Financial Markets and Real Ecinomy: Four Essays in International Trade

Financial markets play an important role in an economy performing various functions like mobilizing and pooling savings, producing information about investment opportunities, screening and monitoring investments, implementation of corporate governance, diversification and management of risk. These functions influence saving rates, investment decisions, technological innovation and, therefore, have important implications for welfare. In my PhD dissertation I examine the interplay of financial and product markets by looking at different channels through which financial markets may influence an economy.My dissertation consists of four chapters. The first chapter is a co-authored work with Martin Strieborny, a PhD student from the University of Lausanne. The second chapter is a co-authored work with Melise Jaud, a PhD student from the Paris School of Economics. The third chapter is co-authored with both Melise Jaud and Martin Strieborny. The last chapter of my PhD dissertation is a single author paper.Chapter 1 of my PhD thesis analyzes the effect of financial development on growth of contract intensive industries. These industries intensively use intermediate inputs that neither can be sold on organized exchange, nor are reference-priced (Levchenko, 2007; Nunn, 2007). A typical example of a contract intensive industry would be an industry where an upstream supplier has to make investments in order to customize a product for needs of a downstream buyer. After the investment is made and the product is adjusted, the buyer may refuse to meet a commitment and trigger ex post renegotiation. Since the product is customized to the buyer's needs, the supplier cannot sell the product to a different buyer at the original price. This is referred in the literature as the holdup problem. As a consequence, the individually rational suppliers will underinvest into relationship-specific assets, hurting the downstream firms with negative consequences for aggregate growth. The standard way to mitigate the hold up problem is to write a binding contract and to rely on the legal enforcement by the state. However, even the most effective contract enforcement might fail to protect the supplier in tough times when the buyer lacks a reliable source of external financing. This suggests the potential role of financial intermediaries, banks in particular, in mitigating the incomplete contract problem. First, financial products like letters of credit and letters of guarantee can substantially decrease a risk and transaction costs of parties. Second, a bank loan can serve as a signal about a buyer's true financial situation, an upstream firm will be more willing undertake relationship-specific investment knowing that the business partner is creditworthy and will abstain from myopic behavior (Fama, 1985; von Thadden, 1995). Therefore, a well-developed financial (especially banking) system should disproportionately benefit contract intensive industries.The empirical test confirms this hypothesis. Indeed, contract intensive industries seem to grow faster in countries with a well developed financial system. Furthermore, this effect comes from a more developed banking sector rather than from a deeper stock market. These results are reaffirmed examining the effect of US bank deregulation on the growth of contract intensive industries in different states. Beyond an overall pro-growth effect, the bank deregulation seems to disproportionately benefit the industries requiring relationship-specific investments from their suppliers.Chapter 2 of my PhD focuses on the role of the financial sector in promoting exports of developing countries. In particular, it investigates how credit constraints affect the ability of firms operating in agri-food sectors of developing countries to keep exporting to foreign markets.Trade in high-value agri-food products from developing countries has expanded enormously over the last two decades offering opportunities for development. However, trade in agri-food is governed by a growing array of standards. Sanitary and Phytosanitary standards (SPS) and technical regulations impose additional sunk, fixed and operating costs along the firms' export life. Such costs may be detrimental to firms' survival, "pricing out" producers that cannot comply. The existence of these costs suggests a potential role of credit constraints in shaping the duration of trade relationships on foreign markets. A well-developed financial system provides the funds to exporters necessary to adjust production processes in order to meet quality and quantity requirements in foreign markets and to maintain long-standing trade relationships. The products with higher needs for financing should benefit the most from a well functioning financial system. This differential effect calls for a difference-in-difference approach initially proposed by Rajan and Zingales (1998). As a proxy for demand for financing of agri-food products, the sanitary risk index developed by Jaud et al. (2009) is used. The empirical literature on standards and norms show high costs of compliance, both variable and fixed, for high-value food products (Garcia-Martinez and Poole, 2004; Maskus et al., 2005). The sanitary risk index reflects the propensity of products to fail health and safety controls on the European Union (EU) market. Given the high costs of compliance, the sanitary risk index captures the demand for external financing to comply with such regulations.The prediction is empirically tested examining the export