Freund, Caroline

Person:
Freund, Caroline

Macroeconomics Trade & Investment

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Macroeconomics Trade & Investment

Last updated January 31, 2023

Biography

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.

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Now showing 1 - 10 of 15

Trade, Regulations, and Growth

(World Bank, Washington, DC, 2004-03) Bolaky, Bineswaree ; Freund, Caroline

Trade does not stimulate growth in economies with excessive business and labor regulations. The authors examine the effect of openness on growth using cross-country regressions in both levels and changes. Results from the levels regressions imply that increased openness is associated with a lower standard of living in heavily-regulated economies. Growth regressions confirm that the effect of increased trade on growth is absent in these countries. The authors also find that once they control for the effect of trade on growth in heavily regulated economies, the evidence that trade positively affects growth is stronger than has been found in previous studies. Excessive regulations restrict growth because resources are prevented from moving into the most productive sectors and to the most efficient firms following liberalization. In addition, in highly regulated economies, increased trade is more likely to occur in the wrong goods-that is, goods where comparative advantage does not lie. The results imply that countries must create a sound business environment before trade can be used as an engine of growth.
On the Conservation of Distance in International Trade

(World Bank, Washington, DC, 2004-05) Berthelon, Matias ; Freund, Caroline

The volume of world trade has grown more than twice as fast as real world income since 1980. Surprisingly, the effect of distance on trade has increased during this period. It could be that countries are trading greater volumes of goods that are highly sensitive to distance. An alternative explanation is that distance has become more import for a significant share of goods. Using highly disaggregated bilateral trade data, the authors find that adjustment in the composition of trade has not influenced the way in which distance affects trade. In contrast, for about 25 percent of industries, distance has become more important. This implies that the increased distance sensitivity of trade is a result of a change in relative trade costs that affects many industries, as opposed to a shift to more distance-sensitive products. The authors also find that homogeneous products are twice as likely to have become more distance sensitive as compared with differentiated goods. This is consistent with the hypothesis that falling search costs, resulting from improvements in transport and communications, are relatively more important for differentiated goods. The results offer no evidence of the "death of distance." Rather, they suggest that distance-related relative trade costs have remained unchanged or shifted in favor of proximate markets.
The Anatomy of China's Export Growth

(World Bank, Washington, DC, 2008-05) Amiti, Mary ; Freund, Caroline

Decomposing China's real export growth, of over 500 percent since 1992, reveals a number of interesting findings. First, China's export structure changed dramatically, with growing export shares in electronics and machinery and a decline in agriculture and apparel. Second, despite the shift into these more sophisticated products, the skill content of China's manufacturing exports remained unchanged, once processing trade is excluded. Third, export growth was accompanied by increasing specialization and was mainly accounted for by high export growth of existing products (the intensive margin) rather than in new varieties (the extensive margin). Fourth, consistent with an increased world supply of existing varieties, China's export prices to the United States fell by an average of 1.5 percent per year between 1997 and 2005, while export prices of these products from the rest of the world to the United States increased by 0.4 percent annually over the same period.
Does Regionalism Affect Trade Liberalization toward Non-Members?

(World Bank, Washington, DC, 2008-10) Estevadeordal, Antoni ; Freund, Caroline ; Ornelas, Emanuel

This paper examines the effect of regionalism on unilateral trade liberalization using industry-level data on applied most-favored nation tariffs and bilateral preferences for ten Latin American countries from 1990 to 2001. The findings show that preferential tariff reduction in a given sector leads to a reduction in the external (most-favored nation) 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, the results suggest that concerns about a negative effect of preferential liberalization on external trade liberalization are unfounded.
Trading on Time

(World Bank, Washington, DC, 2006-05) Djankov, Simeon ; Freund, Caroline ; Pham, Cong S.

The authors determine how time delays affect international trade using newly collected World Bank data on the days it takes to move standard cargo from the factory gate to the ship in 126 countries. They estimate a modified gravity equation, controlling for endogeneity and remoteness. On average, each additional day that a product is delayed prior to being shipped reduces trade by at least 1 percent. Put differently, each day is equivalent to a country distancing itself from its trade partners by 70 kilometers on average. Delays have an even greater impact on developing country exports and exports of time-sensitive goods, such as perishable agricultural products. In particular, a day's delay reduces a country's relative exports of time-sensitive to time-insensitive agricultural goods by 6 percent.
Exporter Dynamics Database

( 2012-10) Cebeci, Tolga ; Fernandes, Ana M. ; Freund, Caroline ; Pierola, Martha Denisse

