JournalTOCs

International Economics and Economic Policy
Journal Prestige (SJR): 0.244

Citation Impact (citeScore): 1
Number of Followers: 7

Hybrid journal (It can contain Open Access articles)
ISSN (Print) 1612-4812 - ISSN (Online) 1612-4804
Published by Springer-Verlag

[2468 journals]

Risk-taking channel of monetary policy and the role of ESG and political
instability: evidence from South Asia
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  Abstract: Purpose This study explores the impact of monetary policy on the risk-taking behavior of financial institutions in South Asia and examines how sustainability, social responsibility, and good governance concerns moderate this transmission channel’s effectiveness. Method We apply a two-step difference generalized methods of moments (diff-GMM) using quarterly bank-level data from South Asia to test the impact of monetary policy on risk-taking behavior. We use the real interest and monetary policy rates as proxies for the monetary policy stance. Political instability and environmental, social, and governance (ESG) scores are used to proxy good governance and ESG concerns. Findings We find evidence of the risk-taking channel of monetary policy in South Asian countries, supporting the search for yield hypothesis. Higher ESG scores inhibit credit risk-taking, while poor governance, proxied by higher political instability, exacerbates bank risk-taking. Improved ESG scores, political stability, better leverage ratios, and operational efficiency weaken the size of the risk-taking channel. Better capitalization and earning quality are found to be insignificant when moderating the channel. Significance Monetary policy research in South Asia remains underexplored, highlighting a gap in understanding regional financial dynamics. This study addresses this gap by examining the impact of monetary policy on the risk-taking behavior of financial institutions in South Asia. Furthermore, the rising awareness of ESG reporting over the past decade indicates a shift towards integrating sustainability into financial practices. By investigating how ESG concerns moderate the effectiveness of monetary policy transmission, this research provides valuable insights for policymakers aiming to balance economic growth with financial stability.
  PubDate: 2025-06-30
Economic uncertainty and renewable energy investment
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  Abstract: The energy transition is a crucial component of the transformation to a green economy, but financing this transition is a challenge for developing nations. Although renewable energy investments now exceed those in fossil fuels, these flows are highly uneven, leaving many developing countries at a disadvantage. Research on the reasons for this disparity remains limited. This paper investigates the impact of economic uncertainty on renewable energy investments using data from 93 countries that span 2000–2020, covering developed, emerging, and developing economies. The analysis reveals a consistently negative and statistically significant effect of economic uncertainty on renewable energy investments. This finding is robust across alternative measurements, model specifications, and estimation methods. Notably, this negative impact does not vary significantly across economies characterized by factors such as income, absorption capacity, and governance effectiveness. However, the effect is more pronounced during periods of low economic growth, limited financial absorption capacity, unfavorable financing conditions, and poor institutional quality, which exacerbate uncertainty and weaken responses to policy stimuli. The findings are underpinned by the interplay of Real Options Theory, Marginal Returns to Capital, and Financial Frictions, which collectively amplify or mitigate the effects of uncertainty on investments.
  PubDate: 2025-06-24
Negative interest rate policy and bank lending channel: evidence from the
Swedish experience
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  Abstract: This study investigates the effectiveness of negative interest rate policy (NIRP) in Sweden from 2010:01 to 2019:04, focusing on its impact on bank lending, market rates, and broader economic activity. The impacts of NIRP are isolated by incorporating a counterfactual scenario in which the policy rate remains at zero using a Factor-Augmented Vector Autoregression (FAVAR) model. The findings indicate that monetary policy continues to successfully transmit under negative rates, primarily through the lending and interest rate channels, while also improving economic activity and trade performance. The influence on inflation was, however, restricted, and we have not seen any substantial evidence of risk-taking behavior that is linked to portfolio rebalancing. The contribution of the paper is the application of a scenario-based approach and a data-rich empirical framework to assess NIRP in a macroeconomic environment.
  PubDate: 2025-06-18
Digital services exports and frontier technology readiness: cross-country
evidence from emerging and advanced economies
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  Abstract: In the past few decades, technological advancements in the digital economy have opened new avenues for cross-border trade. Despite the increasing relevance of digital trade, empirical research on its relationship with technology readiness remains limited. This study examines the relationship between technology readiness and digital services exports and investigates variations across income groups. Using a two-step system generalised method of moments (GMM) estimation on panel data from 83 countries between 2014 and 2021, the results show that information and communication technology (ICT) deployment, skills, and research and development (R&D) have a significant positive effect on digital services exports, while financial access is negatively associated overall. Notably, in high- and upper-middle-income countries, skills and financial access are more influential, whereas in low- and lower-middle-income countries, ICT and R&D exhibit a stronger positive relationship with digital services exports. These findings highlight the need for different specific policy strategies: while advanced economies might need to prioritise digital skill development and ease financial constraints, emerging economies might focus on expanding ICT infrastructure and supporting innovation through R&D incentives.
