• Selected
• Entire List

Abstract:
SUBJECT AREAS: valuation, investment analysis, portfolio management, country analysis, emerging markets, development economics.

This paper gives an overview of research and practice issues in the valuation of assets in emerging markets. It introduces a special edition in Emerging Markets Review devoted to the topic. This volume emerged from a conference sponsored by The Batten Institute at the Darden Graduate Business School of University of Virginia, Association for Investment Management and Research (AIMR), and Emerging Markets Review. The analytic challenges outlined in this paper and special edition are immensely interesting to practitioners and scholars for what they reveal about emerging and developed markets. The colloquium surveyed business and research practices, stimulated critical reflection, and highlighted questions for future research.

Abstract:
SUBJECT AREAS: valuation, investment analysis, portfolio management, country analysis, emerging markets, development economics.

This collection of two CD-ROMs presents interviews with leading scholars and practitioners on the subject of valuing assets in emerging markets. Featured interviews include, Michael A. Duffy, Ph.D., CFA, Managing Director, Emerging Markets Management, Vihang Errunza, Bank of Montreal Chair in Finance and Baking, Faculty of Management, McGill University, Marc Faber, Ph.D., Managing Director, Marc Faber Limited, Kristin J. Forbes, Mitsubishi Associate Professor of International Management, Sloan School of Management, and former deputy assistant secretary for the US Department of the Treasury , Campbell R. Harvey, J. Paul Sticht Professor of International Business, Fuqua School of Business, Duke University, George R. Hoguet, CFA, Head, Active Emerging Markets, Global Active Equity, State Street Global Advisors, Mark Mobius, Ph.D., Managing Director, Templeton Asset Management, Mehran Nakjavani, Executive Director and Co-Head of Emerging Markets, UBS Global Asset Management, Marc Zenner, Ph.D., CFA, Salomon Smith Barney/Citigroup). The CDs also contain pdf files of papers and presentations given at the conference, "Valuation in Emerging Markets," at the Batten Institute of the Darden Graduate Business School, University of Virginia, on May 28-30, 2002. The downloadable document gives a detailed outline of the interviews and papers contained on the CD-ROM.

These CD-ROMs serve at least three objectives:

- Provide a learning resource on valuation in emerging markets usable in educational settings such as BBA, MBA, and doctoral courses.

- Support executive and professional training for self-learners and distance learners.

- Rapidly disseminate state-of-the-art ideas to scholarly researchers and professionals focusing on valuation and emerging markets.

The Batten Institute will hold an annual conference on investing in emerging markets. The next conference will be held in Charlottesville, Virginia from the evening of May 28 to noon, May 30, 2003. The focus of this next conference will be corporate governance and organization as they affect the pricing of equities in emerging markets. Michael Jensen will be the keynote speaker at this next conference. Program information and registration details may be found at the Batten Institute website.

Abstract:
Today, roughly 30 countries are classified as "emerging markets" by the World Bank. Investor interest in these markets has grown substantially over time. During the first half of the 1990s, privatization and economic liberalization that took place in emerging-market countries substantially enlarged the set of emerging-market securities available to foreign investors and thereby provided a strong and decisive impulse for portfolio investments in emerging markets. This technical note describes some key characteristics of emerging capital markets and compares them with those of developed and less-developed, or frontier, markets. See also two other related notes on emerging markets (UVA-F-1454 and UVA-F-1455).

emerging markets

Abstract:
The special characteristics of the business environment in emerging markets, as described in the two other related notes on emerging markets (UVA-F-1453 and UVA-F-1454), affect the validity and applicability of many of the typical valuation assumptions that are considered applicable in the context of developed or emerged markets. As a result, appropriate adjustments in methodology are required when the analyst values firms or investment projects in emerging markets. This note first considers the general approaches that can be used for valuing a firm in a foreign market, whether it is an emerged or an emerging one. It then shifts focus to a detailed examination of the steps that investors should follow to complete the valuation of emerging-market firms.

Foreign market, emerging economies, emerging markets, valuation

Abstract:
Using a comprehensive country-level panel data set covering the period from 1990 to 2001, we investigate the impact of privatization and competition in the telecommunications sector around the world. Full privatization, which gave private owners control rights, contributed substantially to improving allocation of labor and capital, expanding service output and network penetration, and improving labor and total factor productivities. But partial privatization, which retained the state's control rights, showed no significant impact. The increase in competitive pressure contributed substantially to growth in the sector by raising both factor inputs and total factor productivity. We also found evidence of complementarity between privatization and competition in deepening network penetration and in restraining the rise of service pricing among privatized operators. Our results are robust to plausible alternative specifications.

Abstract:
Using a comprehensive country-level panel data set covering the period from 1981 to 1998, we examine the impact of privatization and competition in the telecommunications sector around the world. Privatization contributed substantially to labor shedding, output growth, network expansion, and improvements in labor productivity as well as total factor productivity. But how countries privatized is important. On the one hand, share-issue
privatization facilitated the development of the mobile market segment. Granting a newly privatized operator a period of exclusive market access, on the other hand, reduced the gains from privatization (owing to the output-restricting tendency associated with market power) but did not entirely negate them. The presence of competitive pressure in the market was associated with more employment, higher output, faster network expansion, and higher labor and total factor productivity. We find evidence of complementarity between privatization and competition in that competition increased the gains from privatization and vice versa. Our estimates show that half of the output growth between 1990 and 1998 was attributable to privatization and competition, after controlling for input growth. Competition appeared to have a larger impact on labor and total factor productivity than did privatization.

