Freund, Caroline

Macroeconomics Trade & Investment
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Last updated January 31, 2023
Caroline Freund is Director of Trade, Regional Integration and Investment Climate. Previously she was a Senior Fellow at the Peterson Institute for International Economics.  She has also worked as Chief Economist for the Middle East and North Africa at the World Bank, after working for nearly a decade in the international trade unit of the research department.  Freund began her career in the international finance division of the Federal Reserve Board and spent a year visiting the research department of the IMF.  She has published extensively in academic journals and is the author of Rich People Poor Countries: The Rise of Emerging Market Tycoons and their Mega Firms.  She is a US national and received a PhD in economics from Columbia University.
Citations 232 Scopus

Publication Search Results

Now showing 1 - 9 of 9
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    What Constrains Africa’s Exports?
    (World Bank, 2011-10-18) Freund, Caroline ; Rocha, Nadia
    Africa's share of global exports has dropped by 50 percent over the last three decades. To stem this decline, aid for trade to the region has increased rapidly in recent years. Assistance can target improvements in three important components of trade facilitation: transit times, documentation, and ports and customs. Of these, transit delays have the most economically and statistically significant effect on exports. Specifically, a one day reduction in inland travel times leads to a 7 percent increase in exports, after controlling for the standard determinants of trade and potential endogeneity. Put another way, a one day reduction in inland travel times translates into a 2 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. Large transit delays are relatively more harmful because they are associated with high (within-country) variation, making delivery targets difficult to meet. Finally, the results imply that transit times are primarily about institutional features—such as border delays, road quality, fleet class and competition and security—and not geography.
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    Third-Country Effects of Regional Trade Agreements
    ( 2010) Freund, Caroline
    Does regionalism negatively impact non-members? To answer this question, we examine the effect of regional trade agreements (RTAs) on imports from non-members and the tariffs that they face. Using data from six RTAs in Latin America and Europe, we do not find evidence that implementation of the regional agreements is associated with trade diversion from third countries to regional members. Using detailed industry data on preference margins and most-favoured nation (MFN) tariffs for three trade agreements in Latin America over 12 years, we find that greater preference margins do not significantly reduce imports from third countries. We also look at the effect of preferences on external tariffs. We find evidence that preferential tariff reduction tends to precede the reduction of external MFN tariffs in a given sector, offering evidence of tariff complementarity. Overall, the results suggest that regionalism does not significantly harm non-members.
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    Trade, Regulations, and Income
    ( 2008) Freund, Caroline ; Bolaky, Bineswaree
    We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian "creative destruction", which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.
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    Trade Policy and Loss Aversion
    ( 2008) Freund, Caroline ; Ozden, Caglar
    We develop a political economy model where loss aversion and reference dependence are important in shaping people's preferences over trade policy. The policy implications of the augmented model differ in three ways: there is a region of compensating protection, where a decline in the world price leads to an offsetting increase in protection, such that a constant domestic price is maintained; protection following a single negative price shock will be persistent; and irrespective of the extent of lobbying, there will be a deviation from free trade that favors loss-making industries. The augmented model explains protections of the US steel industry since 1980.
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    Remittances, Transaction Costs, and Informality
    ( 2008) Freund, Caroline ; Spatafora, Nikola
    Recorded workers' remittances to developing countries reached $167 billion in 2005, bringing increasing attention to these flows as a potential tool for development. In this paper, we explore the determinants of remittances and their associated transaction costs. We find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions. In turn, transfer costs are lower when financial systems are more developed and exchange rates less volatile. The negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high. We provide evidence from household surveys supportive of a sizeable informal sector.
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    Regional Trade Agreements
    ( 2010) Freund, Caroline ; Ornelas, Emanuel
    This article reviews the theoretical and the empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, whereas the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences.
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    Trading on Time
    ( 2010) Djankov, Simeon ; Freund, Caroline ; Pham, Cong S.
    We determine how time delays affect trade, using newly collected data on the days it takes to move standard cargo from the factory gate to the ship in 98 countries. We estimate a difference gravity equation and find that each additional day that a product is delayed prior to being shipped reduces trade by more than 1%. Put differently, each day is equivalent to a country distancing itself from its trade partners by about 70 km on average. We also find that delays have a relatively greater impact on exports of time-sensitive goods, such as perishable agricultural products.
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    Does Regionalism Affect Trade Liberalization toward Nonmembers?
    ( 2008) Estevadeordal, Antoni ; Freund, Caroline ; Ornelas, Emanuel
    We examine the effect of regionalism on unilateral trade liberalization using industry-level data on applied most-favored nation (MFN) tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001. We find that preferential tariff reduction in a given sector leads to a reduction in the external (MFN) tariff in that sector. External liberalization is greater if preferences are granted to important suppliers. However, these "complementarity effects" of preferential liberalization on external liberalization do not arise in customs unions. Overall, our results suggest that concerns about a negative effect of preferential liberalization on external trade liberalization are unfounded.
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    On the Conservation of Distance in International Trade
    ( 2008) Berthelon, Matias ; Freund, Caroline
    Using disaggregated bilateral trade data, we find that the elasticity of trade to distance increased (in absolute value) by about 10% since 1985. To explore the reasons for this shift, we decompose the change in the distance elasticity of trade into the part due to a shift in the composition of trade among industries and the part due to a change in the distance sensitivity within industries. We find that adjustment in the composition of trade had little effect, but for 40% of industries distance became more important, with nearly all of the remaining industries showing no significant change. We explore alternative hypotheses as to why the elasticity of trade to distance increased in some industries. We find that homogeneous goods, bulky goods, and high tariff goods became significantly more distance sensitive. In contrast, the evidence implies that changes in tariffs and freight costs have reduced the importance of distance on trade. We conclude that the increase in the importance of distance over time is related to the substitutability of goods and the level of trade costs, but not to changes in tariffs or freight costs.