  PubDate: 2025-06-17
Global financial fragmentation under raised geopolitical risk
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  Abstract: Recent geopolitical tensions have intensified, disrupting global financial interconnectedness and increasing market fragmentation. This study explores the adverse effects of global financial fragmentation, driven by geopolitical risk, on banking systems and reducing international risk diversification. We use an autoregressive distributed lag (ARDL) model on panel data from 55 emerging markets and advanced economies from 1990 to 2023. Our findings indicate that rising geopolitical tensions exacerbate global financial fragmentation and increase banking vulnerabilities in the short term. However, banks with higher capital ratios and stronger provisions for non-performing loans show greater resilience to these risks. Geopolitical risk and global financial fragmentation significantly reduce international risk diversification in the long term, more severely impacting EMEs than AEs. The policy implications of our findings emphasize the need to enhance financial resilience, improve risk management, and ensure stable FDI flows.
  PubDate: 2025-06-09
The impact of cultural factors on international trade: an empirical
analysis
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  Abstract: This study examined the influence of cultural context and linguistic proximity on bilateral trade using a modified gravity model. The analysis incorporated trade data from 117 countries, encompassing 6,623 bilateral trading relationships. Bilateral trade was modeled as a function of cultural context, linguistic proximity, and other relevant economic and geographic factors. The results suggested that linguistic proximity does not appear to have a statistically significant effect on bilateral trade when evaluating total trade. However, the findings support the notion that cultural context distance plays a role in promoting trade. Specifically, sharing the same cultural context was associated with reduced bilateral trade, whereas greater cultural context distance between trading partners appeared to enhance trade.
  PubDate: 2025-06-09
Do business confidence and economic growth expectations react to
discretionary fiscal policy, fiscal opacity, and fiscal credibility'
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  Abstract: This paper investigates the effects of discretionary fiscal policy, fiscal opacity and fiscal credibility on business confidence and professional forecasters’ expectations. The study is the first to empirically address these relationships for a major emerging economy (Brazil). The results show that discretionary fiscal policy is harmful to business confidence, fiscal credibility improvements increase business confidence, and fiscal opacity can lead to a deterioration in business confidence. The findings also show that the government’s efforts to increase the primary surplus increase business confidence. The results, using economic growth expectations as dependent variables, were consistent with those found for business confidence.
  PubDate: 2025-05-30
Structural reforms and global value chains: a dynamic analysis of OECD
countries based on local projections
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  Abstract: This paper explores the dynamic effects of structural reforms on global value chain (GVC) positions at both national and sectoral levels. Employing local projections and augmented inverse probability weighting (AIPW) methods on a sample of 25 OECD countries from 1990 to 2015, it shows that both product and labor market reforms could improve GVC integration but with different patterns. While product market reforms generate long-lasting improvements, labor market reforms produce only short-term effects. A deeper analysis of GVC components finds that product market reforms significantly and sustainably increase upstreamness, with modest but positive effects on downstreamness. In contrast, labor market reforms reduce both upstreamness and downstreamness, though these impacts are largely temporary. Finally, sectoral analysis highlights heterogeneous impacts, with product market reforms strengthening upstreamness across most industries but having limited effects on downstreamness. These results offer important policy insights on the importance of coordinated reforms to provide a conducive environment for sustained GVC integration.
  PubDate: 2025-05-30
Geopolitical risks, monetary trilemma, and global stagflation
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  Abstract: The recent global geopolitical events, such as the COVID-19 pandemic and the Russia-Ukraine conflict, have renewed concerns about stagflation. This study examines the impact of political and social shocks on economic growth and stagflation using annual data from 1990 to 2021 for 128 countries. Our findings indicate that significant events like the September 11 attacks, the US-China trade war, and the COVID-19 pandemic have led to a decrease in GDP growth and exacerbation of stagflation. We also explore the moderating effects of monetary trilemma in alleviating or worsening the issues of stagflation created by geopolitical risks. Financial openness correlates positively with stagflation during the US-China trade war and COVID-19 periods, pointing to its potential risk in making economies vulnerable to external shocks. Instead, maintaining stable exchange rates can help curb inflation and consequently prevent and alleviate stagflation.
