Olafur Margeirsson is a Research Scholar at the Binzagr Institute for Sustainable Prosperity. He finished his PhD in economics (“Financial Instability and Foreign Direct Investment”) from the University of Exeter (UK) in 2014, previously having earned Dean’s Commendation and The Philip Norman Memorial Prize for his MSc. Money & Banking studies at the same university. He worked as a Junior Economist at Kaupthing Bank Research Department in Reykjavik before the fall of the Icelandic financial system. He has repeatedly assisted policy makers in his home country, Iceland, on policy matters concerning financial stability and consumer finance. His views have been projected by the Icelandic and international media alike, including the Financial Times and Le Monde. Research interests include real estate; banking; monetary history, policy and developments; financial crises; and sustainable development, in particular in relation with energy and real estate. Olaf lives and works in Switzerland. Supervisors: John Maloney
Foreign Direct Investment, FDI, is often, it is argued, one of the ways developing economies have... more Foreign Direct Investment, FDI, is often, it is argued, one of the ways developing economies have to develop faster and catch up with developed economies, from which most of the FDI activities come from. There are complications, however, and FDI can have various unforeseen and even unfavourable consequences for the economy. As such, it is vitally important for policy makers to understand those limitations and potential effects of FDI, especially in the context of sustainable economic development: FDI is a double-edged sword that must be handled with care. The following paper offers an introduction to the literature of the subject with some thoughts of the author regarding some of the potential consequences of FDI. Special emphasis is on four aspects: FDI and economic growth, FDI and other capital flows, FDI and the balance of payments and FDI and financial stability.
Hyman Minsky’s Financial Instability Hypothesis is used to construct two different indices for fi... more Hyman Minsky’s Financial Instability Hypothesis is used to construct two different indices for financial instability: a long-term index (Long Term Financial Instability) and a short-term index (Short Term Financial Instability). The former focuses on the underlying fragility of financial structures of units in the economy while the latter focuses on more immediate developments and manages to follow turmoil – “a financial crisis” – in the economy. The interplay of the indices with each other, with economic growth and with Foreign Direct Investment, both in general and in the financial industry, is probed.
In short, we find that long term financial stability, i.e. secure financial structures in the economy or a low level of Long Term Financial Instability, is sacrificed for maintaining short term financial stability. However, more Long Term Financial Instability is associated, as Minsky expected, with more fluctuations in Short Term Financial Instability: market turmoil is more common the more fragile underlying financial structures of units in the economy are. This signals that markets are ruled by short-termism. Economic growth is harmed by Short Term Financial Instability but the effects of Long Term Financial Instability are weaker. The common expectation that FDI activities strengthen financial stability is not confirmed. The relationship found hints rather in the opposite direction: FDI activities seem to cause financial instability.
Based on the those investigations and a further empirical work using data from Iceland, Leigh Harkness’s Optimum Exchange Rate System (OERS) is developed further with the intention of solving “The Policy Problem” as described by Minsky. Insights from control theory are used. The OERS, along with public debt management as carried out by Keynes, is argued to have the ability to keep economic activity in the state of a permanent “quasi-boom”. The policy implications are that the OERS should be considered as a monetary policy as it permits a free flow of capital, thereby allowing economies to reap the possible positive benefits of foreign direct investment, while still conserving financial stability.
Foreign Direct Investment, FDI, is often, it is argued, one of the ways developing economies have... more Foreign Direct Investment, FDI, is often, it is argued, one of the ways developing economies have to develop faster and catch up with developed economies, from which most of the FDI activities come from. There are complications, however, and FDI can have various unforeseen and even unfavourable consequences for the economy. As such, it is vitally important for policy makers to understand those limitations and potential effects of FDI, especially in the context of sustainable economic development: FDI is a double-edged sword that must be handled with care. The following paper offers an introduction to the literature of the subject with some thoughts of the author regarding some of the potential consequences of FDI. Special emphasis is on four aspects: FDI and economic growth, FDI and other capital flows, FDI and the balance of payments and FDI and financial stability.