This paper introduces the Exporter Dynamics Database. The database includes exporter characteristics and measures of exporter growth based on firm-level customs information from 38 developing and seven developed countries, primarily for the period between 2003 and 2010. The measures are available at different levels of aggregation, including: a) country-year, b) country-year-product, and c) country-year-destination. Several new stylized facts about exporter behavior across countries emerge from the database. (i) Larger or more developed economies have more exporters, larger and more diversified exporters, and lower entry and exit rates than smaller or developing economies. (ii) In the short run, expansions along the intensive margin (exporter size) contribute more to export growth than expansions along the extensive margin (number of exporters). (iii) Exit rates are highly correlated with entry rates and both are negatively correlated with survival rates, average exporter size, and diversification. (iv) The number of exporters and the entry and exit rates in a country-product group are partially driven by country and product-group effects; however, the average size of exporters in a country-product group is not. Although the first three facts can be explained by models incorporating firm heterogeneity and uncertainty, the fourth fact is more difficult to explain with existing models. Several findings are confirmed in this database, including the importance of large multi-product firms. This database can be a valuable tool to improve the understanding of the micro-foundations of export growth, by providing new insights about exporter characteristics and dynamics.
Export Superstars

(World Bank, Washington, DC, 2012-10) Freund, Caroline ; Pierola, Martha Denisse

This paper shows that the top 1 percent of exporters critically shape trade patterns, using firm-level data from 32 countries. In particular, variation in average firm size (the intensive margin) explains over two thirds of the variation in the sector distribution of exports across countries, the remaining share is explained by variation in the number of firms (the extensive margin). Variation in average firm size across sectors is largely driven by variation in the sectoral distribution of exports from the top 1 percent of firms in a country -- export superstars. In contrast, the sectoral distribution of exports from the remaining 99 percent of firms is more similar across countries, and the distribution of the total number of firms across sectors is very similar across countries. This paper also finds that current export superstars typically entered the export market relatively large, reached the top 1 percent after less than three years of exporting, and account for more than half of a country's total exports, export growth and diversification. The results underscore the role of individual firms in determining both trade volumes and trade patterns.
Episodes of Unemployment Reduction in Rich, Middle-Income, and Transition Economies

(World Bank, Washington, DC, 2014-05) Freund, Caroline ; Rijkers, Bob

This paper studies the incidence and determinants of episodes of drastic unemployment reduction, defined as swift, substantial, and sustained declines in unemployment. Forty-three episodes are identified over a period of nearly three decades in 94 rich, middle-income, and transition countries. Unemployment reductions often coincide with an acceleration of growth and an improvement in macroeconomic conditions. Episodes are much more prevalent in countries with higher levels of unemployment and, given unemployment, are more likely in countries with better regulation. An efficient legal system that enforces contracts expeditiously is particularly important for reducing unemployment. The results imply that while employment is largely related to the business cycle, better regulation reduces the likelihood of high unemployment and facilitates a more rapid recovery in the event unemployment builds up.
What Constrains Africa's Exports?

(World Bank, Washington, DC, 2010-01) Freund, Caroline ; Rocha, Nadia

This paper examines the effects of transit, documentation, and ports and customs delays on Africa s exports. The authors find that transit delays have the most economically and statically significant effect on exports. A one-day reduction in inland travel times leads to a 7 percent increase in exports. Put another way, a one-day reduction in inland travel times translates to a 1.5 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. The analysis controls for the possibility that greater trade leads to shorter delays in three ways. First, it examines the effect of trade times on exports of new products. Second, it evaluates the effect of delays in a transit country on the exports of landlocked countries. Third, it examines whether delays affect time-sensitive goods relatively more. The authors show that large transit delays are relatively more harmful because of high within-country variation.
Exporter Behavior, Country Size and Stage of Development: Evidence from the Exporter Dynamics Database

(World Bank, Washington, DC, 2015-10) Fernandes, Ana M. ; Freund, Caroline ; Pierola, Martha Denisse

This paper presents new data on the micro structure of the export sector for 45 countries and studies how exporter behavior varies with country size and stage of development. Larger countries and more developed countries have more exporters, larger exporters, and a greater share of exports controlled by the top 5 percent. The extensive margin (more firms) plays a greater role than the intensive margin (average size) in supporting exports of larger countries. In contrast, the intensive margin is relatively more important in explaining the exports of richer countries. Exporter entry and exit rates are higher and entrant survival is lower at an early stage of development. The paper discusses the results in light of trade theories with heterogeneous firms and the empirical literature on resource allocation, firm size, and development. An implication from the findings is that developing countries export less because the top of the firm-size distribution is truncated.