Privatization, Competition, Telecommunications, Reforms, Cross-country

Abstract:
Exploiting a unique data set containing transactions data from a panel of 769 Chinese stateowned enterprises between 1980 and 1989, this paper tests microeconomic implications of a pervasive form of corruption-official diversion of under-priced, in-plan goods to the market. Corruption has the predicted effects on resource allocation. Official under-pricing of in-plan goods, which lowers the marginal cost of diversion, increases the procurement of output into the plan for the purpose of diversion. Market competition introduced by allowing firms to sell directly to the market appears to reduce corruption and therefore lessen its distortions.

Abstract:
SUBJECT AREAS: valuation, investment analysis, portfolio management, country analysis, emerging markets, development economics.

This CD-ROM contains an edited interview with Mark Mobius, one of the best-known asset managers specializing in emerging markets equities. His early advocacy of emerging markets was instrumental in building investor awareness of this asset class. His books and speeches on emerging markets investing solidified his prominence as a leading spokesman for them.

The CD-ROM was created to serve educational purposes, such as classroom presentation, for student preparation and discussion, and to support self-learning and distance-learning goals of individuals. Objectives of the CD-ROM are to:

- Explore the role of emerging markets equities within the entire spectrum of investment classes.

- Consider the investing philosophy and approach of one of the leading emerging markets investors, Mark Mobius.

- Review the classic challenges facing investors in emerging markets and the possible remedies to those challenges.

Abstract:
We show that the many unusual features of China's financial markets are consistent with a government choosing regulations to maximize a standard type of social welfare function. Under certain conditions, these regulations are equivalent to imposing explicit taxes on business and interest income, yet should be much easier to enforce. The observed implicit tax rates are broadly in line with those observed in other countries. The theory also forecasts, however, that China will face increasing incentives over time to shift to explicit taxes.

Abstract:
We show that the many unusual features of China's financial markets are consistent with a government choosing regulations to maximize a standard type of social welfare function. Under certain conditions, these regulations are equivalent to imposing explicit taxes on business and interest income, yet should be much easier to enforce. The observed implicit tax rates are broadly inline with those observed in other countries. The theory also forecasts, however, that China will face increasing incentives over time to shift to explicit taxes.

Abstract:
To date, China has maintained a variety of restrictions on its financial markets. In addition to imposing capital controls and regulating interest rates, the government controls both the set of firms that can sell equity on the domestic or foreign stock markets, and the amount they can sell. China is unique in that foreigners pay much less than domestic investors for intrinsically identical shares. In this paper, we show that these characteristics of the Chinese financial market are consistent with a government choosing regulations to maximize a standard type of social welfare function. The observed policy of charging much higher prices for equity sold to domestic than to foreign investors can simply reflect the more inelastic demand for equity by domestic investors. Under certain conditions, these regulations are equivalent to income taxes on business and interest income. The pattern of tax rates is not qualitatively different from those commonly observed elsewhere, particularly in other countries with capital controls. Given the ease with which firms and individuals can evade income taxes, however, indirect taxation through restrictions on the financial market may serve as an effective alternative.

Abstract:
This case is written for a course on emerging markets finance. It can be used to teach valuation, merger and acquisition, and financial forecasting in an emerging market setting. Intrigued by growth opportunities in China, Jack Perkowski, a retired Wall Street investment banker, raised a venture capital fund with the backing of two large U.S. institutions in 1994 to found Asian Strategic Investment Company (ASIMCO) to explore private equity investment opportunities in China. After visiting more than 100 automotive component factories in China, Perkowski and his partners identified a few state-owned factories as potential equity joint venture partners. On top of the list was Nanyue Fuel Injection Pump Assembly Company, Ltd. (Nanyue), one of Chinas largest fuel injection pump manufacturers. After three months of negotiation, the two parties struck a deal under which ASIMCO and Nanyue would enter into a joint venture with ASIMCO holding the majority ownership. Should Perkowski and his partners give this joint venture agreement their final approval? And if so, how should Perkowski integrate and restructure its state-owned partner, Nanyue? More generally, should ASIMCO invest in Chinas automotive component industry?

emerging economies, financing, joint ventures, valuation

Abstract:
This case is written for a course on emerging markets finance. It can be used to teach valuation, merger and acquisition, and financial forecasting in an emerging market setting. Intrigued by growth opportunities in China, Jack Perkowski, a retired Wall Street investment banker, raised a venture capital fund with the backing of two large U.S. institutions in 1994 to found Asian Strategic Investment Company (ASIMCO) to explore private equity investment opportunities in China. After visiting more than 100 automotive component factories in China, Perkowski and his partners identified a few state-owned factories as potential equity joint venture partners. On top of the list was Nanyue Fuel Injection Pump Assembly Company, Ltd. (Nanyue), one of Chinas largest fuel injection pump manufacturers. After three months of negotiation, the two parties struck a deal under which ASIMCO and Nanyue would enter into a joint venture with ASIMCO holding the majority ownership. Should Perkowski and his partners give this joint venture agreement their final approval? And if so, how should Perkowski integrate and restructure its state-owned partner, Nanyue? More generally, should ASIMCO invest in Chinas automotive component industry?

