Macroeconomics Trade & Investment
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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.
Publication Search Results
Now showing 1 - 10 of 14
Publication(World Bank, Washington, DC, 2014-03) Rijkers, Bob ; Freund, Caroline ; Nucifora, AntonioThis paper examines the relationship between regulation and the business interests of President Ben Ali and his family, using firm-level data from Tunisia for 1994-2010. Data on investment regulations are merged with balance sheet and firm-level census data in which 220 firms owned by the Ben Ali family are identified. These connected firms outperform their competitors in terms of employment, output, market share, profits, and growth and sectors in which they are active are disproportionately subject to authorization requirements and restriction on foreign direct investment. Consistent with theories of capture, performance differences between connected firms and their peers are significantly larger in highly regulated sectors. In addition, the introduction of new foreign direct investment restrictions and authorization requirements in narrowly defined five-digit sectors is correlated with the presence of connected firms and with their startup, suggesting that regulation is endogenous to state capture. The evidence implies that Tunisia's industrial policy was used as a vehicle for rent creation for the president and his family.
Publication(World Bank, Washington, DC, 2008-05) Amiti, Mary ; Freund, CarolineDecomposing 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.
Publication(World Bank, Washington, DC, 2008-10) Freund, Caroline ; Pierola, Martha DenisseHow can countries stimulate and sustain strong export growth? To answer this question, the authors examine 92 episodes of export surges, defined as significant increases in manufacturing export growth that are sustained for at least seven years. They find that export surges in developing countries tend to be preceded by a large real depreciation-which leaves the exchange rate significantly undervalued-and a reduction in exchange rate volatility. In contrast, in developed countries, the role of the exchange rate is less pronounced. The authors examine why the exchange rate is so important in developing countries and find that the depreciation leads to a significant reallocation of resources in the export sector. In particular, depreciation generates more entries into new export products and new markets, and the percentage of new entries that fail after one year declines. These new products and new markets are important, accounting for 25 percent of export growth during the surge in developing countries. The authors argue that maintaining a competitive currency leads firms to expand the product and market space for exports, inducing a large reorientation of the tradable sector.
Publication(World Bank, Washington, DC, 2008-10) Estevadeordal, Antoni ; Freund, Caroline ; Ornelas, EmanuelThis 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.
Publication(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.
Publication( 2012-10) Cebeci, Tolga ; Fernandes, Ana M. ; Freund, Caroline ; Pierola, Martha DenisseThis 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.
Publication(World Bank, Washington, DC, 2012-10) Freund, Caroline ; Pierola, Martha DenisseThis 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.
Publication(World Bank, Washington, DC, 2014-05) Rijkers, Bob ; Freund, Caroline ; Nucifora, AntonioUnderstanding state-business relationships and how they have shaped the institutional architecture of countries in the Middle East and Northern Africa (MENA) is crucial for the identification of systemic vulnerabilities and reform priorities. In this paper, the authors examine the relationship between regulation and the business interests of President Ben Ali and his family, using unique firm-level data from Tunisia for 1994 to 2010, and document how Tunisia s investment policy was abused to serve the president s family s private interests. In spite of widespread recognition of its importance, empirical evidence on state capture has been limited by a lack of data. To redress this lacuna, the authors merge data on investment regulations with balance sheet and firm-level census data in which 220 firms owned by the Ben Ali family are identified. The data set assembled allows identifying the relationship between investment policies and the business interests of Tunisia's politicians. Tunisians today literally continue to pay the price of privileges extended to an elite group of entrepreneurs. Reform efforts have not yet resulted in an opening up of economic opportunities for all, which is unfortunate since this was one of the central demands of those who took the streets a little over three years ago.
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 DenisseThis 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.
Publication(World Bank, Washington, DC, 2011-04) Behar, Alberto ; Freund, CarolineWhile intermediates comprise the majority of total goods trade in the European Union (EU), their share of total trade has remained flat since 1996. This implies that EU enlargement has had a limited effect on the size of Factory Europe. However, enlargement coincides with an increase in Factory Europe’s complexity. Using two new measures of the complexity of intermediates products, we show that internal EU intermediates trade has become more sophisticated and uses more relationship-specific inputs over time and relative to external EU trade. In other words, Factory Europe has become brainier but not necessarily brawnier. There is also an asymmetry. While the 1995 EU members have not become more significant trading partners for the new members, the new members have become a more important source of intermediates for the EU15 and also a more important market. In sum, the structure of EU trade has changed--not only is the EU15 giving the new members a bigger share of its tasks, it is also giving them harder ones.