Investor Sentiment and Employment

Abstract

<jats:p>We develop a multi-country model with moral hazard and noise traders and show that investor sentiment should affect employment growth both domestically and abroad. Using a large sample of international industry-level data, we find strong support for the model’s predictions. We show that U.S. investor sentiment has a positive association with labor market conditions around the world, due to spillover effects as well as foreign direct investments from the United States. We also find that U.S. sentiment amplifies the negative effect of local financial crises on job losses, which supports the idea that financial development has a “dark side.”</jats:p>

Technological greenness and long-run performance

“…We define a country's degree of financial development as the (standardized) ratio between total banking credit and real GDP, calculated as a country-level average between 1975 and 1990. In predetermining this variable, we seek to avoid the potential confounding effect of current economic condition and smooth out time variation in the size of banking credit due for example to booms or busts in the financial system (see, e.g., Rajan and Zingales (1998); Pagano and Pica (2012); Montone and Zwinkels (2020)). The choice of a banking measure over a stock market measure of financial development reflects the fact that the firms in our sample largely depend on debt to carry out their investments.…”