emerging economies, financing, joint ventures, valuation

Abstract:
At the age of 26, Gavin Carter was facing a dilemma. He had just received the good news that he had been accepted into the MBA program at a prestigious university. But he had also been informed recently that he was going to be promoted within the equity-research department at his employer, a prominent investment bank. Although he was genuinely excited about the prospect of advancing his long-term prospects by going to business school, he needed to ascertain whether his investment in an MBA education would pay off.

investing, education, higher, valuation

Abstract:
The Great Leap Forward (GLF) disaster, characterized by a collapse of grain output, and the associated famine in China between 1959 and 1961, can be attributed to a systemic failure in central planning. Encouraged by unrealistic expectations for agricultural productivity gains from collectivization, the government switched to an accelerated and infeasible timetable for industrialization. Consequently, it diverted massive amounts of agricultural resources to industry and imposed excessive grain procurement burdens on peasants, leaving them with insufficient food to sustain labor productivity. Grain output fell sharply at the onset of these policies and started to recover gradually when the policies were reversed. Official data and our supplementary survery data support the theoretical prediction regarding the dynamic progression of the disaster. They also show that over 80 percent of the decline in grain output is attributable to the policies of excessive procurement and resource diversion.

Industrialization, Central Planning, Agricultural Crisis, Grain Procurement, Work Capacity, Resource Diversion, China

Abstract:
This technical note describes the degree to which emerging markets are integrated with the global market and the implications for portfolio strategy. See also two other related notes on emerging markets (UVA-F-1453 and UVA-F-1455).

emerging markets, portfolio management

Abstract:
The effectiveness of China's incremental industrial reform between 1980 and 1989 is investigated using a panel data set of 272 state enterprises. This paper applies a method that measures marginal products of factors and changes in total factor productivity (TFP) by comparing actual changes in output to actual changes in inputs and in the institutional environment. This paper finds that there were marked improvements in the marginal productivity of factors and in TFP between 1980 and 1989. More important, the evidence shows that over 87 percent of the TFP growth was attributable to improved incentives, intensified product market competition, and improved factor allocation.

Abstract:
In the summer of 2005, while the U.S. economy was growing comfortably despite a few longstanding concerns about deficits and outsourcing, storms were brewing off the Gulf Coast. On August 25, 2005, Hurricane Katrina blasted New Orleans, Louisiana, and the surrounding coastal areas on the Gulf of Mexico. Barely a month later, a second storm, Hurricane Rita, swept through the Gulf region, making landfall between Sabine Pass, Texas, and Johnson's Bayou, Louisiana. Speculation about their likely impact on world energy markets and the U.S. economy began as soon as the hurricanes were forecast to strike the oil-rich Gulf region. This case documents the paths of the storms and provides a summary of the Congressional Budget Office's estimates of the storms' impact on the U.S. economy. It is designed for use in teaching the concept of national income accounts. It can also be used to analyze the impact of exogenous shocks.

economic analysis

Abstract:
In the summer of 2005, while the U.S. economy was growing comfortably despite a few longstanding concerns about deficits and outsourcing, storms were brewing off the Gulf Coast. On August 25, 2005, Hurricane Katrina blasted New Orleans, Louisiana, and the surrounding coastal areas on the Gulf of Mexico. Barely a month later, a second storm, Hurricane Rita, swept through the Gulf region, making landfall between Sabine Pass, Texas, and Johnson's Bayou, Louisiana. Speculation about their likely impact on world energy markets and the U.S. economy began as soon as the hurricanes were forecast to strike the oil-rich Gulf region. This case documents the paths of the storms and provides a summary of the Congressional Budget Office's estimates of the storms' impact on the U.S. economy. It is designed for use in teaching the concept of national income accounts. It can also be used to analyze the impact of exogenous shocks.

economic analysis

Abstract:
In 2004, for the first time, foreigners owned more than half of privately held U.S. public debt, mostly in the form of marketable U.S. Treasury securities. In internal discussions at the U.S. Treasury Department, the increase in foreign appetite for Treasury securities represented the global investors' vote of confidence in the U.S. economy. Many in the Treasury believed that broad foreign ownership helped lower Treasury borrowing costs. But there was an increasing uneasiness among many in Washington's power circle about U.S. dependence on foreign loans. This case describes the meeting between the Treasury and the Treasury Borrowing Advisory Committee (TBAC) of the Bond Market Association on August 3, 2004, in which the Treasury gave the Committee the charge to discuss, among other issues, the level of foreign ownership. Written for a first-year course called "Global Economies and Markets," this case describes the market for U.S. Treasury securities, giving details on market institutions and market participants and some of the reasons U.S. Treasury securities serve as benchmarks and hedging instruments. As the third case in a module on global markets, it describes a market that is closest to the ideal of a perfectly competitive market and illustrates the relationship between market institutions and structure, on the one hand, and market liquidity and efficiency, on the other.

competition, securities

Abstract:
The paper identifies the absence of well-functioning product markets in transition economies as a sufficient initial condition under which big bang, a radical reform, reduces output initially, while a Chinese-style reform increases output. Under central planning, the state integrates monopolistic state enterprises. Big bang dismantles central planning and liberalizes prices. In this decentralized environment, imperfect competition in the presence of roundabout production linkages creates pecuniary externalities in the sense that a price increase by one enterprise raises other enterprises' costs and reduces their demands. Each individual enterprise maximizing its own profits doesn't take into account the externalities and therefore tends to take actions that lead to lower output in a short-run Nash equilibrium. The Chinese reform regulates enterprises intramarginally by forcing them to fulfill planned output quotas at planned prices and liberalizes only marginally by allowing them to sell above-the-quota outputs at market prices.While the intramarginal regulation reduces the deleterious effects of the externalities, the marginal liberalization encourages enterprises to produce beyond the quotas, leading to an output expansion in the short run.

