Trade/Foreign Direct Investment

One more resource curse: Dutch disease and export concentration
Bahar, D. & Santos, M., 2018. One more resource curse: Dutch disease and export concentration. Journal of Development Economics , 132 (May 2018) , pp. 102-114. Publisher's VersionAbstract

Economists have long discussed the negative effect of Dutch disease episodes on the non-resource tradable sector as a whole, but little has been said on its impact on the composition of the non-resource export sector. This paper fills this gap by exploring to what extent concentration of a country's non-resource export basket is determined by their exports of natural resources. We present a theoretical framework that shows how upward pressure in wages caused by a resource windfall results in higher export concentration. We then document two robust empirical findings consistent with the theory. First, using data on discovery of oil and gas fields and of commodity prices as sources of exogenous variation, we find that countries with larger shares of natural resources in exports have more concentrated non-resource export baskets. Second, we find capital-intensive exports tend to dominate the export basket of countries prone to Dutch disease episodes.

Listen to the podcast interview with the authors

Guven, D. & Miagkyi, M., 2016. Albania's Credit Market.Abstract

Credit market activity in Albania has been sluggish in recent years in spite of low and declining interest rates. The economy lost its growth momentum after 2009. Investment and lending activity slowed down substantially despite low interest rates, relative macroeconomic resilience, and available capacity in the private sector to take on more debt. This study analyzes the supply (lenders’) and demand (borrowers’) sides of the market.

The reason behind the credit market failure is a supply-demand mismatch. Poor financial intermediation is the main problem on the supply side. Despite excess liquidity in the financial sector, banks are excessively risk-averse, bank practices and products are unsophisticated, and non-bank financial market is underdeveloped. Excessive risk aversion translates into tight credit standards, credit rationing and credit crunch for some economic sectors, in particular those dominated by SMEs. On the demand side, firms overall have a low appetite to expand, limited capacity to create bankable and financially viable projects, and are also constrained by infrastructural gaps and economic uncertainty. The mismatch results from the fragmentation of the credit market, with reliable borrowers from traditional sectors having easy access to finance, and other segments being almost fully deprived of credit.

Government and donor-led policies to mitigate the problem have had little success. Albania enjoys access to a number of domestic and external funding schemes primarily focused on alleviating funding constraints for credit-deprived sectors, but these programs have been ineffective. Further study is needed to understand the reasons behind the limited success of these programs.

A National Development Bank (NDB) could address some of the observed credit market challenges. While an NDB’s ability to directly resolve demand-side constraints would be limited, an NDB could effectively tackle supply-side constraints in the credit market as well as provide surveillance and collect information from the private sector, leverage technical assistance, and develop tailored financial products. Establishing an NDB should be considered carefully, taking into account functional, governance, funding, staffing and other risk factors.

2016. Targeting Investment from Japan: Promising Leads in Targeted Sectors in Sri Lanka.Abstract
In October 2016, at the request of the Government of Sri Lanka and in advance of a investment promotion trip to Japan, this presentation was prepared to experiment with new forms of communication to Japanese industry groups. CID used export data, qualitative research on companies, and comparative work on free trade agreements to identify promising opportunities for Japanese investment in Sri Lanka in targeted sectors, which were emerging through work by Sri Lanka’s Ministry of Development Strategies and International Trade with the support of CID.
Bahar, D., 2017. The Hardships of Long Distance Relationships: Time Zone Proximity and Knowledge Transmission within Multinational Firms.Abstract
Using a unique dataset on worldwide multinational corporations with precise location of headquarters and affiliates, I present evidence of a trade-off between distance to the headquarters and the knowledge intensity of the foreign subsidiary’s economic activity, emerging from dynamics related to the proximity-concentration hypothesis. This trade-off is strongly diminished the higher the overlap in working hours between the headquarters and its foreign subsidiary. In order to rule out biases arising from confounding factors, I implement a regression discontinuity framework to show that the economic activity of a foreign subsidiary located just across the time zone line that increases the overlap in working hours with its headquarters is, on average, about one percent higher in the knowledge intensity scale. I find no evidence of the knowledge intensity and distance trade-off weakening when a non-stop flight exists between the headquarters and the foreign subsidiary. The findings suggest that lower barriers to real-time communication within the multinational corporation play important role in the location strategies of multinational corporations.
Frasheri, E., 2016. Of Knights and Squires: European Union and the Modernization of Albania.Abstract

In this paper, I question the idea that a country develops and democratizes merely by pursuing a model of deeper regional integration with more prosperous countries. I examine the case of Albania’s integration into the European Union to show that more often than not, transition reproduces hierarchies and inequities that usually underpin relations between a prosperous center and a backward periphery. Instead of being a cure, a solution to the political primitivism and underdevelopment, the story with Europeanization as a model of modernization suggests that despite noble intentions and goals, reforms in the name of the European Union end up foregrounding a security state apparatus, impose an ideological hegemony, and maintain a political culture that inhibits democratization, while discouraging and displacing the need for endogenous growth strategies.

This paper is published in the North Carolina Journal of International Law (Volume 42, Issue 1) 

Of Knights and Squires: European Union and the Modernization of Albania
Frasheri, E., 2016. Of Knights and Squires: European Union and the Modernization of Albania. North Carolina Journal of International Law , 42 (1) , pp. 1. Publisher's VersionAbstract

In this paper, I question the idea that a country develops and democratizes merely by pursuing a model of deeper regional integration with more prosperous countries. I examine the case of Albania’s integration into the European Union to show that more often than not, transition reproduces hierarchies and inequities that usually underpin relations between a prosperous center and a backward periphery. Instead of being a cure, a solution to the political primitivism and underdevelopment, the story with Europeanization as a model of modernization suggests that despite noble intentions and goals, reforms in the name of the European Union end up foregrounding a security state apparatus, impose an ideological hegemony, and maintain a political culture that inhibits democratization, while discouraging and displacing the need for endogenous growth strategies.

