Publications
MAIN PUBLICATIONS
MAIN PUBLICATIONS
Investing in Friends: The Role of Geopolitical Alignment in FDI Flows
European Journal of Political Economy, forthcoming, 2024, with S. Aiyar and D. Malacrino
Firms and policy makers are increasingly looking at friend-shoring to make supply chains less vulnerable to geopolitical tensions. We test whether these considerations are shaping FDI flows, using investment-level data on almost 300,000 instances of greenfield FDI between 2003 and 2022. Estimates from a gravity model, which controls for standard push and pull factors, show an economically significant role for geopolitical alignment in driving the geographical footprint of bilateral investments. This result is robust to the inclusion of standard bilateral drivers of FDI—such as geographic distance and trade flows—and the strength of the effect has increased since 2018, with the resurgence of trade tensions between the U.S. and China. Moreover, our results are not limited to greenfield FDI, but hold also for M&As.Borrowing Costs after Sovereign Debt Relief
American Economic Journal: Economic Policy, 15(2): 331-358, 2023, with D. Mihalyi and V. Lang
Can debt moratoria help countries weather negative shocks? We study the bond market effects of an official debt service suspension endorsed by the international community during the Covid-19 pandemic. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.Expansionary Yet Different: Credit Supply and Real Effects of Negative Interest Rate Policy
Journal of Financial Economics, 146(2): 754-778, 2022, with M. Bottero, C. Minoiu, JL Peydro, A. Polo and E. Sette
We show that negative interest rate policy (NIRP) has expansionary effects on credit supply through a portfolio rebalancing channel. By shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound and has effects similar to QE. For identification, we exploit ECB’s NIRP and the Italian credit register, and, for external validity, European and U.S. datasets. NIRP affects more banks with higher ex-ante liquid assets, including net interbank positions. More exposed banks reduce liquid assets, expand credit supply, especially to financially-constrained firms, and cut loan rates, inducing firms to increase investment and the wage bill.Serving the Underserved: Microcredit as a Pathway to Commercial Banks
The Review of Economics and Statistics, 105(4): 780-797, 2023, with S. Agarwal, T. Kigabo, C. Minoiu and A. Silva
We examine the impact of a large-scale microcredit expansion program on financial access and the transition of previously-unbanked borrowers to commercial banks. Using administrative data on the universe of loans from a credit register accessible to all lenders, we show that the program improved access to credit, especially in underdeveloped areas, and reduced poverty. The program generated positive spillovers to the commercial banking sector: a sizable share of first-time borrowers who build credit history in the program transitioned to commercial banks ("switchers"), where they obtained larger, more affordable, and longer maturity loans. Controlling for ex-ante risk, switchers have lower default risk than non-switchers and higher default risk than other bank borrowers. Switchers also obtain better loan terms from banks compared to first-time bank borrowers without a credit history. Overall, our results suggest that the microfinance sector--in the presence of a credit reference bureau accessible to all lenders--can play a critical role in screening unbanked borrowers, allowing them to build a credit history and facilitating their transition to commercial banks.Journal of Banking and Finance, 133, 106320, 2021, with B. Tan, D. Igan, M.S. Martinez Peria and N. Pierri
The COVID-19 pandemic could result in large government interventions in the banking industry. To shed light on the possible consequences on markups, we rely on the experience of the global financial crisis and exploit granular data on government interventions in more than 800 banks across 27 countries between 2007 and 2017. Using a multivariate matching method, we find no evidence of an increase in markups. Interventions—especially longer and larger ones—have no significant impact on prices but they increase costs, mostly because of higher loan impairment charges, lowering markups.Commodity prices and banking crises
Journal of International Economics, 131, 103474, 2021, with M. Eberhardt
Commodity prices are one of the most important drivers of output fluctuations in developing countries. We show that an important channel through which commodity price movements can affect the real economy is through their effect on banks’ balance sheets and financial stability. Our analysis finds that the volatility of commodity prices is a significant predictor of banking crises in a sample of 60 low-income countries (LICs). In contrast to recent findings for advanced and emerging economies, credit booms and capital inflows do not play a significant role in predicting banking crises, consistent with a lack of de facto financial liberalization in LICs. We corroborate our main results with historical data for 40 ‘peripheral’ economies between 1848 and 1938. The effect of commodity price volatility on banking crises is concentrated in LICs with a fixed exchange rate regime and a high share of primary goods in production. We also find that commodity prices volatility is likely to trigger financial instability through a reduction in government revenues and a shortening of sovereign debt maturity, which are likely to weaken banks’ balance sheets.Journal of Banking and Finance, 135, 105806, 2022, with X. Fang, D. Jutrsa, M.S. Martinez Peria, and L. Ratnovski