Abstract:
The paper identifies the absence of well-functioning product markets in transition economies as a sufficient initial condition under which big bang, a radical reform, reduces output initially, while a Chinese-style reform increases output. Under central planning, the state integrates monopolistic state enterprises. Big bang dismantles central planning and liberalizes prices. In this decentralized environment, imperfect competition in the presence of roundabout production linkages creates pecuniary externalities in the sense that a price increase by one enterprise raises other enterprises' costs and reduces their demands. Each individual enterprise maximizing its own profits doesn't take into account the externalities and therefore tends to take actions that lead to lower output in a short-run Nash equilibrium. The Chinese reform regulates enterprises intramarginally by forcing them to fulfill planned output quotas at planned prices, and liberalizes only marginally by allowing them to sell above-the-quota outputs at market prices. While the intramarginal regulation reduces the deleterious effects of the externalities, the marginal liberalization encourages enterprises to produce beyond the quotas, leading to an output expansion in the short run.

Abstract:
We investigate the determinants of regulatory reforms between 1990 and 1998 in 50 developing countries. We find that the reforms are attributable to differences in the configurations of interest groups and in the political structure - in particular, the decision-making mechanisms and the ideology of the legislature. Regulatory reforms are more likely in countries with strong pro-reform interest groups (a larger financial sector and a greater proportion of urban consumers) and less likely in countries where incumbent operators have already made large investments and hence have strong incentives to oppose the reforms. Democracy facilitates the actions of interest groups.

democracy, telecommunications, regulation, political structure, special interest groups, developing countries

Abstract:
The rise and fall of central planning rank among the most significant events in the 20th century. For much of the century, central planning, which had catapulted Russia from a backward country in 1921 to a world-class superpower in the 1960s, was looked upon as a viable model of economic development for many developing countries. By the 1980s, however, the limitations of central planning had become apparent. Countries in the Soviet bloc were stagnant and appeared to be falling further behind Western countries in economic and technological development. In contrast, countries in Asia and South America that undertook market-oriented reforms had experienced rapid economic growth. Since the fall of the Berlin Wall in 1989, most formerly communist economies have engaged in a historical transition process to market economies. Despite its initial success, central planning as a system of organizing and directing a national economy had proven to be less efficient than the market system. Why this is so is the focus of this note. After a brief historical account of the rise of central planning, this note offers a conceptual framework for understanding how the centrally planned economy is organized and how central planning works, or rather how it doesnt work.

economic analysis, economic development, emerging markets

Abstract:
The rise and fall of central planning rank among the most significant events in the 20th century. For much of the century, central planning, which had catapulted Russia from a backward country in 1921 to a world-class superpower in the 1960s, was looked upon as a viable model of economic development for many developing countries. By the 1980s, however, the limitations of central planning had become apparent. Countries in the Soviet bloc were stagnant and appeared to be falling further behind Western countries in economic and technological development. In contrast, countries in Asia and South America that undertook market-oriented reforms had experienced rapid economic growth. Since the fall of the Berlin Wall in 1989, most formerly communist economies have engaged in a historical transition process to market economies. Despite its initial success, central planning as a system of organizing and directing a national economy had proven to be less efficient than the market system. Why this is so is the focus of this note. After a brief historical account of the rise of central planning, this note offers a conceptual framework for understanding how the centrally planned economy is organized and how central planning works, or rather how it doesnt work.

economic analysis, economic development, emerging markets

Abstract:
This is a user guide for the computer simulation of the short-run open economy IS/LM model (UVA-S-BP-0522.xls). The model is also known as the Mundell-Fleming model. We assume the user is a student who is studying the short-run open economy model in an intermediate level macroeconomics course. The simulation requires Microsoft Excel® version 2000 or newer to run.

Exchange rate risk, interest rates, macroeconomics

Abstract:
ADDITIONAL MATERIALS: Spreadsheets, recommended articles on methodologyAn exercise in case format that demonstrates how to compute the cost of equity for an investment project in an emerging market using both the Lessard and the Godrey and Espinosa methods.

Equity, country analysis, emerging markets, valuation

Abstract:
This case has been used since 2004 in Darden's first-year Global Economies and Markets MBA course in the module on exchange regimes and financial crises.In the early 1990s, in response to massive foreign capital inflows, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation. By the late 1990s, with the onset of the financial crises in emerging-market economies, investors began to pull their capital out of Chile and other emerging markets indiscriminately. This sudden reversal of capital flows was threatening to ignite a balance-of-payments crisis in Chile. The government must decide what to do. This is an abridged version of the A case "Chile: A Jungle for the Latin American Tiger (A)" (UVA-BP-0461). The A case contains more detailed information on the development experience of Chile, in particular, on the legacy of General Augusto Pinochet and the economic policies of the "Chicago boys." This case may also be used with the B case, "Chile: A Jungle for the Latin American Tiger (B)" (UVA-BP-0462), which gives an update on the policies of the Chilean central bank up to 1999 and discusses of the debate on the economic consequences of the policies. A teaching note (UVA-BP-0458TN) is available.