survival of different agri-food products from firms operating in Ghana, Mali, Malawi, Senegal and Tanzania. The results suggest that agri-food products that require more financing to keep up with food safety regulation of the destination market, indeed sustain longer in foreign market, when they are exported from countries with better developed financial markets.Chapter 3 analyzes the link between financial markets and efficiency of resource allocation in an economy. Producing and exporting products inconsistent with a country's factor endowments constitutes a serious misallocation of funds, which undermines competitiveness of the economy and inhibits its long term growth. In this chapter, inefficient exporting patterns are analyzed through the lens of the agency theories from the corporate finance literature. Managers may pursue projects with negative net present values because their perquisites or even their job might depend on them. Exporting activities are particularly prone to this problem. Business related to foreign markets involves both high levels of additional spending and strong incentives for managers to overinvest. Rational managers might have incentives to push for exports that use country's scarce factors which is suboptimal from a social point of view. Export subsidies might further skew the incentives towards inefficient exporting. Management can divert the export subsidies into investments promoting inefficient exporting.Corporate finance literature stresses the disciplining role of outside debt in counteracting the internal pressures to divert such "free cash flow" into unprofitable investments. Managers can lose both their reputation and the control of "their" firm if the unpaid external debt triggers a bankruptcy procedure. The threat of possible failure to satisfy debt service payments pushes the managers toward an efficient use of available resources (Jensen, 1986; Stulz, 1990; Hart and Moore, 1995). The main sources of debt financing in the most countries are banks. The disciplining role of banks might be especially important in the countries suffering from insufficient judicial quality. Banks, in pursuing their rights, rely on comparatively simple legal interventions that can be implemented even by mediocre courts. In addition to their disciplining role, banks can promote efficient exporting patterns in a more direct way by relaxing credit constraints of producers, through screening, identifying and investing in the most profitable investment projects. Therefore, a well-developed domestic financial system, and particular banking system, would help to push a country's exports towards products congruent with its comparative advantage.This prediction is tested looking at the survival of different product categories exported to US market. Products are identified according to the Euclidian distance between their revealed factor intensity and the country's factor endowments. The results suggest that products suffering from a comparative disadvantage (labour-intensive products from capital-abundant countries) survive less on the competitive US market. This pattern is stronger if the exporting country has a well-developed banking system. Thus, a strong banking sector promotes exports consistent with a country comparative advantage.Chapter 4 of my PhD thesis further examines the role of financial markets in fostering efficient resource allocation in an economy. In particular, the allocative efficiency hypothesis is investigated in the context of equity market liberalization.Many empirical studies document a positive and significant effect of financial liberalization on growth (Levchenko et al. 2009; Quinn and Toyoda 2009; Bekaert et al., 2005). However, the decrease in the cost of capital and the associated growth in investment appears rather modest in comparison to the large GDP growth effect (Bekaert and Harvey, 2005; Henry, 2000, 2003). Therefore, financial liberalization may have a positive impact on growth through its effect on the allocation of funds across firms and sectors.Free access to international capital markets allows the largest and most profitable domestic firms to borrow funds in foreign markets (Rajan and Zingales, 2003). As domestic banks loose some of their best clients, they reoptimize their lending practices seeking new clients among small and younger industrial firms. These firms are likely to be more risky than large and established companies. Screening of customers becomes prevalent as the return to screening rises. Banks, ceteris paribus, tend to focus on firms operating in comparative-advantage sectors because they are better risks. Firms in comparative-disadvantage sectors finding it harder to finance their entry into or survival in export markets either exit or refrain from entering export markets. On aggregate, one should therefore expect to see less entry, more exit, and shorter survival on export markets in those sectors after financial liberalization.The paper investigates the effect of financial liberalization on a country's export pattern by comparing the dynamics of entry and exit of different products in a country export portfolio before and after financial liberalization.The results suggest that products that lie far from the country's comparative advantage set tend to disappear relatively faster from the country's export portfolio following the liberalization of financial markets. In other words, financial liberalization tends to rebalance the composition of a country's export portfolio towards the products that intensively use the economy's abundant factors.

