Person: Freund, Caroline
Macroeconomics Trade & Investment
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Macroeconomics Trade & Investment
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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 - 7 of 7
Publication Is US Trade Policy Reshaping Global Supply Chains ?(World Bank, Washington, DC, 2023-11-01) Freund, Caroline; Mulabdic, Alen; Ruta, MicheleThis 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.Publication Natural Disasters and the Reshaping of Global Value Chains(World Bank, Washington, DC, 2021-06) Freund, Caroline; Mulabdic, Alen; Ruta, Michele; Mattoo, AadityaTo 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.Publication The Origins and Dynamics of Export Superstars(Published by Oxford University Press on behalf of the World Bank, 2020-02) Freund, Caroline; Pierola, Martha DenisseExport superstars are important for export growth and diversification and are typically born large. Firm-level data on manufacturing trade from 32 developing countries show that the top five exporters account for on average nearly one-third of exports, 47 percent of export growth, and a third of the growth due to export diversification over a five-year period. Within countries and industries, export growth is positively correlated with the share of exports in the top five firms. Most of the top five exporters were already large five (or eight) years ago or are new firms; it is rare for these export superstars to emerge from the bottom half of the distribution of firm sizes. For countries where detailed data exist, superstars are producers, not traders, and are primarily foreign owned.Publication 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 Deals and Delays: Firm-level Evidence on Corruption and Policy Implementation Times(Published by Oxford University Press on behalf of the World Bank, 2016-07-01) Freund, Caroline; Hallward-Driemeier, Mary; Rijkers, BobWhether demands for bribes for particular government services are associated with expedited or delayed policy implementation underlies debates around the role of corruption in private sector development. The “grease the wheels” hypothesis, which contends that bribes act as speed money, implies three testable predictions. First, on average, bribe requests should be negatively correlated with wait times. Second, this relationship should vary across firms, with those with the highest opportunity cost of waiting being more likely to pay and facing shorter delays. Third, the role of grease should vary across countries, with benefits larger where regulatory burdens are greatest. The data are inconsistent with all three predictions. According to the preferred specifications, ceteris paribus, firms confronted with demands for bribes take approximately 1.5 times longer to get a construction permit, operating license, or electrical connection than firms that did not have to pay bribes and, respectively, 1.2 and 1.4 times longer to clear customs when exporting and importing. The results are robust to controlling for firm fixed effects and at odds with the notion that corruption enhances efficiency.Publication All in the Family: State Capture in Tunisia(Elsevier, 2017-01) Rijkers, Bob; Freund, CarolineWe examine the relationship between entry regulation and the business interests of former President Ben Ali’s family using firm-level data from Tunisia. Connected firms account for a disproportionate share of aggregate employment, output and profits, especially in sectors subject to authorization and restrictions on FDI. Quantile regressions show that profit and market share premia from being connected increase along the firm-size distribution, especially in highly regulated sectors. These patterns are partly explained by Ben Ali’s relatives sorting into the most profitable sectors. The market shares of connected firms are positively correlated with exit and concentration rates in highly regulated sectors. Although causality is difficult to establish, the results are consistent with the hypothesis that the Ben Ali clan abused entry regulation for private gain at the expense of reduced competition.Publication Champions Wanted: Promoting Exports in the Middle East and North Africa(Washington, DC: World Bank, 2015-04-08) Jaud, Mélise; Freund, CarolineWhile other emerging regions were thriving, MENA's aggregate export performance over the past two decades has been consistently weak. Using detailed firm-level export data from Customs administrations, this report explains why. One central finding is that the size distribution of MENA's exporting firms is suggestive of a critical weakness at the top. With the exception of the top firm, MENA's elite exporters are smaller and weaker compared to their peers in other regions. The largest exporter is alone at the top-Zidane without a team. MENA countries have failed to nurture a group of export superstars which critically contribute to export success in other regions. Part of the reason behind weak export performance is the lack of a competitive real exchange rate. The deleterious effects of an uncompetitive currency can be traced all the way down to the firm, hurting expansion at the intensive and extensive margin and preventing the emergence of export take-offs. The lack of heavy weight exporters at the top of the distribution also reflects the region's failure to push for trade and business climate reforms energetically. Finally, MENA's prevalent cronyism and corruption under pre-Arab Spring regimes (at least) confirms that business-government ties led to distortionary allocation of favors and rent dissipation by beneficiary firms, with little evidence that those firms developed into national champions or helped lift the region's export performance. The possibility of state capture in itself should call for caution when advocating any form of government intervention. In contrast, some interventions, like export promotion programs show effects on small exporters. However, because these firms are marginal in trade, such programs cannot be game changers. More broadly, the success of MENA countries in promoting export growth and diversification as well as generating jobs depends heavily on their ability to create an environment where large firms can invest and expand exports and new, efficient firms can rise to the top.