  PubDate: 2025-05-29
Bridging innovation and growth: the Belt and Road Initiative’s impact on
Chinese provincial economies
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  Abstract: This study examines the innovative aspects of Chinese provinces, focusing on the effects of the “Belt and Road” Initiative (BRI) on growth and innovation, influenced by factors such as research and development, patents, human capital and technology market transactions across provincial economies, using annual data from 2010 to 2023. The analysis utilizes advanced panel data estimators that include the Pooled Mean Group (PMG) and Augmented Mean Group (AMG) and produces robust outcomes in the presence of cross-sectional dependence and slope heterogeneity. Additionally, Dumitrescu and Hurlin panel causality is employed to ascertain the relationship among the variables. PMG estimations indicate a positive and significant correlation between innovation input and output index factors in both the long and short run. AMG estimations yield positive and significant results in the long term; however, the short-term estimations present mixed outcomes. Finally, this study recommends some policy implications with an emphasis on modernizing local industries and promoting new and light manufacturing sectors endorsing economic policies, such as tax breaks and financial incentives that stimulate technological innovation and bring transformation in economies. Funding for branding, international trade, technological advancements and invention should be given top priority by government. Moreover, public service platforms should foster cooperation and expansion.
  PubDate: 2025-05-28
The Quantitative Comparative Economics: indices of similarity to economic
systems
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  Abstract: This paper presents a novel quantitative approach for comparative economic studies, addressing limitations in current classification methods. Conventional approaches in comparative economics often rely on ad hoc and categorical classifications, leading to subjective judgments and disregarding the continuous nature of the spectrum of economic systems. These can result in subjectivity and significant information loss, particularly for countries with systems near categorical borders. To overcome these shortcomings, the present paper proposes distance-based indices for objective categorization, considering economic foundations and using hard data. Accordingly, the paper introduces institutional similarity indices—Capitalism Similarity Index (CapSI), Communism Similarity Index (ComSI), and Socialism Similarity Index (SocSI)—which reflect countries’ positions along the economic system continuum. These indices adhere to mathematical rigor and are grounded in the mathematical fields of real analysis, metric spaces, and distance functions. By classifying 135 countries and creating GIS maps, the practical applicability of the proposed approach is demonstrated. Results show a high explanatory power of the introduced indices, suggesting their beneficial usage in comparative economic studies. The paper advocates for their adoption due to their objectivity and ability to capture structural and institutional nuances without subjective judgments while also considering the continuous nature of the spectrum of economic systems.
  PubDate: 2025-05-27
Country size and exposure to international economic shocks: new evidence
from the Financial Crisis
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  Abstract: The international Financial Crisis of 2008/2009 is used as a case study, with a unique dataset of 210 countries to examine potential resilience factors and with particular focus on population size, along with other pre-crisis determinants. The cross-section regressions suggest that smaller country size was associated with higher vulnerability (ceteris paribus), which is reflected in a larger initial impact magnitude of the Financial Crisis shock. The smallness disadvantage began to unfold for countries with a population size of between 1 and 10 million, and was particularly severe for the very small states with considerably less than 1 million inhabitants. This result emphasizes that small state characteristics drive economic resilience and volatility beyond factors already identified in the literature. There is also significant evidence that the shock impact persistence was prolonged by smaller country size. Thus, the disadvantage of smallness in terms of higher exposure has dominated the advantages of small countries in terms of flexibility and adaptation speed. Moreover, smaller states were on average hit earlier.
  PubDate: 2025-05-23
The impact of economic uncertainty and institutional quality on bank
profitability: global evidence
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  Abstract: Unlike previous studies, our research investigates the diverse impacts of economic uncertainty and the role of institutional quality on bank profitability. Economic uncertainty is represented by multiple indicators, including the World Uncertainty Index, World Trade Policy Uncertainty Index, and Global Economic Policy Uncertainty Index. The dataset used in this study covers a global scope, consisting of 165 countries over the period from 2000 to 2021. We employ the two-step system Generalized Method of Moments (GMM) estimation to regress the proposed models. Our findings reveal robust evidence that all three indicators of economic uncertainty—namely the World Uncertainty Index, the World Trade Policy Uncertainty Index, and the Global Economic Policy Uncertainty Index—have significantly negative effects on bank profitability, measured by both net interest income and return on equity. Furthermore, although institutional quality tends to reduce bank profitability, it plays a crucial role in mitigating the adverse effects of economic uncertainty on bank profitability. In addition, our findings remain consistent and robust across subsample analyses of developed and developing countries. The study provides important implications for policymakers and bank managers, particularly in the current context of heightened economic uncertainty.
  PubDate: 2025-05-13
Financial restructuring, crisis, and productivity growth in bank branches:
evidence from a large commercial Spanish bank
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  Abstract: We analyse the impact of financial restructuring and economic crises on the evolution of productivity growth within bank branches. We apply the DEA-Malmquist framework for this analysis, utilizing both production and profit approaches. The study is based on data derived from the annual balance sheets of a major Spanish commercial bank for 2011–2014, encompassing the bailout of the Spanish banking system and the second economic downturn in Spain. The key findings are as follows: Firstly, despite severe adjustments and challenging economic conditions, branch productivity exhibited growth across the entire sample period. Secondly, productivity changes were predominantly driven by technological advancements rather than efficiency improvements, underscoring the bank’s notable role in fostering innovation during this time. Thirdly, a decline in the rate of productivity growth and its components was observed, along with an increased number of branches reporting negative changes, particularly among non-super-efficient branches.