This paper offers novel evidence on the impact of raising bank capital requirements on lending in an emerging market and explores heterogeneous effects depending on bank characteristics and economic conditions. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements are associated with lower credit growth in Peru. This effect is stronger during periods of lower economic growth, but it is short-lived and becomes insignificant in about half a year. The impact of capital requirements varies with bank characteristics. Weaker (less profitable, less capitalized and less liquid) banks react more to changes in capital requirements. Our findings are robust to estimating a variety of specifications to address concerns about the endogeneity of capital requirements.Mobilization effects of multilateral development banks (online appendix)
World Bank Economic Review, 35(2): 521-543, 2021, with C. Broccolini, G. Lotti, A. Maffioli and R. Stucchi
We use loan-level data on syndicated lending to a large sample of developing countries between 1993 and 2017 to estimate the mobilization effects of multilateral development banks (MDBs). Controlling for a large set of fixed effects, we find evidence of positive and significant mobilization effects of multilateral lending on the number of deals and on the size of bank inflows. The number of lenders and the average maturity of syndicated loans also increase. These effects are present not only on impact, but last up to three years, and are not offset by a decline in bond financing. There is no evidence of anticipation effects and the results are robust to numerous tests to control for the role of confounding factors and unobserved heterogeneity. Finally, our results are economically sizable, as they indicate that MBDs can mobilize about 7 dollars in bank credit for each dollar invested.Journal of International Money and Finance, 100, 2020, with D. Gurara and M. Sarmiento
Cross-border bank lending is a growing source of external finance in developing countries and could play a key role for infrastructure financing. This paper looks at the role of multilateral development banks (MDBs) on the terms of syndicated loan deals, focusing on loan pricing. The results show that MDBs’ participation is associated with higher borrowing costs and longer maturities—signaling a greater willingness to finance high risk projects which may not be financed by the private sector—but it is also associated with lower spreads for riskier borrowers. Overall, our findings suggest that MDBs could crowd in private investment in developing countries through risk mitigation.Commodity prices and bank lending
Economic Inquiry, 58(2): 953-979, 2020, with I. Agarwal and R. Duttagupta
We analyze the transmission of changes in commodity prices to bank lending in a large sample of developing countries. A bank-level analysis shows that a fall in commodity net export prices is associated with a reduction of bank lending, particularly for commodity exporters and during episodes of terms-of-trade decline. We complement this analysis with loan-level data from a credit register, which allows us to identify the effect of a commodity price shock on the supply of credit, controlling for unobserved factors that could drive borrowers' credit demand. Results show that banks with relatively lower deposits and poor asset quality transmit the changes in commodity prices to lending more aggressively.Monetary Policy and Bank Lending in Developing Countries: Loan Applications, Rates, and Real Effects
Journal of Development Economics, 139: 185-202, 2019, with C. Abuka, R. Alinda, C. Minoiu and J.L. Peydro
previously circulated as "Monetary policy in a developing country: loan applications and real effects", IMF working paper no. 15/270; and Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects, CEPR Discussion Paper no. 12171Recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data. In this paper, we bring new evidence using Uganda’s supervisory credit register, with microdata on loan applications, volumes and rates, coupled with unanticipated variation in monetary policy. We show that a monetary contraction reduces bank credit supply—increasing loan application rejections and tightening loan volume and rates—especially for banks with more leverage and sovereign debt exposure. There are associated spillovers on inflation and economic activity—including construction permits and trade—and even social unrest.Review of Financial Studies, 31(6): 2113-2156, 2018, with F. Berton, S. Mocetti and M. Richiardi.
We analyze the heterogeneous employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The preferred estimate indicates that the average elasticity of employment to a credit supply shock is 0.36. The adjustment has effects both at the extensive and intensive margins and is concentrated among workers with temporary contracts. We also examine heterogeneous effects of the credit crunch by education, age, gender and nationality.Some misconceptions about public investment efficiency and growth
Economica, 86(342): 409-430, 2019, with A. Berg, E. Buffie, C. Pattillo, R. Portillo, and F. Zanna.
