According to recent European Union (EU) decisions at summits in Brussels and Copenhagen, EU enlargement is scheduled for 1 May 2004. Ten countries Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia are invited to enter the European Union.
A question of sharing a common monetary policy will then emerge. By looking at the degree of synchronization of business cycles, which is one of several optimal currency area (OCA) criteria, we assess if it would be beneficial for candidate countries to join the European Monetary Union (EMU) immediately upon entering the EU, or postponing for a number of years. More specifically, the paper has the following two main objectives.
We study empirically the effect of focus (specialization) vs. diversification on the return and the risk of banks using data from 105 Italian banks over the period 1993–1999. Specifically, we analyze the tradeoffs between (loan portfolio) focus and diversification using data that is able to identify loan exposures to different industries, and to different sectors, on a bank-by-bank basis. Our results are consistent with a theory that predicts a deterioration in the effectiveness of bank monitoring at high levels of risk and upon lending expansion into newer or competitive industries. Our most important finding is that both industrial and sectoral loan diversification reduce bank return while endogenously producing riskier loans for high risk banks in our sample. For low risk banks, these forms of diversification either produce an inefficient risk–return tradeoff or produce only a marginal improvement. A robust result that emerges from our empirical findings is that diversification of bank assets is not guaranteed to produce superior performance and/or greater safety for banks.
Should financial institutions (FIs) and banks be focused or diversified? Does the extent of focus or diversification affect the quality of their loan portfolios? Does diversification, based on traditional portfolio theory wisdom, lead to greater safety for FIs and banks? In this paper, we undertake an empirical investigation of these questions. The evidence we present suggests that, in contrast to the recommendations of traditional portfolio and banking theories, diversification of bank assets is not guaranteed to produce superior return performance and/or greater safety for banks.
Liberalizing trade in services is important for economic growth both in the United States and abroad. As an economy develops, services tend to increase as a share of gross domestic product (GDP) and as a share of trade. Like many advanced industrialized economies, the United States has a global competitive advantage in services and can benefit from services liberalization abroad by gaining access to markets and increasing foreign market share. But the largest gains may be realized by developing countries, in which trade liberalization in services can bring transformative change to the broader economy, increasing productivity at the firm, industry, and economy-wide level.
Despite the immense potential benefits from services liberalization, services remain highly protected in most countries. One impediment to liberalization has been the difficulty in assessing the effects of services liberalization, both qualitatively and quantitatively. Recent efforts to pursue liberalization have spawned a number of studies on the economic effects of such reforms. In this article, we explore recent empirical evidence of services liberalization efforts and economic effects. We aim to translate key findings into useful stylized facts for computable general equilibrium (CGE) modeling efforts in this area.
