Şebnem Kalemli-Özcan

Şebnem Kalemli-Özcan works with big data to look at the links between financial and real sectors in advanced and developing economies. As an expert on international finance, she sheds light on the importance of financial integration in promoting global growth.

Interview

The economic impact of financial integration

One of the key topics in Sebnem Kalemli-Özcan’s research is financial integration — the links between financial markets through cross-border capital flows or foreign participation in domestic financial markets. Kalemli-Özcan explains how financial integration, an important part of ongoing globalization processes, leads to efficient allocation of capital and promotes investment and growth.

“If you look at emerging markets, a lot of their growth is financed with capital flows,” says the economist. “So financial integration helps developing countries tremendously.”
Still, capital flows are fickle, particularly for emerging markets. This is one among several reasons for the ongoing debate around the costs and benefits of financial integration.

Understanding the lack of corporate investment in Europe

A focal point of Sebnem Kalemli-Özcan’s research has been economic growth and productivity in Europe, especially in the aftermath of the European debt crisis.

In a striking example of her big-data approach, her research is based on data from ten eurozone countries, and links firms to banks to sovereigns to quantify the role of financial factors behind sluggish corporate investment and show that debt overhang and rollover risk accounted for 60 percent of the decline in aggregate corporate investment in post-crisis Europe.

Ten years after the crisis, the de-leveraging process still affects corporate investment and, ultimately, productivity and growth. Kalemli-Özcan suggests focusing on policies that directly target the very indebted corporate sector.

Foreign investment and economic growth

It’s not only the company which receives foreign investment that benefits. Sebnem Kalemli-Özcan’s recent research reveals that FDI is beneficial for the aggregate growth of the domestic economy as well — as long as the country has strong institutions and well-developed financial markets. “If you’re an investor, you want to make sure you are in an environment where you can function. This is very important in the sense that countries that want to attract FDI should really think about strengthening their institutional environment. If you look at the worldwide allocation of FDI among emerging markets right now, it will be in markets that have done a lot of structural reforms.”