We reconsider the macroeconomic implications of public investment efficiency, defined as the ratio between the actual increment to public capital and the amount spent. We show that, in standard neoclassical and endogenous growth models, increases in public investment spending in inefficient countries do not generally have a lower impact on growth than in efficient countries. This apparently counter-intuitive result, which contrasts with Pritchett (2000) and recent policy analyses, follows from the standard assumption that the marginal product of public capital declines with the capital/output ratio. The implication is that efficiency and scarcity of public capital are likely to be inversely related across countries. Both efficiency and the rate of return thus need to be considered together in assessing the impact of increases in investment, and blanket recommendations against increased public investment spending in inefficient countries need to be rethought.Room for Discretion? Biased Decision-Making In International Financial Institutions
Journal of Development Economics, 130: 1-16 (lead article), 2018, with V. Lang.
We exploit the degree of discretion embedded in the World Bank-IMF Debt Sustainability Framework (DSF) to understand the decision-making process of international financial institutions. The unique, internal dataset we use covers the universe of debt sustainability analyses conducted between December 2006 and January 2015 for low-income countries. These data allow us to identify cases where the risk rating implied by the application of the DSF’s mechanical rules was overridden to assign a different official rating. Our results show that both political interests and bureaucratic incentives influence the decision to intervene in the mechanical decision-making process. Countries that are politically aligned with the institutions’ major shareholders are more likely to receive an improved rating; especially in election years and when the mechanical assessment is not clear-cut. These results suggest that the room for discretion international financial institutions have can be a channel for informal governance and a source of biased decision-making.Too much and too fast? Public investment scaling-up and absorptive capacity
Journal of Development Economics, 120: 17-31, 2016.
A recent trend in several low income developing countries has been a rapid scaling-up of public investment. It is argued that in presence of limited absorptive capacity countries are not able -- in terms of skills, institutions, management -- to translate additional public investment into sustained output growth. We test for the presence of absorptive capacity constraints using a large dataset of World Bank investment projects, approved between 1970 and 2007 in 80 countries. Our results indicate that projects undertaken in periods of public investment scaling-up are less likely to be successful, although this effect is relatively small, especially in poor and capital scarce countries. We also verify that this effect is unrelated to large aid flows and donor fragmentation.Public debt and growth: heterogeneity and non-linearity
Journal of International Economics, 97(1): 45-58, 2015, with M. Eberhardt.
Previously circulated as This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth, IMF working paper no. 13/248. We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis builds on theoretical arguments and data considerations in modelling the debt-growth relationship as heterogeneous across countries. We investigate the debt-growth nexus adopting linear and non-linear specifications, employing novel methods and diagnostics from the time-series literature adapted for use in the panel. We find some support for a negative relationship between public debt and long-run growth across countries, but no evidence for a similar, let alone common, debt threshold within countries.*Replication data & do files*Technical Appendix*IMF lending and banking crises
IMF Economic Review, 63(3): 644-691, 2015, with L. Papi and A. Zazzaro.
This paper looks at the effects of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1970-2010. The endogeneity of the IMF intervention is addressed by adopting an instrumental variable strategy and a propensity score matching estimator. Controlling for the standard determinants of banking crises, our results indicate that countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than non-borrowing countries. We also provide evidence suggesting that compliance with conditionality and loan size matter.Remittances and vulnerability in developing countries
World Bank Economic Review, 30(1): 1-23, 2017, with G. Bettin and N. Spatafora.
This paper examines how international remittances are affected by structural characteristics, macroeconomic conditions, and adverse shocks in recipient economies. We exploit a novel, rich panel data set, covering bilateral remittances from 103 Italian provinces to 79 developing countries over the period 2005-2011. We find that remittances are negatively correlated with the business cycle in recipient countries and in particular increase in response to adverse exogenous shocks, such large terms-of-trade declines. This effect is stronger where the migrants communities have a larger share of newly arrived migrants. Finally, we show that recipient-country financial development is negatively associated with remittances, suggesting that remittances help alleviate credit constraints.Public Debt and Economic Growth: Is There a Causal Effect?
Journal of Macroeconomics, 41: 21-41, 2014, with U. Panizza
This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we correct for endogeneity. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction. Our finding that there is no evidence that public debt has a causal effect on economic growth is important in the light of the fact that the negative correlation between debt and growth is sometimes used to justify policies that assume that debt has a negative causal effect on economic growth.The Home Bias and The Credit Crunch: A Regional Perspective
Journal of Money, Credit and Banking, 46(s1): 53-85, 2014, with G. Udell and A. Zazzaro.
