Who Gains from Services FDI—Host or Home Economies? An Analysis of Disaggregated Services FDI Inflows and Outflows of 24 European Economies

This study focuses on a sample of 24 European economies to examine the spillovers from disaggregated services foreign direct investment (FDI) on economic growth. We study the impact of 20 disaggregated services FDI inflows and outflows, respectively, on their host and home country services sector and overall growth. We find that both financial services and business services FDI are beneficial for growth in both host and home countries. Financial services FDI works though financial holding companies and home countries benefit especially from investment in foreign banks, which provides access to credit. Business services FDI works though management holding companies and home countries benefit, especially from investment in computer activities, which provides access to specialised human capital and high-value knowledge assets. The positive spillovers to home countries provide evidence for arguing against protectionism. JEL Codes: F2, F21, F43

Evaluating Efficiency Change in Taiwan’s Financial Industry

This study evaluates the performance of the financial industry with meta-frontier (MF) dynamic network data envelopment analysis (DN-DEA) from 2009 to 2015. We divide the sample into two groups, Financial Holding group (FHG) and Insurance & Securities group (ISG), for all decision making units (DMUs) of the financial industry. Our goal is to study the effects of operating performance across divisions and across periods and to compare the differences between these two different groups within Taiwan’s bank industry. We find the best business performance was during 2013, where the average value was 0.5485. The best average value of FHG was 0.7192 in 2012, and ISG was 0.7099 in 2010. FHG has best average overall efficiency (OE) value in 2009–2015 periods. However, the average technical efficiency gap ratio (TGR) value of ISG’s (0.7490) is larger than FHG (0.6959), indicating that business performance is affected by group and meta-frontier. FHG has a larger scale than ISG, and so, those firms can input a relatively large proportion of investments and resources to produce better performance. Finally, many DMUs have excess inputs of labor costs and operating expenses, resulting in an average TGR value that is lower than ISG in 2009–2015.

Resurgence, Part II

Large banks and their political allies waged a twenty-year campaign to secure legislation that would remove the structural buffers established by the Glass-Steagall and Bank Holding Company Acts. That campaign triumphed in 1999, when Congress passed the Gramm-Leach-Bliley Act (GLBA). GLBA authorized the creation of financial holding companies that owned banks, securities firms, and insurance companies. In 2000, Congress passed the Commodity Futures Modernization Act (CFMA), which exempted over-the-counter derivatives from substantive regulation by the federal government or the states. GLBA and CFMA enabled large U.S. banks to become universal banks for the first time since the 1930s. Large U.S. securities firms responded by becoming shadow banks (and de facto universal banks) through their issuance of deposit substitutes (shadow deposits). Similar patterns of deregulation encouraged the growth of large universal banks in the U.K. and Europe. A group of seventeen U.S., U.K., and European financial conglomerates dominated global financial markets by 2000.

Financial Conglomerate Affiliation, Insurance Companies’ Performance, and Risk

This study analyzes the relationship between financial conglomerate affiliation, insurance companies’ performance, and risk. For verification, a univariate analysis was conducted using a propensity score matching technique and an ordinary least squares regression model was estimated. As a robustness check, the Heckman two-stage regression model, which is known for correcting self-selection bias, was also estimated. The main results are as follows. First, as a result of belonging to a financial conglomerate, insurers’ profitability and simple equity ratio are significantly lower than that of stand-alone insurers, while revenue volatility and insolvency risk are significantly higher. Second, statistically significant negative relationships among insurance companies’ profitability, earnings volatility, and insolvency risks are greater if they belong to a mixed conglomerate rather than a financial holding company. Finally, the results reveal that this negative effect is caused by the adverse impacts of equity investments of affiliates owned by insurance companies belonging to mixed conglomerates. These findings indicate that the expansion of affiliates’ shareholding by an insurer can increase fluctuations in the insurer’s earnings by transferring the change in management performance, consequently increasing the risk of insolvency as measured by the Z-score.