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Freund, Caroline

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.
Citations 243 Scopus

Publication Search Results

Now showing 1 - 10 of 48
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All in the Family : State Capture in Tunisia

2014-05, Rijkers, Bob, Freund, Caroline

Understanding 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.

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Factory Europe? Brainier but Not Brawnier

2011-04, Behar, Alberto, Freund, Caroline

While 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.

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The Anatomy of China's Export Growth

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.

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Exporter Behavior, Country Size and Stage of Development: Evidence from the Exporter Dynamics Database

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.

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Trade, Regulations, and Income

2008, Freund, Caroline

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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Infrastructure and Employment Creation in the Middle East and North Africa

2012-01, Freund, Caroline, Ianchovichina, Elena

The report estimates Middle East and North Africa's (MENA's) infrastructure investment and maintenance needs through 2020 at 106 billion dollars per year or 6.9 percent of the annual regional gross domestic product (GDP). Developing oil exporting countries (OEC) will need to commit almost 11 percent of their GDP annually ($48 billion) on improving and maintaining their national infrastructure endowments, while the oil importing countries (OIC) and the Gulf Cooperation Council (GCC) oil exporters need approximately 6 and 5 percent of their GDP, respectively. Infrastructure investment has the potential to create jobs quickly, while providing a foundation for future growth. This is especially important in the oil importing countries, where the infrastructure gap is the greatest and employment needs are growing. However, it is also likely to be most difficult in these countries because of strained finances. Going forward, government decisions on what types of spending to expand and what to contract to achieve balanced budgets will have important implications for jobs. Prudent infrastructure development will be critical for short and long-term growth and job creation.

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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.

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The Trade Performance of the Middle East and North Africa

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.

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The Origins and Dynamics of Export Superstars

2020-02, Freund, Caroline, Pierola, Martha Denisse

Export 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.