A major policy issue is whether troubles in the banking system reflected in the bankruptcy of Lehman Brothers in September 2008 have spurred a credit crunch and, if so, how and why has its severity been different across markets and firms. In this paper, we tackle this issue by looking at the Italian case. We take advantage of a dataset on a large sample of manufacturing firms, observed quarterly between January 2008 and September 2009. Using detailed information about loan applications and lending decisions, we are able to identify the occurrence of a credit crunch in Italy that has been harsher in provinces with a large share of branches owned by distantly-managed banks. Inconsistent with the flight to quality hypothesis, however, we do not find evidence that economically weaker and smaller firms suffered more during the crisis period than during normal periods. By contrast, we find that financially healthier firms were more intensely hit by the credit tightening in functionally distant credit markets than in the ones populated by less distant banks. This result is consistent with the hypothesis of a home bias on the part of nationwide banks.Competition and Relationship Lending: Friends or Foes?
Journal of Financial Intermediation, 20(3): 387-413, 2011, with A. Zazzaro.
Recent empirical findings by Elsas (2005) and Degryse and Ongena (2007) document a U-shaped effect of market concentration on relationship lending which cannot be easily accommodated by the investment and strategic theories of bank lending orientation. In this paper, we suggest that this non-monotonicity can be explained by looking at the organizational structure of local credit markets. We provide evidence that marginal increases in interbank competition are detrimental to relationship lending in markets where large and out-of-market banks are predominant. By contrast, where relational lending technologies are already widely in use in the market by a large group of small mutual banks, an increase in competition may drive banks to further cultivate their extensive ties with customers.Bank Size or Distance: What Hampers Innovation Adoption by SMEs?
Journal of Economic Geography, 19(6): 845-881, 2010, with P. Alessandrini and A. Zazzaro.
A growing body of research is focusing on banking organizational issues, emphasizing the difficulties encountered by hierarchically organized banks in lending to informationally opaque borrowers. While the two extreme cases of hierarchical and non-hierarchical organizations are typically contrasted, what shapes the degree of hierarchy and how to measure it remain fairly vague. In this paper we compare bank size and functional distance between bank branches and headquarters as possible sources of organizational friction studying their impact on the likelihood of small firms introducing innovations. Our results show that SMEs located in provinces where the local banking system is functionally distant are less inclined to introduce process and product innovations, while the market share of large banks is only slightly correlated with firms' propensity to introduce new products.Banks, Distances and Firms' Financing Constraints
Review of Finance, 13(2): 261-307, 2009, with P. Alessandrini and A. Zazzaro.
Bank deregulation and progress in information technology altered the geographical diffusion of banking structures and instruments, and reduced operational distance between banks and local economies. Although, the consolidation of the banking industry promoted the geographical concentration of banking decision-making centres and increased functional distance between local banking systems and local borrowers. This paper focuses on the impact that these spatial diffusion-concentration phenomena had on the financing constraints of Italian firms over the period 1996–2003. Our findings show that greater functional distance stiffened financing constraints, especially for small firms, while smaller operational distance did not always enhance credit availability.OTHER SELECTED PUBLICATIONS
OTHER SELECTED PUBLICATIONS
Public debt management and private financial development
Economic Systems, 47(1): 101010, 2023, with S. Pedersoli
In several developing countries, high and rising public debt is an important source of vulnerability. Strengthening debt management is a priority, but its effects on domestic economies have been hardly analyzed. This paper asks whether better public debt management could have spillover effects on the private sector, leading to more (and more stable) private capital flows and domestic credit. This is a relevant question in a context of financial deepening and increasing private capital inflows, which could be prone to episodes of bonanza, sudden stops and crises. Our results, based on a sample of developing countries, show positive spillover effects from better public debt management to private capital inflows and domestic financial deepening.On the capacity to absorb public investment: How much is too much?
World Development, 145: 105525, 2021, with D. Gurara, R. Kpodar and D. Tessema
While expanding public investment can contribute to fill infrastructure gaps, scaling up too much and too fast often leads to inefficient outcomes. This paper rationalizes this outcome looking at the association between cost inflation and public investment in a large sample of road construction projects in developing countries. Consistent with the presence of absorptive capacity constraints, our results show a non-linear U-shaped relationship between public investment and project costs. Unit costs increase once public investment is close to 10% of GDP. This threshold is lower (about 7% of GDP) in countries with low investment efficiency and, in general, the effect of investment scaling up on costs is especially strong during investment booms.World Development, 113: 73-88, 2019, with V. Amendolagine, R. Rabellotti, M. Sanfilippo. Featured in Bloomberg.
