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1 – 10 of 259The purposes of this paper are to discuss the short-term economic impact of the jurisdictions that have been identified as deficient countries in terms of the regime of anti-money…
Abstract
Purpose
The purposes of this paper are to discuss the short-term economic impact of the jurisdictions that have been identified as deficient countries in terms of the regime of anti-money laundering and countering the financing of terrorism and to identify the probable reasons for the poor results of mutual evaluation reports of the deficient countries.
Design/methodology/approach
This study uses a case study approach to discuss the short-term economic impact of the countries that are under the International Co-operation Review Group (ICRG) process due to poor results of mutual evaluation reports. The sample of countries for the study was selected based on the Financial Action Task Force (FATF) listing as of November 30, 2019. The objectives of the study are expected to be achieved by discussing the issues of these jurisdictions based on publicly available information. However, this study will not consider the long-term economic impact on the countries due to the observed short-term nature of the ICRG process.
Findings
This analysis reveals that the ICRG process affects countries in two different perspectives. First, there are implications on the financial system of a deficient country as a result of identifying it as a high-risk country. Second, there are some other forms of economic implications due to the rigorous ICRG process. The downgrading of the sovereign rating by international and credit rating agencies is one of such implications that result in adding a risk premium to the country. This results in increased transaction costs and borrowing costs of deficient countries. Besides, it appears that the ICRG process impacts the capital and currency markets of deficient countries as a result of enhanced due diligence process on fund transfers and limitations in corresponding banking relationships. However, despite these difficulties, some countries have been identified more than once for the ICRG process. Therefore, such countries have to take measures to strengthen the anti-money laundering and countering the financing of terrorism (AML/CFT) regime to avoid future listing. However, long-term sustainability of the countries that were removed from the FATF grey-listing is also questionable under the current FATF methodology of evaluating countries because of the level of effectiveness depends on the judgment of assessors on the risk and context of countries rather the technical compliance.
Research limitations/implications
This study was limited to the countries that were in the grey list as of November 30, 2019. The countries exited from the list have not been considered for the study.
Originality/value
This paper is an original work done by the author by discussing the issues of the ICRG process in respect of deficient countries in view of strengthening the AML/CFT regimes of such countries.
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Cristian Barra and Pasquale Marcello Falcone
The paper aims at addressing the following research questions: does institutional quality improve countries' environmental efficiency? And which pillars of institutional quality…
Abstract
Purpose
The paper aims at addressing the following research questions: does institutional quality improve countries' environmental efficiency? And which pillars of institutional quality improve countries' environmental efficiency?
Design/methodology/approach
By specifying a directional distance function in the context of stochastic frontier method where GHG emissions are considered as the bad output and the GDP is referred as the desirable one, the work computes the environmental efficiency into the appraisal of a production function for the European countries over three decades.
Findings
According to the countries' performance, the findings confirm that high and upper middle-income countries have higher environmental efficiency compared to low middle-income countries. In this environmental context, the role of institutional quality turns out to be really important in improving the environmental efficiency for high income countries.
Originality/value
This article attempts to analyze the role of different dimensions of institutional quality in different European countries' performance – in terms of mitigating GHGs (undesirable output) – while trying to raise their economic performance through their GDP (desirable output).
Highlights
The paper aims at addressing the following research question: does institutional quality improve countries' environmental efficiency?
We adopt a directional distance function in the context of stochastic frontier method, considering 40 European economies over a 30-year time interval.
The findings confirm that high and upper middle-income countries have higher environmental efficiency compared to low middle-income countries.
The role of institutional quality turns out to be really important in improving the environmental efficiency for high income countries, while the performance decreases for the low middle-income countries.
The paper aims at addressing the following research question: does institutional quality improve countries' environmental efficiency?
We adopt a directional distance function in the context of stochastic frontier method, considering 40 European economies over a 30-year time interval.
The findings confirm that high and upper middle-income countries have higher environmental efficiency compared to low middle-income countries.
The role of institutional quality turns out to be really important in improving the environmental efficiency for high income countries, while the performance decreases for the low middle-income countries.
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Mohamed Ali Trabelsi and Hédi Trabelsi
The purpose of this study is to examine the impact of corruption on economic growth by testing the hypothesis that the relationship between these two variables is nonlinear and by…
Abstract
Purpose
The purpose of this study is to examine the impact of corruption on economic growth by testing the hypothesis that the relationship between these two variables is nonlinear and by assessing the veracity of the assumption that corruption is always detrimental to economic growth. Several cross-country studies have treated this question but the findings are not universally robust.
Design/methodology/approach
In this paper, a panel data analysis has been used to examine 88 countries over the 1984-2011 period. A cross-sectional framework is used in which growth rate and the International Country Risk Guide (ICRG) index are observed only once for each country.
Findings
The findings indicate that beyond an optimal threshold, both high and low corruption levels can decrease economic growth. Under this optimal threshold, a moderate level of corruption, defined by the point of reversal of the curve of the marginal corruption effect on growth, could have advantages for economic growth.
Originality/value
This paper shows that the threshold would be a corruption level between 2.5 and 3, which represents the “acceptable corruption level”. This result is conforming to one of the ten principles of economics: “Rational people think at the marginal change”. This threshold represents the point where the marginal benefits of corruption are equal to marginal costs incurred by corruption. Conversely, lack of corruption may be a mechanism that slows down growth.
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Arielle Beyaert, José García-Solanes and Laura Lopez-Gomez
This paper aims to apply regression-tree analysis to capture the nonlinear effects of corruption on economic growth. Using data of 103 countries for the period 1996–2017, the…
Abstract
Purpose
This paper aims to apply regression-tree analysis to capture the nonlinear effects of corruption on economic growth. Using data of 103 countries for the period 1996–2017, the authors endogenously detect two distinct areas in corruption quality in which the members share the same model of economic growth.