Relationship of physical activity with motor skills, aerobic fitness and body fat in preschool children: a cross-sectional and longitudinal study (Ballabeina).

Adiposity, low aerobic fitness and low levels of activity are all associated with clustered cardiovascular disease risk in children and their high prevalence represents a major public health concern. The aim of this study is to investigate the relationship of objectively measured physical activity (PA) with motor skills (agility and balance), aerobic fitness and %body fat in young children. This study is a cross-sectional and longitudinal analyses using mixed linear models. Longitudinal data were adjusted for baseline outcome parameters. In all, 217 healthy preschool children (age 4-6 years, 48% boys) participated in this study. PA (accelerometers), agility (obstacle course), dynamic balance (balance beam), aerobic fitness (20-m shuttle run) and %body fat (bioelectric impedance) at baseline and 9 months later. PA was positively associated with both motor skills and aerobic fitness at baseline as well as with their longitudinal changes. Specifically, only vigorous, but not total or moderate PA, was related to changes in aerobic fitness. Higher PA was associated with less %body fat at baseline, but not with its change. Conversely, baseline motor skills, aerobic fitness or %body fat were not related to changes in PA. In young children, baseline PA was associated with improvements in motor skills and in aerobic fitness, an important determinant of cardiovascular risk.

Long-term citalopram administration reduces responsiveness of HPA axis in patients with major depression: relationship with S-citalopram concentrations in plasma and cerebrospinal fluid (CSF) and clinical response.

RATIONALE: A dysregulation of the hypothalamic-pituitary-adrenal (HPA) axis is a well-documented neurobiological finding in major depression. Moreover, clinically effective therapy with antidepressant drugs may normalize the HPA axis activity. OBJECTIVE: The aim of this study was to test whether citalopram (R/S-CIT) affects the function of the HPA axis in patients with major depression (DSM IV). METHODS: Twenty depressed patients (11 women and 9 men) were challenged with a combined dexamethasone (DEX) suppression and corticotropin-releasing hormone (CRH) stimulation test (DEX/CRH test) following a placebo week and after 2, 4, and 16 weeks of 40 mg/day R/S-CIT treatment. RESULTS: The results show a time-dependent reduction of adrenocorticotrophic hormone (ACTH) and cortisol response during the DEX/CRH test both in treatment responders and nonresponders within 16 weeks. There was a significant relationship between post-DEX baseline cortisol levels (measured before administration of CRH) and severity of depression at pretreatment baseline. Multiple linear regression analyses were performed to identify the impact of psychopathology and hormonal stress responsiveness and R/S-CIT concentrations in plasma and cerebrospinal fluid (CSF). The magnitude of decrease in cortisol responsivity from pretreatment baseline to week 4 on drug [delta-area under the curve (AUC) cortisol] was a significant predictor (p<0.0001) of the degree of symptom improvement following 16 weeks on drug (i.e., decrease in HAM-D21 total score). The model demonstrated that the interaction of CSF S-CIT concentrations and clinical improvement was the most powerful predictor of AUC cortisol responsiveness. CONCLUSION: The present study shows that decreased AUC cortisol was highly associated with S-CIT concentrations in plasma and CSF. Therefore, our data suggest that the CSF or plasma S-CIT concentrations rather than the R/S-CIT dose should be considered as an indicator of the selective serotonergic reuptake inhibitors (SSRIs) effect on HPA axis responsiveness as measured by AUC cortisol response.

Effects of motive-oriented therapeutic relationship in a ten-session general psychiatric treatment of borderline personality disorder: a randomized controlled trial.

Background: Motive-oriented therapeutic relationship (MOTR) was postulated to be a particularly helpful therapeutic ingredient in the early treatment phase of patients with personality disorders, in particular with borderline personality disorder (BPD). The present randomized controlled study using an add-on design is the first study to test this assumption in a 10-session general psychiatric treatment with patients presenting with BPD on symptom reduction and therapeutic alliance. Methods: A total of 85 patients were randomized. They were either allocated to a manual-based short variant of the general psychiatric management (GPM) treatment (in 10 sessions) or to the same treatment where MOTR was deliberately added to the treatment. Treatment attrition and integrity analyses yielded satisfactory results. Results: The results of the intent-to-treat analyses suggested a global efficacy of MOTR, in the sense of an additional reduction of general problems, i.e. symptoms, interpersonal and social problems (F1, 73 = 7.25, p < 0.05). However, they also showed that MOTR did not yield an additional reduction of specific borderline symptoms. It was also shown that a stronger therapeutic alliance, as assessed by the therapist, developed in MOTR treatments compared to GPM (Z55 = 0.99, p < 0.04). Conclusions: These results suggest that adding MOTR to psychiatric and psychotherapeutic treatments of BPD is promising. Moreover, the findings shed additional light on the perspective of shortening treatments for patients presenting with BPD. © 2014 S. Karger AG, Basel.

D-amphetamine fails to increase extracellular dopamine levels in mice lacking alpha 1b-adrenergic receptors: relationship between functional and nonfunctional dopamine release.