The local sourcing of intermediate products is one the main channels for foreign direct investment (FDI) spillovers. This paper investigates whether and how participation and positioning in the global value chains (GVCs) of host countries is associated to local sourcing by foreign investors. Matching two firm-level data sets on 19 Sub-Saharan African countries and Vietnam to country-sector level measures of GVC involvement, we find that more intense GVC participation and upstream specialization are associated to a higher share of inputs sourced locally by foreign investors. These effects are larger in countries with stronger rule of law and better education.Lost and found: Market access and public debt dynamics
Oxford Economic Papers, 71(2): 445-471, 2019, with A. Bassanetti and C. Cottarelli
The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access had been lost.State Dependence in Access to Credit
Journal of Financial Stability, 27: 17-34, with C. Pigini and A. Zazzaro.
This paper investigates whether firms' access to credit is characterized by state dependence. We introduce a first-order Markov model of credit restriction with sample selection that makes it possible to identify state dependence in the presence of unobserved heterogeneity. The results, based on a representative sample of Italian firms, show that state dependence in access to credit is a statistically and economically significant phenomenon and that this is less prominent among small firms.Barking up the wrong tree? Measuring gender gaps in firm's access to credit
Journal of Development Studies, 50(10): 1430-1444, 2014, with C. Piras and R. Rabellotti.
The literature on gender-based discrimination in credit markets is recently expanding but the results are not yet definitive and have not been generally agreed upon. This paper exploits a new dataset on Barbados, Jamaica and Trinidad and Tobago, which provides detailed information about female ownership and management in firms for investigating the existence of a gender gap in access to finance. The evidence presented herein suggests that more precise measures of the gender composition of the firm show that women-led businesses are more likely to be financially constrained than other comparable firms.Geographical Distance and Moral Hazard in Microcredit: Evidence from Colombia
Journal of International Development, 26: 91-108, 2014, with R. Rabellotti.
Recent years have seen an intense and critical debate about the impact of microcredit on entrepreneurial activities and poor households' welfare. This paper suggests that information asymmetries in the ex-post loan arrangement between the microfinance institution (MFI) and local borrowers could partially explain the limited impact of microcredit. The physical distance separating borrowers from the MFI worsens information asymmetries. The estimation of the effect of distance on the borrower's self-assessed outcome of a microcredit project in Colombia is consistent with the presence of information asymmetries in the microcredit market.Property tax and fiscal discipline in OECD countries
Economics Letters, 124(3): 428-33, 2014, with A. Sacchi and A. Zazzaro.
This paper investigates the effects of property taxation on fiscal discipline for a sample of OECD countries over the period 1973-2011. We find that aggregate property taxation in total tax revenues is not statistically correlated with the primary surplus-to-GDP ratio. In contrast, a greater reliance on property taxes pertaining to sub-national governments contributes to fiscal discipline, suggesting that fiscal decentralization should favor responsive tax base instruments.External imbalances and fiscal fragility in the euro area
Open Economies Review, 25(1): 3-34, 2014, with P. Alessandrini, M. Fratianni and A. Hughes Hallett.
This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts cast doubt on the explanation based on the first thesis alone. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. However, differences in growth and competitiveness and capital flows between North and South have assumed a much more dominant role since the onset of the global crisis.Public debt and economic growth in advanced economies: A survey
Swiss Journal of Economics and Statistics, 149(2): 175-204, 2013, with U. Panizza
This paper surveys the recent literature on the links between public debt and economic growth in advanced economies. We find that theoretical models yield ambiguous results. Whether high levels of public debt have a negative effect on long-run growth is thus an empirical question. While many papers have found a negative correlation between debt and growth, our reading of the empirical literature is that there is no paper that can make a strong case for a causal relationship going from debt to economic growth. We also find that the presence of thresholds and, more in general, of a non-monotone relationship between debt and growth is not robust to small changes in data coverage and empirical techniques. We conclude with a discussion of the challenges involved in measuring and defining public debt and some suggestions for future research which, in our view, should emphasize cross-country heterogeneity.IMF Lending in Times of Crisis: Political Influence and Crisis Prevention
World Development, 40(10): 1944-1969, 2012, with A. Zazzaro.