Hyman Minsky’s Financial Instability Hypothesis is used to construct two different indices for fi... more Hyman Minsky’s Financial Instability Hypothesis is used to construct two different indices for financial instability: a long-term index (Long Term Financial Instability) and a short-term index (Short Term Financial Instability). The former focuses on the underlying fragility of financial structures of units in the economy while the latter focuses on more immediate developments and manages to follow turmoil – “a financial crisis” – in the economy. The interplay of the indices with each other, with economic growth and with Foreign Direct Investment, both in general and in the financial industry, is probed.
In short, we find that long term financial stability, i.e. secure financial structures in the economy or a low level of Long Term Financial Instability, is sacrificed for maintaining short term financial stability. However, more Long Term Financial Instability is associated, as Minsky expected, with more fluctuations in Short Term Financial Instability: market turmoil is more common the more fragile underlying financial structures of units in the economy are. This signals that markets are ruled by short-termism. Economic growth is harmed by Short Term Financial Instability but the effects of Long Term Financial Instability are weaker. The common expectation that FDI activities strengthen financial stability is not confirmed. The relationship found hints rather in the opposite direction: FDI activities seem to cause financial instability.
Based on the those investigations and a further empirical work using data from Iceland, Leigh Harkness’s Optimum Exchange Rate System (OERS) is developed further with the intention of solving “The Policy Problem” as described by Minsky. Insights from control theory are used. The OERS, along with public debt management as carried out by Keynes, is argued to have the ability to keep economic activity in the state of a permanent “quasi-boom”. The policy implications are that the OERS should be considered as a monetary policy as it permits a free flow of capital, thereby allowing economies to reap the possible positive benefits of foreign direct investment, while still conserving financial stability.
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In short, we find that long term financial stability, i.e. secure financial structures in the economy or a low level of Long Term Financial Instability, is sacrificed for maintaining short term financial stability. However, more Long Term Financial Instability is associated, as Minsky expected, with more fluctuations in Short Term Financial Instability: market turmoil is more common the more fragile underlying financial structures of units in the economy are. This signals that markets are ruled by short-termism. Economic growth is harmed by Short Term Financial Instability but the effects of Long Term Financial Instability are weaker. The common expectation that FDI activities strengthen financial stability is not confirmed. The relationship found hints rather in the opposite direction: FDI activities seem to cause financial instability.
Based on the those investigations and a further empirical work using data from Iceland, Leigh Harkness’s Optimum Exchange Rate System (OERS) is developed further with the intention of solving “The Policy Problem” as described by Minsky. Insights from control theory are used. The OERS, along with public debt management as carried out by Keynes, is argued to have the ability to keep economic activity in the state of a permanent “quasi-boom”. The policy implications are that the OERS should be considered as a monetary policy as it permits a free flow of capital, thereby allowing economies to reap the possible positive benefits of foreign direct investment, while still conserving financial stability.
In short, we find that long term financial stability, i.e. secure financial structures in the economy or a low level of Long Term Financial Instability, is sacrificed for maintaining short term financial stability. However, more Long Term Financial Instability is associated, as Minsky expected, with more fluctuations in Short Term Financial Instability: market turmoil is more common the more fragile underlying financial structures of units in the economy are. This signals that markets are ruled by short-termism. Economic growth is harmed by Short Term Financial Instability but the effects of Long Term Financial Instability are weaker. The common expectation that FDI activities strengthen financial stability is not confirmed. The relationship found hints rather in the opposite direction: FDI activities seem to cause financial instability.
Based on the those investigations and a further empirical work using data from Iceland, Leigh Harkness’s Optimum Exchange Rate System (OERS) is developed further with the intention of solving “The Policy Problem” as described by Minsky. Insights from control theory are used. The OERS, along with public debt management as carried out by Keynes, is argued to have the ability to keep economic activity in the state of a permanent “quasi-boom”. The policy implications are that the OERS should be considered as a monetary policy as it permits a free flow of capital, thereby allowing economies to reap the possible positive benefits of foreign direct investment, while still conserving financial stability.