It was found recently that locomotor and rewarding effects of psychostimulants and opiates were dramatically decreased or suppressed in mice lacking alpha1b-adrenergic receptors [alpha1b-adrenergic receptor knock-outs (alpha1bAR-KOs)] (Drouin et al., 2002). Here we show that blunted locomotor responses induced by 3 and 6 mg/kg d-amphetamine in alpha1bAR-KO mice [-84 and -74%, respectively, when compared with wild-type (WT) mice] are correlated with an absence of d-amphetamine-induced increase in extracellular dopamine (DA) levels in the nucleus accumbens of alpha1bAR-KO mice. Moreover, basal extracellular DA levels in the nucleus accumbens are lower in alpha1bAR-KO than in WT littermates (-28%; p < 0.001). In rats however, prazosin, an alpha1-adrenergic antagonist, decreases d-amphetamine-induced locomotor hyperactivity without affecting extracellular DA levels in the nucleus accumbens, a finding related to the presence of an important nonfunctional release of DA (Darracq et al., 1998). We show here that local d-amphetamine releases nonfunctional DA with the same affinity but a more than threefold lower amplitude in C57BL6/J mice than in Sprague Dawley rats. Altogether, this suggests that a trans-synaptic mechanism amplifies functional DA into nonfunctional DA release. Our data confirm the presence of a powerful coupling between noradrenergic and dopaminergic neurons through the stimulation of alpha1b-adrenergic receptors and indicate that nonfunctional DA release is critical in the interpretation of changes in extracellular DA levels. These results suggest that alpha1b-adrenergic receptors may be important therapeutic pharmacological targets not only in addiction but also in psychosis because most neuroleptics possess anti-alpha1-adrenergic properties.

The relationship between subjective experiences during first use of tobacco and cannabis and the effect of the substance experienced first.

INTRODUCTION: We examined the positive and negative subjective feelings associated with initial tobacco and cannabis use as well as the role of these experiences in regular use. Additionally, we investigated the effect of the first substance experienced on initial subjective experiences and later regular use. METHODS: Baseline data from a representative sample of young Swiss men were obtained from an ongoing Cohort Study on Substance Use Risk Factors, which includes 2,321 lifetime tobacco and cannabis users. We assessed the age of first tobacco and cannabis use along with the subjective experiences associated with initial use. Additionally, subjective experiences related to regular use of both substances were analyzed. RESULTS: The initial subjective experiences were divided into positive and negative for each substance, and we found that the feelings associated with first use of tobacco and cannabis were similar. Moreover, the participants who used cannabis before tobacco reported fewer negative experiences associated with first tobacco use, whereas the participants who initially used tobacco reported more negative experiences related to first cannabis use. Also, we identified that regular use was encouraged by positive experiences and that negative experiences were more adverse for regular use of cannabis compared with tobacco. CONCLUSIONS: Taken together, these results indicate that similar subjective experiences were associated with the first use of tobacco and cannabis. Also, the use of cannabis before tobacco, which occurred in only a minority of users, had the potential to enhance the effects of initial tobacco use.

