How Islamic are Islamic Banks

How Islamic are Islamic Banks

by | Jul 1, 2018 | by James Wilcox, Financial Globalization, Grant, Research

by James Wilcox

More than a dozen countries have both sizable conventional banks and Islamic banks. Instead of paying fixed deposit interest rates, which are prohibited by sharia law, Islamic banks offer profit and loss sharing (PLS) accounts. Payments to PLS accounts should vary with banks’ earnings. To the extent that they do, PLS accounts may be more equity-like than deposits at conventional banks. However, widespread consensus holds that Islamic banks’ payments to depositors are nearly indistinguishable from the interest rates paid by conventional banks. We estimate how much Islamic banks pass through their PLS-related earnings to PLS-related accounts and how much their responses to various factors differ from those of conventional banks. We also analyze how much Islamic banks’ profit and loss sharing has been obscured by previous data difficulties and by their smoothing over time the payments to PLS accounts. The results may shed light on the prospects for PLS loans and deposits as a source of more-equity-like financing from banks for smaller businesses, which often obtain few conventional loans from banks.

 

Topics

Capital flows

Initiatives

Financial Globalization

A New Engel on the Gains from Trade: Theory and Evidence Within and Across Countries

A New Engel on the Gains from Trade: Theory and Evidence Within and Across Countries

by | Jul 1, 2018 | by Ben Faber; David Atkin; Thibault Fally & Marco Gonzalez-Navarro, Grant, International Trade & Development, Research

by Ben Faber, with David Atkin, Thibault Fally & Marco Gonzalez-Navarro
In this paper, we propose and implement a new approach that uses rich, but widely available, expenditure survey microdata to estimate a theory-consistent and exact metric of changes in income-group specific price indices and welfare.

 

Topics

Development

Initiatives

International Trade & Development

Brexit, the City of London, and the Prospects for Portfolio Investment

Brexit, the City of London, and the Prospects for Portfolio Investment

by | Jul 1, 2018 | by Barry Eichengreen, Financial Globalization, Grant, Research

by Barry Eichengreen, William Jungerman and Mingyang Liu

Although multiple studies have attempted to estimate the impact of Brexit on FDI flows into and out of the UK, no previous study appears to have undertaken a similar analysis of portfolio capital flows and financial intermediation services.  This project will take three approaches to addressing these questions.  The first approach will use data from the IMF’s Consolidated Portfolio Investment Survey to estimate the impact of EU membership on capital flows.  Using these data, it will be possible to estimate a gravity-theoretic model of total gross portfolio capital inflows and total gross portfolio capital outflows for each country pair, pooling cross-sections for different years and attempting to identify an EU membership effect.  A second approach will then replicate this analysis using bank-intermediated flows using the Bank for International Settlements’ Locational Banking Statistics.  The third approach will then analyze the determinants of international financial center status and ask how this is affected by the same variables (notably by EU membership, customs union membership, and participation in the euro area).  The financial consultancy Z/Yen Group provides annually a list of top international financial centers based on an extensive online questionnaire.  Its Global Financial Centres Index (GFCI) is an ordinal ranking of financial centers around the world (averaging some 70 in number).  Rank-ordered logit models will be used to analyze the determinants of financial center status, where the key explanatory variables will be financial links (assets and liabilities of the country in which the financial center is located, again from the CPIS) and trade data (from the IMF’s balance of payments statistics), where the effects of these variables will allowed to vary with EU membership.  These estimates will then be used to construct counterfactuals for various Brexit scenarios to answer the question of how London’s financial center status will be affected.

For a paper draft, see this.

Topics

Capital flows

Initiatives

Financial Globalization

The Origins of Financial Development: The African Slave Trade and Modern Finance

The Origins of Financial Development: The African Slave Trade and Modern Finance

by | Jul 1, 2018 | by Ross Levine, Financial Globalization, Grant, Research

by Ross Levine

This research will evaluate the impact of the 1400-1900 African slave trade on household and firm financing constraints today. The study of the historical determinants of finance is important both for understanding the evolution of the institutions that shape the operation of financial systems and for providing guidance to current policy analysts and policymakers about key barriers to the development of more efficient financial markets and institutions. The project will exploit cross-country and cross-ethnic group differences in the intensity with which people were enslaved and exported from Africa during the 1400-1900 period to identify the impact of the historic slave trade on modern financial systems. This work will provide evidence on whether the slave trade—which has had an enduring, deleterious effect on social cohesion—continues to harm the operation of credit institutions.

Topics

Capital flows

Initiatives

Financial Globalization

Dissecting Gravity: From Customs Forms to Country-Level Trade Flows

Dissecting Gravity: From Customs Forms to Country-Level Trade Flows

by | Jul 1, 2018 | by Dmitry Livdan; Vladimir Sokolov; & Amir Yadon, Grant, International Trade & Development, Research

by Dmitry Livdan, Vladimir Sokolov and Amir Yadon

For a draft of the paper, see here.

Using a novel data set for Russian exporters allowing for the exact firm-to-firm distances, this project investigates the micro-foundations of gravity by testing at all levels of trade flows: individual cargo, firm, and country. We find that distance does a poor job explaining variation in individual cargo values as most of its explanatory power is absorbed by the recipient fixed effects and transportation dummies. At the firm level the export value increases/decreases with distance with/without the recipient fixed effects in the gravity specification. In addition, the classic gravity holds at the country level in spite of Chaney (2016) gravity sufficiency conditions being violated for Russian exporters. To rationalize these findings, we propose that for gravity to hold at the country level, the firm-level level extensive trade margin — the number of shipments — has to decline faster than the intensive trade margin — value-per-shipment — increases with distance. We develop a network based model of firm-to-firm trade to support our empirical evidence.

 

Topics

Development

Initiatives

International Trade & Development

Estimating Sector-Level Economies of Scale

Estimating Sector-Level Economies of Scale

by | Jul 1, 2018 | by Andres Rodriguez-Clare; Dominick Bartelme; Arnaud Costinot; & Dave Donaldson, Grant, International Trade & Development, Research

By Andres Rodriguez-Clare, UC Berkeley, Dominick  Bartelme, University of Michigan,  Arnaud Costinot, MIT, and Dave Donaldson, Stanford University

                 For a preliminary version of the paper, see here.

Sector-level economies of scale matter for economic development, industrial policy, and the consequences of trade liberalization. As of yet, however, the literature has not converged on a definitive answer regarding their existence and even less an estimate of their magnitude and variation across sectors. For example, most quantitative trade papers explicitly or implicitly assume that the sector-level scale elasticity is either zero or equal to the inverse of the trade elasticity. This paper develops a two-step strategy for estimating sector-level scale elasticities using bilateral trade data. First, a revealed preference approach is used to compute the productivity of each sector-country cell from observed bilateral trade flows. Second, a market access approach is used to construct demand shifters that vary across sector-country cells. The scale elasticity (a supply side parameter) is recovered from a regression of productivity on sector size using the constructed demand shifters as instrumental variables. Prelim- inary results suggest that economies of scale are positive but not as large as those implicitly imposed in many leading quantitative trade models.

Photo source: blogs.terrapinn.com

Topics

Development

Initiatives

International Trade & Development