  PubDate: 2025-05-06
Exchange rates and investment: comparing the effects of export intensity
and import competition
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  Abstract: This study examines the impact of changes in industry-specific effective real exchange rates (IERER) on industry-level investment. We explore how variations in export intensity and import competition affect the long-run relationship between exchange rates and investment by employing sample information from 12 manufacturing industries across five European countries from 2001 to 2019. Our findings reveal significant impacts from export intensity: In industries with low export-to-output ratios, an IERER depreciation is associated with a decline in investment. Among export intensive industries, however, we find no significant effect from IERER depreciation, indicating that industries that are heavily engaged in exporting activities do not reduce their investment when they gain greater price competitiveness. We further find that variations in import competition do not significantly alter the influence of exchange rate fluctuations on investment decisions.
  PubDate: 2025-05-01
Regional institutions, political volatility and their impact on
productivity: a Latin American perspective
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  Abstract: Studies on economic integration in Latin America indicate that countries within the region encounter significant challenges in sustaining long-term growth and exhibit a marked lack of convergence with developed economies. A critical factor in this context is the quality of institutions, particularly the stability of governmental policies. This study examines the convergence of total factor productivity across 16 Latin American countries from 1980 to 2019, evaluating the impact of public policy volatility, particularly in relation to regional integration agreements. We employ econometric panel data models with corrected standard errors to ensure a robust analysis. The results indicate that high volatility is associated with greater divergence in productivity, underscoring the importance of political stability and institutional quality in promoting more balanced economic development in the region.
  PubDate: 2025-04-29
Austerity and asymmetries in the fiscal policies of the Eurozone: the case
of Southern Europe
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  Abstract: In this paper, we analyse the effects of several austerity policies implemented by the Southern European countries, i.e., Portugal, Italy, Greece, and Spain on the economies of the European Union and the rest of the world. In particular, we simulate the reduction in one point in the government deficit-to-GDP ratio in each of these countries, through several alternative policies, both from the spending side and the revenue side. The empirical methodology is based on a computable general equilibrium model, which incorporates the backward sectoral linkages and inter-country flows generated by fiscal consolidations. Our results show that these austerity policies were generally more painful, in terms of a fall in the levels of activity and a worsening in income distribution for labour, in the scenarios of tax increases rather than in those based on spending cuts. The effects on the rest of the European Union and the rest of the world were however mostly negligible.
  PubDate: 2025-04-23
Long live globalization: geopolitical shocks and international trade
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  Abstract: Are we really witnessing the death of globalization caused by geopolitical fragmentation' Using an extensive dataset, I develop an augmented gravity model of bilateral trade flows among 59,049 country-pairs over the period 1948–2021 and find that the much-debated geopolitical distance between countries has contradictory and statistically insignificant effects on international trade, depending on the level of economic development. Moreover, the economic magnitude of this effect is not as important as income or geographic distance, and it diminishes significantly when extreme outliers are removed from the sample. The real threats confronting the world economy are therefore predatory mercantilism and coercive protectionism with an aggressive use of tariffs that could destabilize economic development and cause greater inequality.
  PubDate: 2025-04-23
The effect of government spending on the debt-to-GDP ratio in the medium
term
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  Abstract: Using the dynamic model proposed by Leão and Leão (2024), this paper argues that, in an economy situated below full employment, an increase in government spending may reduce the debt-to-GDP ratio in the medium term. The reason is the following one. Through the so-called “paradox of investment”, a fiscal stimulus triggers a multi-year process of mutually fed increases in the rate of utilization of productive capacity and in private investment. Specifically, a fiscal stimulus increases output and utilization, and this leads firms to raise investment. But this increase in investment generates less productive capacity than demand and, therefore, provokes a paradoxical and further rise in utilization. This in turn leads to even more investment, and so on—the result being a sustained path of output growth. This will in turn have an impact on public finances. After having deteriorated initially as a result of the fiscal stimulus, the budget balance and the path of public debt will start to improve, and this, coupled with the sustained output growth, may end up reducing the debt-to-GDP ratio in the medium term. The theoretical argument just presented is then used to elucidate the results of the US New Deal of the 1930 s, of the European fiscal consolidation of the early 2010 s, and of the US fiscal stimulus of 2009–2010.
  PubDate: 2025-04-08
Adopting the euro does not work without political integration
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  Abstract: A new empirical exercise for dealing the effects of monetary unions on welfare is developed. The estimates of the effects of adopting the euro using a sample of 216 countries for the 1960–2021 period apply a novel multiple-period differences-in-differences approach. They show a significant and robust negative effect on economic growth of adopting the euro, mainly for the countries with the highest income inequality.
  PubDate: 2025-04-02

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