Exchange rate risk, emerging economies, international trade, monetary policy

Abstract:
This case has been used since 2004 in Darden's first-year Global Economies and Markets MBA course in the module on exchange regimes and financial crises.In the early 1990s, in response to massive foreign capital inflows, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation. By the late 1990s, with the onset of the financial crises in emerging-market economies, investors began to pull their capital out of Chile and other emerging markets indiscriminately. This sudden reversal of capital flows was threatening to ignite a balance-of-payments crisis in Chile. The government must decide what to do. This is an abridged version of the A case "Chile: A Jungle for the Latin American Tiger (A)" (UVA-BP-0461). The A case contains more detailed information on the development experience of Chile, in particular, on the legacy of General Augusto Pinochet and the economic policies of the "Chicago boys." This case may also be used with the B case, "Chile: A Jungle for the Latin American Tiger (B)" (UVA-BP-0462), which gives an update on the policies of the Chilean central bank up to 1999 and discusses of the debate on the economic consequences of the policies. A teaching note (UVA-BP-0458TN) is available.

Exchange rate risk, emerging economies, international trade, monetary policy

Abstract:
Xiangyang Market, located at the center of the shopping district in the trendy former French concession in Shanghai, is one of the city's prime shopping venues and a must-see tourist destination. Considered a shoppers' paradise by many foreign visitors, this open-air bazaar is known for the incredible deals on quality knockoffs of designer products. This case first describes the history that led to its development. It then gives an account of the shopping experience of a couple of American tourists, giving details of their discoveries and bargaining sessions in the market. It concludes with a description of the future of the market, highlighting the concerns about protection of intellectual property rights as well as competition from traditional retailers in Shanghai. The case can be used to teach the economics of markets under asymmetric information, bargaining and negotiation, and intellectual property rights. It can also be used in finance to teach market efficiency or in consumer marketing.

intellectual property

Abstract:
Xiangyang Market, located at the center of the shopping district in the trendy former French concession in Shanghai, is one of the city's prime shopping venues and a must-see tourist destination. Considered a shoppers' paradise by many foreign visitors, this open-air bazaar is known for the incredible deals on quality knockoffs of designer products. This case first describes the history that led to its development. It then gives an account of the shopping experience of a couple of American tourists, giving details of their discoveries and bargaining sessions in the market. It concludes with a description of the future of the market, highlighting the concerns about protection of intellectual property rights as well as competition from traditional retailers in Shanghai. The case can be used to teach the economics of markets under asymmetric information, bargaining and negotiation, and intellectual property rights. It can also be used in finance to teach market efficiency or in consumer marketing.

intellectual property

Abstract:
Tax policies seen in developing countries are puzzling on many dimensions. To begin with, revenue/GDP is surprisingly small compared with that in developed economies. Taxes on labor income play a minor role. Taxes on consumption are important, but effective tax rates vary dramatically by firm, with many firms avoiding taxes entirely by operating through cash in the informal economy and others facing very high liabilities. Taxes on capital are an important source of revenue, as are tariffs and seignorage, all contrary to the theoretical literature.
In this paper, we argue that all of these aspects of policy may be sensible responses if a government is able in practice to collect taxes only from those firms that make use of the financial sector. Through use of the financial sector, firms generate a paper trail, facilitating tax enforcement. The threat of disintermediation then limits how much can be collected in taxes. Taxes can most easily be collected from the firms most dependent on the financial sector, presumably capital-intensive firms. Given the resulting differential tax rates by sector, other policies would sensibly be used to offset these tax distortions. Tariff protection for capital-intensive firms is one. Inflation, imposing a tax on the cash economy is another.

Abstract:
In October 2004, one month before the U.S. presidential election, U.S. Federal Reserve Chairman Alan Greenspan undertakes a full review of the unusual events of the previous six years, including the devastating terrorist attacks of September 11, 2001. Apart from policy, what were the underlying drivers of the economy? Should he continue along a path begun several months earlier, when the Fed began to raise interest rates, or should he suspend such action in order to allow the economy to make a full recovery from the recession of 2001?

economic analysis, interest rates

Abstract:
In October 2004, one month before the U.S. presidential election, U.S. Federal Reserve Chairman Alan Greenspan undertakes a full review of the unusual events of the previous six years, including the devastating terrorist attacks of September 11, 2001. Apart from policy, what were the underlying drivers of the economy? Should he continue along a path begun several months earlier, when the Fed began to raise interest rates, or should he suspend such action in order to allow the economy to make a full recovery from the recession of 2001?

economic analysis, interest rates

Abstract:
In the early 1990s, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation; by the late 1990s, with the Asian Financial Crisis, the risk-averse behavior of foreign investors caused a slowdown in the inflow of foreign capital to such an extent that the country risked a slowdown in industrial activity and a drain on foreign reserves. The Chilean government must decide what to do. See also the A case (UVA-BP-0461) and the abridged case (UVA-BP-0458).