Design/methodology/approach
The authors apply regression tree analysis to capture the nonlinearity of the influences. This methodology allows us to split endogenously the whole sample of countries and characterize the different ways through which corruption impacts economic growth in each group of countries.
Findings
The traditional determinants of economic growth have different impacts on countries depending on their level of corruption, which, in turn, confirms the parameter heterogeneity of the Solow model found in other strands of the literature.
Originality/value
The authors apply a new approach to a worldwide sample obtaining novel results.
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Bechir Ben Ghozzi and Hasna Chaibi
The authors provide a comparative analysis between emerging and developed financial markets in terms of the effects of political risks on stock market returns and volatility. The…
Abstract
Purpose
The authors provide a comparative analysis between emerging and developed financial markets in terms of the effects of political risks on stock market returns and volatility. The authors also examine whether this impact depends on the nature of political risks. Therefore, this study aims to detect which financial markets are the most profitable and the riskiest in terms of political risks.
Design/methodology/approach
The authors investigate the impact of political risks on the excess stock market return and its conditional volatility using the generalized ARCH model for a sample of 46 developed and emerging markets over a period ranging from 1995 to 2019. In order to test how the nature of political risks affects equity excess returns and volatility differently in different markets, the authors employ (1) a composite political risk score, (2) the four subgroups of political risks as defined by Bekaert et al. (2005, 2014) and (3) the individual dimensions of political risks.
Findings
The findings indicate that the composite political risk is priced into both stock markets. The effect of political risks is positive for excess returns and negative for volatility. The authors show that the political risk leads to more volatility in developed markets. Nevertheless, the effect of individual components varies according to the market category.
Practical implications
The authors provide a framework for predicting market returns and volatility using changes in the political risk of the country. The findings help investors make investment decisions based on the political decisions of governments. In other words, investors should consider political uncertainty when determining their expected earnings.
Originality/value
The authors engage monthly panel data methodology in terms of the political risk stock market relationship. In addition, the authors consider recent and very long data covering the period 1995–2019. Furthermore, this study combines three various political risk measures, and both equity returns and volatility.
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The purpose of this paper is to test the determinants of foreign direct investment (FDI) into countries of the Middle East North Africa (MENA) region.
Abstract
Purpose
The purpose of this paper is to test the determinants of foreign direct investment (FDI) into countries of the Middle East North Africa (MENA) region.
Design/methodology/approach
The research is based on an econometric model that includes factors that potentially drive FDI flows into countries in the MENA region.
Findings
Energy endowments have a negative impact on FDI flows into a country. GDP per capita, openness to trade and oil prices have a positive impact on FDI inflows, while aggregate measures of environmental risk are not a differentiating factor among countries in the region.
Originality/value
This paper demonstrates that the “Dutch disease” concept applies to FDI in resource rich countries in the MENA region. Countries with large amounts of oil and gas have are more likely to have policies and institutions that inhibit FDI. Countries that value the spillover effects from FDI need to reconsider legislative and institutional hurdles that remain.
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Governments may finance its expenditures through multiple resources; however, seigniorage and borrowing are commonly used. The authors think that in the presence of corruption…
Abstract
Purpose
Governments may finance its expenditures through multiple resources; however, seigniorage and borrowing are commonly used. The authors think that in the presence of corruption, the use of public finance may result in inflationary effect that leads to higher level of inflation, which in turn affects the whole economy.
Design/methodology/approach
This paper investigates if the variation in corruption levels jointly with public finance means, seigniorage and borrowing, accounts for the variation in the level of inflation. This paper uses panel data of 72 countries through the period 1995-2011.
Findings
The author find that corruption jointly with public finance means, seigniorage and borrowing, increase the level of inflation. This finding can address the misuse of these public finance means where corruption is prevalent.
Originality/value
This paper captures the joint effect of corruption with two different means of public finance, seigniorage and borrowing, on the level of inflation within 72 countries through 1995-2011.
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Gour Gobinda Goswami and Samai Haider
In today's increasingly globalized world, foreign direct investment (FDI) is a hotbed for discussion. Numerous studies have been undertaken regarding FDI, its determinants and…
Abstract
Purpose
In today's increasingly globalized world, foreign direct investment (FDI) is a hotbed for discussion. Numerous studies have been undertaken regarding FDI, its determinants and benefits, but very few works provide importance to the effect of political risk on the inflow of FDI. Some papers introduce institutional or governance issues in determining FDI inflow, but a comprehensive framework in this respect is non-existent. With this end in view, the authors take 146 countries worldwide over a period of 1984-2009 and then classify countries as OECD or non-OECD members to see whether there is any difference in the nature of the effect. The study keeps other possible determinants of FDI – market size, growth rate of real GDP, trade openness, infrastructural facilities as control variables while considering the effect of underlying political risk factors in deterring the FDI.
Design/methodology/approach
This paper looks at the effect of political risk on FDI by using a systematic approach of factor analysis, in reducing the number of variables into their underlying factors and then generating factor scores. Then it uses a panel regression approach combined with factor analysis to examine which particular aspect of political risk contributes more towards deterring FDI inflow.
Findings
The empirical results of this study refute the conventional notion that government failure is the primary contributing factor for poor FDI inflow. Rather, cultural conflict and the attitude of the partner country towards the host country are found to be mostly responsible for deterring FDI inflow. The result holds significantly even after controlling for traditional determinants regardless of whether it is an OECD member country or not.
Practical implications
It is not just governance failure but the cultural factors and development partners' attitude about the country which mostly determines FDI inflow.
Originality/value
This is the first paper which combines the factor analysis in a panel regression framework to examine the impact of political risk on FDI inflow.
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