Relationship between cigarette smoking and abdominal obesity

Background: Although smokers tend to have a lower body-mass index (BMI) than non-smokers, smoking may affect body fat (BF) distribution. Some studies have assessed the association between smoking, BMI and waist circumference (WC), but, to our knowledge, no population-based studies assessed the relation between smoking and BF composition. We assessed the association between amount of cigarette smoking, BMI, WC and BF composition. Method: Data was analysed from a cross-sectional population-based study including 6'187 Caucasians aged 32-76 and living in Switzerland. Height, weight and WC were measured. BF, expressed in percent of total body weight, was measured by electrical bioimpedance. Abdominal obesity was defined as a WC 0102 cm for men and 088 cm for women and normal WC as <94 cm for men and <80 cm for women. In men, excess BF was defined as %BF 028.1, 28.7, 30.6 and 32.6 for age groups 32-44, 45-54, 55-64 and 65-76, respectively; the corresponding values for women were 35.9, 36.5, 40.5 and 44.4. Cigarette smoking was assessed using a self-reported questionnaire. Results: 29.3% of men and 25.0% of women were smokers. Prevalence of obesity, abdominal obesity, and excess of BF was 16.9% and 26.6% and 14.2% in men and 15.0%, 33.0% and 27.5% in women, respectively. Smokers had lower age-adjusted mean WC and percent of BF compared to non-smokers. However, among smokers, mean age-adjusted WC and BF increased with the number of cigarettes smoked per day: among light (1-10 cig/day), moderate (11-20) and heavy smokers (>20), mean ± SE %BF was 22.4 ± 0.3, 23.1 ± 0.3 and 23.5 ± 0.4 for men, and 31.9 ± 0.3, 32.6 ± 0.3 and 32.9 ± 0.4 for women, respectively. Mean WC was 92.9 ± 0.6, 94.0 ± 0.5 and 96.0 ± 0.6 cm for men, and 80.2 ± 0.5, 81.3 ± 0.5 and 83.3 ± 0.7 for women, respectively. Compared with light smokers, the age-adjusted odds ratio (95% Confidence Interval) for excess of BF was 1.04 (0.58 to 1.85) for moderate smokers and 1.06 (0.57 to 1.99) for heavy smokers in men (p-trend = 0.9), and 1.35 (0.92 to 1.99) and 2.26 (1.38 to 3.72), respectively, in women (p-trend = 0.04). Odds ratio for abdominal obesity vs. normal WC was 1.32 (0.81 to 2.15) for moderate smokers and 1.95 (1.16 to 3.27) for heavy smokers in men (p-trend <0.01), and 1.15 (0.79 to 1.69) and 2.36 (1.41 to 3.93) in women (p-trend = 0.03). Conclusion: WC and BF were positively and dose-dependently associated with the number of cigarettes smoked per day in women, whereas only WC was dose dependently and significantly associated with the amount of cigarettes smoked per day in men. This suggests that heavy smokers, especially women, are more likely to have an excess of BF and to accumulate BF in the abdomen compared to lighter smokers.

Relationship between Health-Related Quality of Life, Pain, and Functional Disability in Neuropathic Pain Patients with Failed Back Surgery Syndrome.

ABSTRACT Objectives: Patients with failed back surgery syndrome (FBSS) and chronic neuropathic pain experience levels of health-related quality of life (HRQoL) that are considerably lower than those reported in other areas of chronic pain. The aim of this article was to quantify the extent to which reductions in (leg and back) pain and disability over time translate into improvements in generic HRQoL as measured by the EuroQoL-5D and SF-36 instruments. Methods: Using data from the multinational Prospective, Randomized, Controlled, Multicenter Study of Patients with Failed Back Surgery Syndrome trial, we explore the relationship between generic HRQoL-assessed using two instruments often used in clinical trials (i.e., the SF-36 and EuroQol-5D)-and disease-specific outcome measures (i.e., Oswestry disability index [ODI], leg and back pain visual analog scale [VAS]) in neuropathic patients with FBSS. Results: In our sample of 100 FBSS patients, generic HRQoL was moderately associated with ODI (correlation coefficient: -0.462 to -0.638) and mildly associated with leg pain VAS (correlation coefficient: -0.165 to -0.436). The multilevel regression analysis results indicate that functional ability (as measured by the ODI) is significantly associated with HRQoL, regardless of the generic HRQoL instrument used. On the other hand, changes over time in leg pain were significantly associated with changes in the EuroQoL-5D and physical component summary scores, but not with the mental component summary score. Conclusions: Reduction in leg pain and functional disability is statistically significantly associated with improvements in generic HRQoL. This is the first study to investigate the longitudinal relationship between generic and disease-specific HRQoL of neuropathic pain patients with FBSS, using multinational data.

Are relationship patterns with significant others reenacted with the therapist?: a study of early transference reactions.

This study examines how patients' relationship patterns are reenacted with the therapist during the first sessions of psychotherapy. Forty (N = 40) outpatients treated with a Brief Psychodynamic Intervention were included in the study. Their narratives of relationship episodes with significant others (e.g., mother, father, romantic partner, colleagues) were compared with relationship episodes with their therapist using the Core Conflictual Relationship Theme method. The Core Conflictual Relationship Theme focuses on 3 aspects of patients' relationship narratives: what the patient wants from others or from self; how others react to his/her wish; and how the patient consequently reacts. Results showed that 60% of patients display similar relationship patterns with their therapist and with significant others. The patterns that were reenacted with the therapist were not the most pervasive ones but were similar to those found in relationship episodes involving parents or romantic partners. These findings provide some support for the clinical concept of repetition of internalized relational patterns with the therapist very early in psychotherapy. Clinical implications are discussed.