation of such relationships during 1980-2009 time period, we construct a global banking network of 7938 banking institutions from 141 countries. We find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. We also find that the global financial crisis of 2008-09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks that have been previously immune to effects of banking crises and recessions.

Bank relationships, business cycles, and financial crises

The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. The effects of such asymmetries may potentially be reduced through relationships between banks established through bank-to-bank lending. To analyze the dynamics of formation of such relationships during 1980–2009, I construct a global banking network of 7938 banking institutions from 141 countries. I find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. I also find that the global financial crisis of 2008–09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks, which were previously immune to effects of banking crises and recessions.

ARE THERE PRODUCTIVITY SPILLOVERS FROM FOREIGN DIRECT INVESTMENT IN CHINA?: spillovers from foreign direct investment

We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm-level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 2500 specifications which take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI.spillovers from FDI. We do, however, find robust evidence that Chinese private firms tend to invest less in innovation in the presence of FDI. Combined with our previous findings that domestic private firms tend to be more involved in providing inputs and intermediary goods for foreign firms (Hale and Long, 2006), these results suggest a more passive role played by domestic firms in the global division of labor than envisioned by the Chinese government. ; Formerly titled: What determines technological spillovers of foreign direct investment: evidence from China

Bonds or Loans? the Effect of Macroeconomic Fundamentals

The costs of debt crises are not invariant to the foreign debt instrument composition: bank loans or bonds. The lending boom of the 1990s witnessed considerable variation over time and across countries in the debt instrument used by emerging market (EM) borrowers. This paper tests how macroeconomic fundamentals affect the composition of international debt instruments used by EM borrowers. Analysis of micro-level data using ordered probability model shows that macroeconomic fundamentals explain a significant share of variation in the ratio of bonds to loans for private borrowers, but not for the sovereigns.

Currency Crises and Foreign Credit in Emerging Markets: Credit Crunch or Demand Effect?

Currency crises of the past decade highlighted the importance of balance-sheet effects of currency crises. In credit-constrained markets such effects may lead to further declines in credit. Controlling for a host of fundamentals, we find a systematic decline in foreign credit to emerging market private firms of about 25% in the first year following currency crises, which we define as large changes in real value of the currency. This decline is especially large in the first five months, lessens in the second year and disappears entirely by the third year. We identify the effects of currency crises on the demand and supply of credit and find that the decline in the supply of credit is persistent and contributes to about 8% decline in credit for the first two years, while the 35% decline in demand lasts only five months.

Foreign Direct Investment and the Incentives to Innovate and Imitate

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm-level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.

What are the Sources of Financing of the Chinese Firms

It appears to be common knowledge that external financing in China is mostly limited to state-owned firms and is hard to obtain for smaller private firms. In this paper we take a closer look at internal and external, formal and informal, financing sources of Chinese firms during the period of rapid economic reform in 1997-2006. To this end we analyze balance-sheet data from Chinese Industrial Surveys of Medium-sized and Large Firms for 2000-2006 and survey data from the Large-Scale Survey of Private Enterprises in China that was conducted in 1997, 2000, 2002, 2004, and 2006. The following stylized facts emerge from our analysis: (1) State-owned firms continue to enjoy significantly more generous external finances than other types of Chinese firms; (2) Chinese private firms have resorted to various ways to overcome financial constraints, including increasingly more mature informal financial markets, cost-saving through lower inventory and other working capital requirements, and greater reliance on retained earnings; (3) There are substantial variations in financial access among private firms: While the small private firms face more financial constraints, the more established large private firms seem to have access to finances that are more equal to their SOE counterparts; and, (4) There is some evidence that financial access of small private firms, especially to formal bank loans, has improved moderately in the past decade.

FDI Spillovers and Firm Ownership in China: Labor Markets and Backward Linkages

Using firm–level data, we find that the presence of foreign firms in China is positively associated with the performance of domestically owned private firms but is negatively associated with the performance of state–owned enterprises (SOEs). In particular, we find: (1) the presence of foreign direct investment (FDI) is associated with larger differences in the wages and the quality of skilled workers between SOEs and private firms; and, (2) FDI presence is positively associated with private firms’ sales to foreign firms and foreign consumers, but not with the sales of SOEs. We argue that these differences could be due to the fact that private firms have more flexible wage and personnel policies, which allows them to attract talent that facilitates positive FDI spillovers.