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Università degli Studi di Torino

Università degli Studi di Torino. Whence Policy? Government Policies, Finance, and Economic Integration. Giuseppe Bertola ; Anna Lo Prete Università di Torino and CEPR; Università di Torino. TRENDS. 1980s – early 2000s :. MORE. Economic integration Finance Government policies.

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Università degli Studi di Torino

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  1. Università degli Studi di Torino Whence Policy? Government Policies, Finance, and Economic Integration • Giuseppe Bertola ; Anna Lo Prete • Università di Torino and CEPR; Università di Torino

  2. TRENDS 1980s – early 2000s : MORE Economic integration Finance Government policies MORE LESS …aftermath of 2008-09 crisis ? Panel OECD, 1980-2007, 5-year averages of standard country-level data:

  3. FINANCE and OPENNESS Financial Development  Openness ? (Rajan Zingales,2003) (Do Levchenko,2007) (Beck,2002) Financial Development  Financial Structure ? (TresselDetragiache, 2008)

  4. GOVERNMENT POLICIES and OPENNESS Openness  Government Size ? (Rodrik,1998) (Rodrik,1997) (Sinn,2003) (Bertola Lo Prete,2008) Openness  Social Policy ? (Agell, 2002)

  5. FINANCE and GOVERNMENT POLICIES Financial Development  Government Size ? Substitution (Bertola Koeniger, 2007) Financial Development  Social Policy ? Substitution/ complement?

  6. t A SIMPLE MODEL Twoperiods/contingencies: perfectfinancialmarkets? full smoothing: financialtransactionunitcostμ? Constraint: Max log utility:

  7. t Financial market yields welfare Can beimprovedby (costly) redistributionτ: max Government redistribution: less needed if smaller μ, more costly iflargerλ (deadweight loss).

  8. t yields welfare Decreasing in λ, and also in μ as long as positive finance, i.e. Ifloweringλ and μ ispossiblebutcostly (lower output ifclose the economy, more instabilityifspur finance?) do it, depending on shapeofcosts and benefits.

  9. THEORETICAL MECHANISMS Openness, larger mean of market incomes perhapslargerdispersion less effective national government policies: larger deadweightlosses • Financial market liberalization: • smaller transactioncosts • More private finance • Lessgovernment

  10. Whatdrivesrelatedchanges? Financial market development’s policy roots: • Financial structure • Openness • Government size • Social policy Country specific choices, Shapedby exogenous conditions

  11. WHENCE POLICIES? internationaltradeopportunities differacrosscountries/overtime: Countrycharacteristics… …globaltrends NaturalOpenness (i) Global Trade (t) LegalOrigin (l) Globalization “Globalization”(it) bylegalorigin (l)

  12. GLOBALIZATION and OPENNESS byLegalOrigin Potentiallyusefulinstruments

  13. GLOBALIZATION and FINANCIAL STRUCTURE byLegalOrigin Potentiallyusefulinstruments: correlatedwithpolicies,

  14. GLOBALIZATION and GOVERNMENT SIZE byLegalOrigin Potentiallyusefulinstruments differentlycorrelatedwithdifferentpolicies,

  15. GLOBALIZATION and SOCIAL POLICY byLegalOrigin Potentiallyusefulinstruments alongwithmaineffects (can’t show).

  16. Potentiallyusefulinstruments. Financial Development, Determinantsofpolicies: LegalOrigin (l) Globalization (it) Global Trade (t) NaturalOpenness(i) Globalization*LegalOrigin (lit) Not the mostimportant! but: exogenous.

  17. Table 3. OLS regressions withcountrydummies insignificant

  18. Table 4. IV regressions Similarto OLS butlarger and statisticallydifferent

  19. Table A.1. ROBUSTNESS

  20. Structural policy determinantsof Financial Development: Indirecteffectsthroughotherpolicies. Negative (small),

  21. Structuralestimates, Whatifaninstrumentchanges? 10 p.p. declineof Global Trade(…aftercrisis?)

  22. Causes and effectsofpolicies • Weuseexogenous “Globalization” • toidentifyrootsof Financial Development • in policies. • Can assessimplicationsofanypossiblechange in policy for Financial Development • …instability, fragility… • Future work: welfare (growth, distribution, …)

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