Exchange rate risk, international trade, emerging markets, monetary policy

Abstract:
Recently, the Indian Congress asked a distinguished committee of experts to analyze and make policy recommendations about India’s Cooperative Financial Institutions (CFIs), which included organizations such as credit unions and cooperative banks. One committee member, Mohan R. Narayan, a leading economist at a prestigious Indian university, was enthusiastic about the job; it was an opportunity to help millions of rural poor and to have a positive effect on the country. Some poor farmers, deeply in debts to money-lenders, had been reported to resort to committing suicide when they faced with draught or other catastrophes and saw little reason to continue living. Well-functioning CFIs would certainly help restore hope and boost income for the rural poor. But he knew the system had a long history of overregulation, financial laxity, and corruption. Creating an actionable and clear strategy would be no easy task. The case, written at the invitation of the World Bank to study the challenges of building inclusive financial system in emerging countries, invites students to discuss 1) The roles and responsibilities of financial institutions in poverty-reduction and economic development, 2) the benefits and risks of using public versus private institutions to aid development, and more specifically, 3) the economics of credit cooperatives -- in particular how they function in an emerging market setting.

economic development, financial institutions, emerging markets

Abstract:
This case has been used since 2004 in Darden's first-year Global Economies and Markets MBA course in the module on exchange regimes and financial crises. In the early 1990s, in response to massive foreign capital inflows, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation. By the late 1990s, with the onset of the financial crises in emerging-market economies, investors began to pull their capital out of Chile and other emerging markets indiscriminately. This sudden reversal of capital flows was threatening to ignite a balance-of-payments crisis in Chile. The government must decide what to do. This case also contains information on the development experience of Chile, in particular, on the legacy of General Augusto Pinochet and the economic policies of the "Chicago boys." This case may also be used with the B case, "Chile: A Jungle for the Latin American Tiger (B)" (UVA-BP-0462), which gives an update on the policies of the Chilean central bank up to 1999 and discusses the debate on the economic consequences of the policies. A teaching note (UVA-BP-0458TN) is available.An abridged version of this case exists: "Chile: A Jungle for the Latin American Tiger (Abridged)" (UVA-BP-0458). It focuses on the economic problems Chile faced from the early 1990s.

Exchange rate risk, international trade, emerging markets, monetary policy

Abstract:
Using a new data set of the telecommunications sector on privatization (1981-98 for 167 countries) and competition policies (1990-98 for roughly 50 countries), this Paper investigates the political economy determinants of privatization and liberalization in the telecommunications sector. Building on the framework of a generalized private interest theory, we derive hypotheses on how the characteristics of private interest groups and political structure affect policy changes in the telecommunications sector. We pay particular attention to how the effects of interest groups on policies vary from more democratic to less democratic countries. We find reasonably strong evidence in favour of the generalized interest group theory. Countries with stronger pro-reform interest groups (the financial services and the urban consumers) are more likely to reform. But countries are more likely to maintain state-owned monopolies in the sector when such a governance mode yields a higher pay-off for the governments - when the telecommunications sector has higher profitability and when the fiscal deficit is higher and cannot be more easily financed by borrowing from the financial market. Democracy appears to affect the pace of reform by magnifying the voices of interest groups and by moderating politicians' discretion.
telecommunications

Competition, democracy, political economy, political structure, privatization, special interest groups,

Abstract:
Using a new data set of the telecommunications sector on privatization (1981-98 for 167 countries) and competition policies (1990-98 for roughly 50 countries), this Paper investigates the political economy determinants of privatization and liberalization in the telecommunications sector. Building on the framework of a generalized private interest theory, we derive hypotheses on how the characteristics of private interest groups and political structure affect policy changes in the telecommunications sector. We pay particular attention to how the effects of interest groups on policies vary from more democratic to less democratic countries. We find reasonably strong evidence in favour of the generalized interest group theory. Countries with stronger pro-reform interest groups (the financial services and the urban consumers) are more likely to reform. But countries are more likely to maintain state-owned monopolies in the sector when such a governance mode yields a higher pay-off for the governments - when the telecommunications sector has higher profitability and when the fiscal deficit is higher and cannot be more easily financed by borrowing from the financial market. Democracy appears to affect the pace of reform by magnifying the voices of interest groups and by moderating politicians' discretion.
telecommunications

Competition, democracy, political economy, political structure, privatization, special interest groups,

Abstract:
This comprehensive case examines the policy choices facing a small open economy in an increasingly globalizing world. It can be used in a course on open economy macroeconomics or on international finance. (It was originally written as an exam case for first-year course, "Global Economies and Markets").Late in the day on December 18, 2006, the Bank of Thailand (BOT), the countrys central bank, announced that effective the next day it would impose a 30% unremunerated reserve requirement (URR) on short-term capital inflows. The capital control measure required financial institutions to withhold in reserve accounts 30% of capital inflows that exceeded USD20,000 for a period of one year. The restriction on capital inflows represented a significant escalation of Thailands battle to stop the appreciation of its official currency, the baht (THB). On December 19, the Stock Exchange of Thailand (SET) composite index droped by a record 14.84%, wiping out THB800 billion or USD22 billion of market capitalization. The sell-off affected regional stock markets as well, with Jakarta (Indonesia) down 2.85%; Kuala Lumpur (Malaysia) down 2%; and Singapore down 2.23%. In the foreign exchange market, the baht lost 2% of its value against the U.S. dollar to settle at about THB36 to the dollar. The large foreign capital inflows and the resulting appreciation of the Thai baht had culminated in the decision by the interim government to impose capital controls. The dramatic reactions in the financial markets, however, prompted Thai policymakers to reevaluate the situation and to consider policy options for 2007.

