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Ernesto Crivelli, Ruud A. de Mooij, J. E. J. De Vrijer, Mr. Shafik Hebous, and Mr. Alexander D Klemm
This paper aims to contribute to the European policy debate on corporate income tax reform in three ways. First, it takes a step back to review the performance of the CIT in Europe over the past several decades and the important role played by MNEs in European economies. Second, it analyses corporate tax spillovers in Europe with a focus on the channels and magnitudes of both profit shifting and CIT competition. Third, the paper examines the progress made in European CIT coordination and discusses reforms to strengthen the harmonization of corporate tax policies, in order to effectively reduce both tax competition and profit shifting.
Rima Turk-Ariss
Concerns about excessive variability in bank risk weights have prompted their review by regulators. This paper provides prima facie evidence on the extent of risk weight heterogeneity across broad asset classes and by country of counterparty for major banks in the European Union using internal models. It also finds that corporate risk weights are sensitive to the riskiness of an average representative firm, but not to a market indicator of a firm’s probablity of default. Under plausible yet severe hypothetical scenarios for harmonized risk weights, counterfactual capital ratios would decline significantly for some banks, but they would not experience a shortfall relative to Basel III’s minimum requirements. This, however, does not preclude falling short of meeting additional national supervisory capital requirements.
Rui Albuquerque, Mr. Luis Brandao-Marques, Miguel A. Ferreira, and Pedro Matos
We develop and test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country. Using firm-level data on cross-border mergers and acquisitions (M&A) and corporate governance in 22 countries, we find that cross-border M&As are associated with subsequent improvements in the governance, valuation, and productivity of the target firms’ local rivals. This positive spillover effect is stronger when the acquirer is from a country with stronger shareholder protection and if the target’s industry is more competitive. We conclude that the international market for corporate control promotes the adoption of better corporate governance practices around the world.
Ms. Anna Kochanova and Carlos Caceres
This paper analyzes the linkages between governance quality and country stress events. It focuses on two types of events: fiscal and political stress events, for which two innovative stress indicators are introduced. The results suggest that weaker governance quality is associated with a higher incidence of both fiscal and political stress events. In particular, internal accountability, which measures the responsiveness of governments to improving the quality of the bureaucracy, public service provision, and respect for the institutional framework in place, is positively associated with fiscal stress events. However, external accountability, which captures government accountability before the public in general, through elections and the democratic process, seems to be more important for political stress events. These results hold when using balanced country samples where region, oil-exporter status, income level, and time are taken into account.
International Monetary Fund. Asia and Pacific Dept


Asia has rebounded fast from the depth of the global crisis. Initially, the region was hit extremely hard, with output in most countries shrinking by much more than even those nations at the epicenter of the crisis. But starting in February 2009, Asia's economy began to revive. Exports and industrial production have increased again, financial pressures have eased, confidence has largely been restored. What explains this remarkable comeback? What challenges does the recovery pose to Asian policymakers? These are the main questions addressed in the IMF's October 2009 "Regional Economic Outlook: Asia and Pacific." The report discusses the latest developments in Asia, examines the prospects for the period ahead, and considers the policy steps needed to sustain the recovery and rebalance Asia's medium-term growth. Published biannually in May and October.

International Monetary Fund
Sovereign Wealth Funds (SWFs) are becoming increasingly important in the international monetary and financial system, attracting growing attention. SWFs are government-owned investment funds, set up for a variety of macroeconomic purposes. They are commonly funded by the transfer of foreign exchange assets that are invested long term, overseas. SWFs are not new, and some of the longer-established funds—for example those of Kuwait, Abu Dhabi, and Singapore—have existed for decades. However, high oil prices, financial globalization, and sustained, large global imbalances have resulted in the rapid accumulation of foreign assets particularly by oil exporters and several Asian countries. As a result, the number and size of SWFs are rising fast and their presence in international capital markets is becoming more prominent.
Miss Kinga Z Elo
This paper examines how capital controls affect FDI decisions and how the impact of these restrictive measures varies with different levels of country risk. We construct a model of firms' FDI decisions, broadly in Dunning's "eclectic theory" framework, using "real options" to emphasize economic uncertainty and country risk. Numerical results of the model take the form of "quality statistics" that uncover the underlying dynamics hidden in the aggregate data that is responsible for the low performance of recent empirical studies. We find that increasing levels of capital controls reduce the life-span of FDI investments at each level of country risk and foreign investors' willingness towards risk sharing increases. We reveal a significant interaction between capital control and country risk, resulting in a nonlinear relationship between these and the volatility and volume statistics. We estimate a standard cross-sectional model that provides strong support for our theoretical findings.
International Monetary Fund
This 2004 Article IV Consultation highlights that in recent years, Singapore’s economy has been hit hard by a series of external shocks. These shocks—the Asian crisis, the bursting of the technology bubble, and the SARS outbreak in 2003—disrupted an economic expansion largely uninterrupted since the 1970s. The shocks have come at a time when Singapore is also facing increasing competition from regional low-cost economies. Looking ahead, economic activity is expected to moderate to more sustainable levels in the near term.
International Monetary Fund
Korea has made a spectacular recovery from the Asian crisis. Executive Directors commended this developments, and stressed the need to implement monetary and fiscal polices. They commended the structural reforms, and emphasized the need to strengthen the asset management sector. They welcomed the approval of a free trade agreement with Chile, and looked forward to further trade-opening steps in the agricultural sector. They welcome the three-year roadmap for corporate reform, which eases regulations on 'chaebol' that improve governance.
Swart R. Ghosh and Mr. Atish R. Ghosh
This paper examines the role of structural factors—governance and rule of law, corporate sector governance (creditor rights and shareholder rights), corporate financing structure—as well as macroeconomic variables in currency crises. Using a technique known as a binary recursive tree allows for interactions between the various explanatory variables. It is found that structural vulnerabilities play an important role in the occurrence of “deep” currency crises (those with a real GDP growth decline of at least 3 percentage points) and that there are complex interactions between these structural vulnerabilities and macroeconomic imbalances.