In the wake of the global crisis the International Monetary Fund (IMF) has increased its exposure to developing countries and modified its lending approach to enhance its crisis prevention role. Analysis of the IMF loan arrangements in low- and middle-income countries since 2008 shows that political similarity between borrowers and G7 governments has influenced the likelihood to participate in IMF programs, especially where the crisis was severe. IMF loans have been larger in countries where Western countries have significant economic interests and where the crisis was particularly severe, suggesting that the IMF has played a role in dampening contagion effects.Total Public Debt and Growth in Developing Countries
European Journal of Development Research, 24(4): 606-626, 2012
The global crisis and the expansionary government reaction in many countries has revamped the attention of policy makers and academics on the growth effects of large public debts. Recent empirical studies investigate the impact of public debt on growth in advanced and emerging countries. This paper aims at complementing the existing evidence focusing on developing countries, where the increase in domestic borrowing, already started before the crisis, requires a more comprehensive analysis, based not only on external debt, but on total public debt. Results on a panel of low- and middle-income countries over the period 1990-2007 show that public debt has a negative impact on output growth up to a threshold of 90 percent of GDP, beyond which its effect becomes irrelevant. This non-linear effect can be explained by country-specific factors since debt overhang is a growth constraint only in countries with sound macroeconomic policies and stable institutions.Low-Income Countries and an SDR-based International Monetary System
Open Economies Review, 23(1): 129-150, 2012, with P. Alessandrini.
The global financial crisis, the weakening role of the dollar and the increasing international importance of China are calling for a reform of the international monetary system in the direction of greater multilateralism. To this end we advance a proposal based on a greater role of the Special Drawing Rights (SDRs) and focus on the potential benefits that these could bring to Low-Income Countries (LICs). SDRs would be created exogenously - with a disproportionate allocation to LICs -, but also endogenously, through a substitution account and an overdraft facility. Finally, the paper discusses the superiority of this proposal in the context of the current foreign assistance framework.Global Banking and Local Markets: A National Perspective
Cambridge Journal of Regions, Economy and Society, 2(2): 173-192, 2009, with P. Alessandrini and A. Zazzaro.
In the early 1990s, a widely-shared opinion among scholars and practitioners was that the importance of physical proximity between banks and borrowers would be doomed to drastically decrease over time and, put in extreme terms, the end of banking geography would become a real possibility. However, the empirical evidence shows an unrelenting importance of local credit markets for small borrowers and local economic development. In the paper, we selectively review the literature on the real effects of bank consolidation and produce new evidence on the role of headquarter-to-branch functional distance on relationship lending.Debt-Relief Effectiveness and Institution-Building
Development Policy Review, 27(5): 529-559, 2009.
The history of debt relief is now particularly long, the associated costs are soaring and the outcomes are at least uncertain. This paper reviews and provides new evidence on the effects of recent debt relief programs on different macroeconomic indicators in developing countries, focusing on the Highly Indebted Poor Countries. Besides, the relationship between debt relief and institutional changes is investigated to assess whether donors are moving towards and ex-post governance conditionality. Results show that debt relief is only weakly associated with subsequent improvements in economic performance. but it is correlated with increasing domestic debt in HIPCs, undermining the positive achievements in reducing external debt service. Finally, there is evidence that donors are moving towards a more sensible allocation of debt forgiveness, rewarding countries with better policies and institutions.The Debt-Growth Nexus: a Reassessment
Economics: The-Open-Access, Open-Assessment E-Journal, 2, 2008-30, 2008.
The paper investigates the relationship between external debt and economic growth, focusing on the role played by the policy and institutional framework. Results for a panel of 114 developing countries show that the debt-growth nexus depends on institutions and policies. The Debt-Laffer curve loses statistical significance once institutional quality is controlled for and debt overhang seems to be at work exclusively in countries with sound institutions. On the contrary, external debt proves to be irrelevant for countries with weak institutions. A policy implication is that efficient debt relief policies should be tailored to country-specific characteristics and conditional to a certain level of institutional quality.Institutions and Geography as Sources of Economic Development
Journal of International Development, 18(3): 351-378, 2006.
This work investigates the roots of economic development. The debate about the predominance of institutions over geography is far from reaching a firm conclusion, and this analysis highlights the main difficulties that should be addressed in order to find out the real determinants of long-run economic growth. I argue that the institutional view is not as strong as it may appear: different specifications and different institutional indicators undermine the exclusive importance of institutions. Geographical factors, related to the health and sanitary conditions and to the accessibility to the sea of a country, play a role in economic development, that goes beyond the way in which they shape institutions. The empirical evidence implies that the development policies should be directed to improving not only the quality of governance, but also the sanitary conditions in the least developed countries. However, since there is a lack of accurate indicators and difficult problems of endogeneity, more reliable instruments and indicators of geography and institutions are needed in order to achieve a firm conclusion.