Date of Award
Doctor of Philosophy (PhD)
Dr. Diego Escobari
Dr. Alejandro Serrano
Dr. André Varella Mollick
This dissertation consists of three chapters, focusing on the effects that developed countries have on their developing country trading partners with the consideration of macroeconomic variables. In Chapter I, I explore the differences in the drivers and the corresponding magnitude effects on domestic real stock returns during fixed and floating exchange rate regimes. In Chapter II, the equity developed market effects on domestic real stock returns is determined during the pre- and post-great recession periods under floating exchange rate regimes. Chapter III summarizes the findings and provides concluding remarks regarding the benefits and disadvantages in adopting a floating exchange rate regime and the effects of monetary policy on developing countries during pre- and post-great recession periods during floating exchange rate regimes.
In Chapter I, through the use of a basic VAR, impulse response functions, and variance decompositions on developing country real stock returns, I find that external developed country equity markets strongly influence the domestic returns as the primary indicator during both fixed and floating exchange rate regimes, while trade is irrelevant. More importantly, the developing country annual stock returns during floating regimes prove to be greater than that for the fixed regimes. Even though domestic equity market volatility is greater during the floating exchange rate period, it is not considerable enough to merit a developing countries’ reluctance to adopt a floating exchange rate regime. These results favor the attraction for developing countries to adopt a floating exchange rate regime, a move toward a market-oriented economy, contrary to some researchers. Monetary policy as outlined by the Mundell-Fleming Theory is ineffective for developing countries during their floating exchange rate regime periods. Extended research regarding the degree of influence of the theoretical assumptions is suggested.
In Chapter II, I examine the differences in the primary indicators and magnitudes of influence in explaining changes in domestic developing country real stock returns during the pre- and post-great recession periods, herein referred to as pre- and post-crisis periods. The study is conducted during floating exchange rate regimes, allowing countries an equal benefit in adjusting monetary policy as an economic stabilization tool. The primary driver during both the pre- and post-crisis periods is the external and exogenous developed country equity market with a strong influence of 24.72 and 26.33 percent, for the pre- and post-crisis periods, respectively. These findings support the premise that financial channels and not trading channels are more important in crisis recovery. The developed countries show to have rebounded from the recession, with annual returns of 9.94 percent and 10.80 percent for the pre-crisis and post-crisis periods, respectively. During the pre-crisis period, the developing countries experienced annual returns of 68.52 percent, but have yet to fully rebound with a post-crisis mean annual return of 8.16 percent. As expected, the developed countries have rebounded quicker than the developing countries, suggesting an asymmetric affect based on country development with the developing countries absorbing a much greater initial adverse effect on returns. Post-crisis, the developed and developing country equity markets are experiencing a positive 1.61 and 1.54 slope trend on returns, respectively, representing a common or near common recovery rate. During the post-recession period, the annual stock returns, for the developed and developing countries are 10.80 percent and 11.84 percent, respectively. Thereby confirming the common, or near common recovery rate.
In Chapter III, I summarize the dissertation findings and provide concluding remarks on research expansion. Emerging countries continue to grow and increase in their contribution to the world economy. With the tendency of developing countries moving toward increased exchange rate flexibility, they are automatically drawn into the integrated world economy in terms of trade of good and services, and financial transactions. I provide evidence that the benefits associated with a floating exchange rate regime for a developing country is greater than maintaining a fixed exchange rate regime. These findings benefit both researchers and investors in their decision-making process. I provide evidence that the benefits associated with an adoption of a floating exchange rate regime provide an incremental increase in economic control through monetary policy. These findings benefit both researchers and investors in their decision-making process as developing countries continue to move toward an equity market-based economy and positively effecting the global economy.
Maldonado, Jorge S., "The Effects of Developed Country Equity Markets on Developing Country Trading Partner Growth" (2018). Theses and Dissertations - UTRGV. 270.