Exchange rate risk, international finance

Abstract:
On January 15, 1999, the Brazilian central bank, in the face of massive speculative attacks on the Brazilian real, decided to let the real float. In the foreign exchange markets, the real fell sharply. The Brazilian economy appeared to be entering a severe recession. The Brazilian financial crisis represented another fallen domino in the global contagion that had started in the summer of 1997 in Thailand. This case describes the set of macroeconomic policies known as the Real Plan that the Brazilian government had implemented since 1993, its impact on the Brazilian economy, and the impact of global contagion on Brazil. It was written as an exam case for the first-year economics course in Darden. It may be used in a course on open economy macroeconomics and international finance.

international finance, macroeconomics

Abstract:
The case has been used in a first-year required course called Global Economies and Markets in a module on monetary policy. On October 24, 2005, President Bush nominated Ben S. Bernanke to be chairman of the board of governors of the Federal Reserve System for a term of four years along with a 14-year term on the board of governors. With the U.S. Senate confirmation widely anticipated, Bernanke was expected to take over stewardship of the U.S. monetary policy from Chairman Alan Greenspan when he retired in January 2006. While the U.S. economy was in good shape at the end of 2005, Bernanke had to prepare to deal with two challenges when charting a course for managing U.S. monetary policy. First, the sharp rise in energy prices that began in 2002 had the potential to bring back the specter of inflation and dampen desired consumer and business spending. Second, the housing boom could turn into a housing bust, throwing the mortgage industry into turmoil and weakening consumer business confidence. There was also the possibility that the housing bust could affect broader financial markets. Bernanke had to consider his options for dealing with contingencies in the not-so-distant future.

interest rates, macroeconomics, monetary policy

Abstract:
This case documents the many unusual features and puzzles of Chinese financial markets (e.g., foreigners' receiving large discounts in buying Chinese shares relative to Chinese investors). The case illustrates how government policies can have a profound impact on the development of financial markets. Students analyze how policies work and why policies are imposed in China and generally not elsewhere. It also illustrates the perils and added risks from government regulation in financial markets.

financial management, emerging markets, valuation

Abstract:
The Great Leap Forward (GLF) disaster, characterized by a collapse of grain output, and the associated famine in China between 1959 and 1961, can be attributed to a systemic failure in central planning. Encouraged by unrealistic expectations for agricultural productivity gains from collectivization, the government switched to an accelerated and infeasible timetable for industrialization. Consequently, it diverted massive amounts of agricultural resources to industry and imposed excessive grain procurement burdens on peasants, leaving them with insufficient food to sustain labour productivity. Grain output fell sharply at the onset of these policies and started to recover gradually when the policies were reversed. Official data and our supplementary survey data support the theoretical prediction regarding the dynamic progression of the disaster. They also show that over 80% of the decline in grain output is attributable to the policies of excessive procurement and resource diversion.

Agricultural crisis, central planning, grain procurement, industrialization, resource diversion, work capacity, China

Abstract:
Why are some countries much richer than others? This technical note proposes a framework to begin answering this question. The first part identifies inefficient institutions as the root cause of the economic differences between societies. The second part analyzes how these institutions change. And the final part suggests how lessons from this institutional framework can be applied.

Abstract:
In 2004, for the first time, foreigners owned more than half of privately held U.S. public debt, mostly in the form of marketable U.S. Treasury securities. In internal discussions at the U.S. Treasury Department, the increase in foreign appetite for Treasury securities represented global investors' vote of confidence in the U.S. economy. Many in the Treasury believed that broad foreign ownership helped lower Treasury borrowing costs. But there was an increasing uneasiness among many in Washingtons power circle about U.S. dependence on foreign loans. This case describes the meeting between the Treasury and the Treasury Borrowing Advisory Committee (TBAC) of the Bond Market Association on August 3, 2004, in which the Treasury gave the Committee the charge to discuss, among other issues, the level of foreign ownership. Written for a first-year course entitled "Global Economies and Markets," this case describes the market for U.S. Treasury securities, giving details on market institutions and market participants, and some of the reasons U.S. Treasury securities serve as benchmarks and hedging instruments. As the third case in the module on global markets, it is used to describe a market that is closest to the ideal of a perfectly competitive market and to illustrate the relationship between market institutions and structure on the one hand, and market liquidity and efficiency on the other.

bonds, efficient markets

Abstract:
Observed economic policies in developing countries differ sharply both from those observed among developed countries and from those forecast by existing models of optimal policies. For example, developing countries rely little on broad-based taxes, and make substantial use of tariffs and seignorage as nontax sources of revenue.The objective of this paper is to contrast the implications of two models designed to explain such anomalous policies. One approach, by Gordon-Li (2005), focuses on the greater difficulties faced in poor countries in monitoring taxable activity, and explores the best available policies given such difficulties. The other, building on Grossman-Helpman (1994), presumes that political-economy problems in developing countries are worse, leading to worse policy choices. The paper compares the contrasting theoretical implications of the two models with the data, and finds that the political-economy approach does poorly in reconciling many aspects of the data with the theory. In contrast, the forecasts from Gordon-Li model are largely consistent with the data currently available.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
China has experienced rising wage inequality due to rising relative demand for skilled labor. In this paper, we use a sample of 1,500 firms to investigate the impact of trade and technology on China's rising skill demand. We find that export expansion had a negative direct effect (Heckscher-Ohlin type) and a positive indirect effect (export-induced skill-biased technical change) on skill demand; the net effect was found positive and accounted for 5 percent of rising skill demand of the sample firms. We find that technical change in Chinese firms was on average skill-neutral, but majority foreign-owned firms experienced skill-biased technical progress that accounted for 22 percent of the rising skill demand of the sample firms.

