We study linkages between financial development, international trade, and long-run growth using data since 1880 for seventeen now-developed "Atlantic" economies and a set of cross-country and dynamic panel data models. We find that finance and trade reinforced each other before 1930, but that...

We join the new trade theory with a model of choice between bank and bond financing to show the differential effects of financial policy on the distribution of firm size, welfare, aggregate output, gains from trade, and the real exchange rate in a small open economy. Increasing bank efficiency...

The existence of a natural resource curse has been a longstanding theme in the economic literature and in policy discussions. We propose an alternative mechanism and study its policy implications. The mechanism is based on the interaction between two building blocks: specialization in...

This paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis. We find that automatic stabilizers absorb 38 per cent of a proportional income shock in the EU, compared to 32 per cent in the...

It is often argued that tax competition may lead to a "race to the bottom". Such a race may hold indeed in the case of the pure case of factor mobility (such as capital mobility). However, in this paper we emphasize the unique feature of labor migration, that may nullify the "race to the bottom"...

Bulgaria signed the Europe Association Agreement (EAA) in 1995 and the European Union accession treaty in 2005. Accession had the effect of increasing FDI in Bulgaria. We analyze World Bank BEEPS firm level data for 2007 to better understand characteristics and performance of foreign firms in...

This paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all,...

Three large current account imbalances -- one deficit (the United States) and two surpluses (Japan and the Euro area) -- are subjected to a minimalist structural interpretation. Though simple, this interpretation enables us to assess how much of each of the imbalances require a real exchange...

The accession countries to the euro area are increasingly binding their economic activity, external and internal, to the euro area countries. One aspect of this phenomenon concerns the currency invoicing of international trade transactions, where accession countries have reduced their use of the...

We develop an estimator for latent factors in a large-dimensional panel of financial data that can explain expected excess returns. Statistical factor analysis based on Principal Component Analysis (PCA) has problems identifying factors with a small variance that are important for asset pricing....