Coscia, M., Hausmann, R. & Neffke, F., 2016. Exploring the Uncharted Export: An Analysis of Tourism-Related Foreign Expenditure with International Spend Data.Abstract

Tourism is one of the most important economic activities in the world: for many countries it represents the single largest product in their export basket. However, it is a product difficult to chart: "exporters" of tourism do not ship it abroad, but they welcome importers inside the country. Current research uses social accounting matrices and general equilibrium models, but the standard industry classifications they use make it hard to identify which domestic industries cater to foreign visitors. In this paper, we make use of open source data and of anonymized and aggregated transaction data giving us insights about the spend behavior of foreigners inside two countries, Colombia and the Netherlands, to inform our research. With this data, we are able to describe what constitutes the tourism sector, and to map the most attractive destinations for visitors. In particular, we find that countries might observe different geographical tourists' patterns - concentration versus decentralization -; we show the importance of distance, a country's reported wealth and cultural affinity in informing tourism; and we show the potential of combining open source data and anonymized and aggregated transaction data on foreign spend patterns in gaining insight as to the evolution of tourism from one year to another.

Hausmann, R., Obach, J. & Santos, M.A., 2016. Special Economic Zones in Panama: Technology Spillovers from a Labor Market Perspective.Abstract

Special Economic Zones (SEZ) have played an important role in Panama's successful growth story over the previous decade. SEZ have attracted local and foreign investment by leveraging a business-friendly environment of low transaction costs, and created many stable, well-paid jobs for Panamanians. Beyond that, SEZ shall be assessed as place-based policy by their capacity to boost structural transformations, namely attracting new skills and more complex know-how not to be found in the domestic economy.

The aim of this paper is to evaluate the three largest SEZ in Panama:

  • Colon Free Zone
  • Panama-Pacific
  • City of Knowledge

Our results suggest that SEZ have been successful as measured by static indicators, such as foreign investment, job creation and productivity. We also find that SEZ have boosted inflows of high-skill immigrants, who are most likely generating positive knowledge spillovers on Panamanians productivity and wages. However, significant legal instruments and institutional designs are preventing Panama from taking full advantage of the skill variety hosted at the SEZ. Complex immigration processes inhibiting foreigners from transitioning out of the SEZ, a long list of restricted professions and even citizenships considered as a national security concern, are hindering the flow of knowledge, keeping the benefits coming from more complex multinational companies locked inside the gates of SEZ.

Originally published October 2016. Revised May 2017.

Jimenez, A., 2016. Increasing Exports of Albanian Cultivated Fish to the EU,Abstract

This document explores Albanian aquaculture in the context of European aquaculture and compares it to neighboring countries, especially Greece. Using information from fieldwork, multiple reports by the United Nations’ Food and Agriculture Organization (FAO), and interviews with experts in government and non-government institutions, we analyze the production of European seabass and Gilthead seabream in Europe in general and in Albania in particular. Albanian cultivation of seabass and seabream has increased sevenfold since production started in the early 2000’s, but it represented only 0.38% of European aquaculture of these two species in 2013. Albania has significantly lower productivity than its neighbors, especially Greece, the dominant actor in the market. The analysis indicates that Albania’s lower productivity is caused by: (i) high costs of cages, fingerlings, and feed; which are all imported; (ii) lack of a formal fish market; and (iii) lack of clarity in the regulation. The document concludes by offering recommendations to get over these impediments for growth including reducing tariffs; encouraging national production of cages, fingerlings, and feed through investment in research; offering more and better financing options for cage acquisition; improving quality controls; establishing a national fish market; and passing the Aquaculture Law to bring clarity to the sector regulation.

Bahar, D. & Santos, M.A., 2016. One More Resource Curse: Dutch Disease and Export Concentration.Abstract

Economists have long discussed the negative effect of Dutch disease episodes on the non-resource tradable sector as a whole, but little has been said on its impact on the composition of the non-resource export sector. This paper fills this gap by exploring to what extent concentration of a country’s non-resource export basket is determined by their exports of natural resources. We present a theoretical framework that shows how upward pressure in wages caused by a resource windfall results in higher export concentration. We then document two robust empirical findings consistent with the theory. First, using data on discovery of oil and gas fields and of commodity prices as sources of exogenous variation, we find that countries with larger shares of natural resources in exports have more concentrated non-resource export baskets. Second, we find capital-intensive exports tend to dominate the export basket of countries prone to Dutch disease episodes.

Listen to the podcast interview with the authors

Lawrence, R., Frasheri, E. & Qazi, M., 2014. Integration in the Balkans: Albania and Kosovo,Abstract

Despite their historic and ethnic ties, trade and investment between Albania and Kosovo remains underdeveloped. To be sure, even if fully developed, Kosovo is unlikely to play a major role in Albanian external economic relations. Nonetheless, increased economic integration between the two countries can serve as the basis not only for enhancing the ties between the two countries, but also for spurring the measures that could act as a springboard for Albania’s integration with respect to other countries in the Balkans as well as with the EU.