Abstract:
For a variety of reasons, economic performance varies both across economies around the world in any given year and over time for any given economy. The level of economic development, political and economic institutions, government policies, political stability, and other social and perhaps cultural factors may all contribute to these variations. These differences in economic performance and their underlying causes are often reflected in published economic statistics and can be highlighted through the use of rates and ratios. This case sets up an exercise for students to examine economic statistics by (1) analyzing some key rates and ratios and (2) matching the data to country profiles published in the CIA World Factbook. The countries included in this case are the United States, Germany, Japan, Brazil, Russia, India, and China.

macroeconomics

Abstract:
This case can be used in courses on credit markets, emerging markets finance, and economic and financial development. The Pragma Corporation, a northern Virginia-based international development consulting firm, won a bid put out in 2001 by the United States Agency for International Development (USAID) to help develop a credit bureau in Kazakhstan. Between 2001 and 2003, Javier Piedra, a senior consultant at Pragma, and a team of four local consultants assessed the market opportunity, prepared a business plan, and made the case to senior Kazakhstani government and private-sector officials that it was possible to develop a well-functioning private credit bureau based on international best practices. Key stakeholders accepted much of FSI’s theoretical argument, but it was not clear that the financial community was willing to transfer their proprietary data, perhaps their most important asset to a credit bureau. To move forward, Piedra and his team had to negotiate with various stakeholders around two complex issues--the ownership and governance structure for the credit bureau and a legal framework for sharing credit data--and persuade a majority of the banks to share their data. The case gives detailed information on the credit bureau’s business plan.

emerging markets

Abstract:

cost analysis, international trade, political economy

Abstract:
This case is an exercise that uses real options to value investment opportunities and make investment decisions in an emerging market setting.ADDITIONAL MATERIALS:Spreadsheets

emerging markets

Abstract:
At the age of 26, Gavin Carter was facing a dilemma. He had just received the good news that he had been accepted into the MBA program at a prestigious university. But he had also been informed recently that he was going to be promoted within the equity-research department at his employer, a prominent investment bank. Although he was genuinely excited about the prospect of advancing his long-term prospects by going to business school, he needed to ascertain whether his investment in an MBA education would pay off.

investing, education, higher, valuation

Abstract:
This case has been used since 2004 in Darden's first-year Global Economies and Markets MBA course in the module on exchange regimes and financial crises. In the early 1990s, in response to massive foreign capital inflows, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation. By the late 1990s, with the onset of the financial crises in emerging-market economies, investors began to pull their capital out of Chile and other emerging markets indiscriminately. This sudden reversal of capital flows was threatening to ignite a balance-of-payments crisis in Chile. The government must decide what to do. This case also contains information on the development experience of Chile, in particular, on the legacy of General Augusto Pinochet and the economic policies of the "Chicago boys." This case may also be used with the B case, "Chile: A Jungle for the Latin American Tiger (B)" (UVA-BP-0462), which gives an update on the policies of the Chilean central bank up to 1999 and discusses the debate on the economic consequences of the policies. A teaching note (UVA-BP-0458TN) is available.An abridged version of this case exists: "Chile: A Jungle for the Latin American Tiger (Abridged)" (UVA-BP-0458). It focuses on the economic problems Chile faced from the early 1990s.

Exchange rate risk, international trade, emerging markets, monetary policy

Abstract:
In the early 1990s, the Chilean government restricted the flow of capital into the country in order to achieve a competitive and stable exchange rate and to control inflation; by the late 1990s, with the Asian Financial Crisis, the risk-averse behavior of foreign investors caused a slowdown in the inflow of foreign capital to such an extent that the country risked a slowdown in industrial activity and a drain on foreign reserves. The Chilean government must decide what to do. See also the A case (UVA-BP-0461) and the abridged case (UVA-BP-0458).

Exchange rate risk, international trade, emerging markets, monetary policy

Abstract:
The Great Leap Forward disaster, characterized by a collapse in grain production and a widespread famine in China between 1959 and 1961, is found attributable to a systemic failure in central planning. Wishfully expecting a great leap in agricultural productivity from collectivization, the Chinese government accelerated its aggressive industrialization timetable. Grain output fell sharply as the government diverted agricultural resources to industry and imposed an excessive grain procurement burden on peasants, leaving them with insufficient calories to sustain labor productivity. Our analysis shows that 61 percent of the decline in output is attributable to the policies of resource diversion and excessive procurement.

Abstract:
China began its gradual economic reform in the late 1970s; Russia initiated radical reform in the early 1990s. During the course of reform, China has enjoyed rapid growth while Russia has contracted. This paper argues that one reason for this difference is that Chinese local governments enjoy more clearly defined rights of taxation than their counterparts in Russia. When rights of taxation are sharply defined, a local government has the exclusive right to tax enterprises located within its territory. These rights become fuzzier as the number of independent tax agencies increases. A model is constructed in which these differences in property rights generate a forecast consistent with the observation that the effective tax rate facing an enterprise tends to be higher in Russia while local tax collections and the local provision of public goods and infrastructure tend to be stronger in China.

Abstract:
The effectiveness of China's incremental industrial reform between 1980--89 is investigated using a panel data set of 272 state enterprises. This paper applies a method that measures marginal products of factors and changes in total factor productivity (TFP) by comparing actual changes in output to actual changes in inputs and in the institutional environment. This paper finds that there were marked improvements in the marginal productivity of factors and in TFP between 1980--89. More importantly, the evidence shows that over 87 percent of the TFP growth was attributable to improved incentives, intensified product market competition, and improved factor allocation.