Freund, Caroline

Person:
Freund, Caroline

Macroeconomics Trade & Investment

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Macroeconomics Trade & Investment

Last updated: November 1, 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 48

Is US Trade Policy Reshaping Global Supply Chains ?
(World Bank, Washington, DC, 2023-11-01) Freund, Caroline; Mulabdic, Alen; Ruta, Michele
This paper examines the reshaping of supply chains using detailed US 10-digit import data (tariff-line level) between 2017 and 2022. The results show that while US-China decoupling in bilateral trade is real, supply chains remain intertwined with China. Over the period, China’s share of US imports fell from 22 to 16 percent. The paper shows that the decline is due to US tariffs. US imports from China are being replaced with imports from large developing countries with revealed comparative advantage in a product. Countries replacing China tend to be deeply integrated into China’s supply chains and are experiencing faster import growth from China, especially in strategic industries. Put differently, to displace China on the export side, countries must embrace China’s supply chains. Within products, the reorientation of trade is consistent with a “China + 1” strategy, as opposed to diversified sourcing across multiple countries. There is some evidence of nearshoring, but it is exclusive to border nations, and there is no consistent evidence of reshoring. Despite the significant reshaping, China remained the top supplier of imported goods to the US in 2022.
Remittances: Transaction Costs, Determinants, and Informal Flows
(World Bank, Washington, DC, 2005-09) Freund, Caroline; Spatafora, Nikola
Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions."
Natural Disasters and the Reshaping of Global Value Chains
(World Bank, Washington, DC, 2021-06) Freund, Caroline; Mulabdic, Alen; Ruta, Michele; Mattoo, Aaditya
To understand the longer term consequences of natural disasters for global value chains, this paper examines trade in the automobile and electronic sectors after the 2011 earthquake in Japan. Contrary to widespread expectations, the analysis shows that the shock did not lead to reshoring, nearshoring, or diversification; and trade in intermediate products was disrupted less than trade in final goods. Imports did shift to new suppliers, especially where dependence on Japan was greater. But production relocated to developing countries rather than to other top exporters. Despite important differences, the observed pattern of switching may be relevant to disasters like the COVID-19 pandemic.
All in the Family : State Capture in Tunisia
(World Bank, Washington, DC, 2014-03) Nucifora, Antonio; Rijkers, Bob; Freund, Caroline
This 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.
Regional Trade Agreements
(2010-05-01) Ornelas, Emanuel; Freund, Caroline
This paper reviews the theoretical and 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 of 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, while 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.
What Constrains Africa's Exports?
(World Bank, Washington, DC, 2010-01) Rocha, Nadia; Freund, Caroline
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.
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.
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.
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.
The Trade Performance of the Middle East and North Africa
(World Bank, Washington, DC, 2011-07) Behar, Alberto; Freund, Caroline
This paper characterizes the trade performance of the Middle East and North Africa (MENA) over the past 15 years. Cross-section results show that MENA's exports to the outside world were only one third of their potential in recent years, after controlling for the standard determinants of trade. Results from panel data show that MENA's exports have been expanding more rapidly than exports from the rest of the world, offering some evidence of convergence. Still, at historical growth rates, it would take 20 years for MENA countries to reach potential trade. When we exclude natural resources, exports are also only one third of the benchmark, but the improved export performance over time is much slower and implies it could take twice as long to reach potential. Interestingly, while MENA also under-trades within the region, the extent of under-trading is less acute than with the outside world. There is, however, no indication of more rapid regional integration over time, suggesting that recent trade agreements among MENA countries have not stimulated regional trade to a greater extent than external trade. Finally, the report examines intra-industry trade, which has characterized world trade growth over the period. East Asia and Europe show large and rising intra-industry trade, both globally and regionally, reflecting increased trade in differentiated goods and the expansion of supply chains. Despite neighboring these regions, the MENA countries have been largely left out of this transformation.