Research - Els Opuscles del CREi

How important are capital markets imperfections in determining firm decisions and aggregate fluctuations?

Andrea Caggese (UPF)

This Opuscle will summarize recent research on the relation between financing frictions and firm dynamics. It argues that such frictions not only affect firm decisions about investment, employment, and internationalization, but also have an impact on innovation, competition and industry level productivity.

Because financing frictions limit the ability of firms to diversify their idiosyncratic risk, they may prevent the adoption of risky and innovative projects. Moreover, they increase the probability that new firms face liquidity problems and bankruptcy risk in the initial phases of their lives, and thus deter their entry ex ante, damaging competition and determining an inefficient allocation of resources across productive units.

After providing empirical evidence on firm level data about these frictions, this Opuscle will argue about their importance for aggregate fluctuations, focusing on the recent financial crisis and the 2008-2010 recession.

Globalization, Technology and Inequality

Gino Gancia (CREI)

What are the effects of international integration on inequality, both between and within countries? The growing evidence that technology is the main determinant of wage and income differences may seem to imply that the forces of globalization only play a secondary role. Such a conclusion is however premature, in that it neglects the effect of international integration on technology itself. This opuscle summarizes recent and ongoing research studying how two important aspects of globalization, trade in goods and offshoring of production, shape the distribution of income when technological progress is endogenous. It discusses the theoretical foundations and the empirical support for various mechanisms through which international integration may change the incentive to develop and adopt new technologies and how this affects wages and the return to skill around the world.

Corporate Social Responsibility and the Welfare of Society. How to Promote Social Responsible Business Strategies
Juan José Ganuza (UPF)

Traditionally, market failures have been addressed using formal regulation. For instance, firms that produce goods that generating environmental externalities have been subject to pollution taxes, quotas and standards. Recently, however, the rise of corporate social responsibility (CSR) have changed the way economics regards the control of externalities. Social responsible firms voluntarily may go beyond the regulatory requirements by choosing more expensive production technologies that reduce externalities. These CSR actions can potentially have a huge impact on the welfare of society. The 122 BIGGEST multinationals are responsible FOR: 80% of CO2 emissions, 70% of international trade, and 90 % of patents. The goal of this paper is twofold: first to understand the logic and the incentives behind CSR actions; second, to use this analysis to propose public policies in order to promote CSR.

Fiscal policy in the EMU
Paraskevi Pappa (UAB)

Fiscal and monetary policy are the basic economic tools to smooth out business cycles. The creation of a monetary union induces an asymmetry in the delegation of policies between national and supranational authorities. Monetary policy is centralized reacting to union aggregates, while national fiscal policies remain independent and government expenditure and taxation gain significance for the implementation of national objectives. The use of fiscal policy as a stabilization tool in a monetary union poses several questions: Can regional fiscal policy affect domestic macroeconomic conditions and how? Are fiscal constraints desirable and what are their welfare consequences? Are country-members bound by fiscal constraints able to offset the effects of shocks to regional variables? Are there alternative arrangements to fiscal constraints that are welfare improving? All these questions arise naturally in the EMU and the current project will try to address them.

The Effectiveness of Foreign Aid: Measurement and Determinants
José García-Montalvo and Marta Reynal-Querol (Universitat Pompeu Fabra)

International donors have provided more than 2.4 trillions of dollars in the form of foreign aid from 1960 to 2004. In many African countries the size of the Official Development Assistance (ODA) over GDP has been over 10% during that period. Despite this large amount of financial aid, the economic performance of the recipient countries has been disappointing. In this project we present an analysis of the effectiveness of foreign aid and its determinants. We consider the measurement of the effectiveness of foreign aid from the macroeconomic perspective, but we also present the new microeconomic evidence on the effect of specific projects. Finally, we discuss several theoretical sources of ineffectiveness: corruption, political economy considerations and donor's fragmentation.