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.

Iowa Budget Report Capital Projects, January 2005

This report is of the projects for the capital.

The Recent International and Regulatory Decisions about Geographical Indications, 2007

As worldwide consumer demand for high-quality products and for information about these products increases, labels and geographical indications (GIs) can serve to signal quality traits to consumers. However, GI systems among countries are not homogeneous and can be used as trade barriers against competition. Philosophical differences between the European Union and the United States about how GIs should be registered and protected led to the formation of a WTO dispute settlement panel. In this paper we discuss the issues behind the dispute, the World Trade Organization (WTO) panel decision, and the EU response to the panel decision leading to the new Regulation 510/2006. Given the potential for GI labels to supply consumer information, context is provided for the discussion using recent literature on product labeling. Implications are drawn regarding the importance of the panel decision and the EU response relative to GI issues yet to be negotiated under the Doha Round.

Factors influencing Intensive Care Units nurses in end-of-life decisions

OBJECTIVETo identify the factors that influence the Intensive Care Unit nurse in the decision-making process in end-of-life situations.METHODEthnographic case study, which used the theoretical framework of medical anthropology. Data were collected through semi-structured interviews with 10 nurses.RESULTSThe inductive thematic analysis enabled us to identify four themes:The cultural context of the Intensive Care Unit: decision-making in situations of end-of-life; Beliefs and subjectivity of care in end-of-life situations; Professional experience and context characteristics of end-of-life care situations; and Humanization practices in end-of-life situations: the patient and family centered care.CONCLUSIONProfessional maturity, the ability to transmit information and the ability to negotiate are directly related to the inclusion of nurses in the decision-making process.

Audit report on Highway Safety Projects administered by The Integer Group Midwest for the year ended September 30, 2006

Audit report on Highway Safety Projects administered by The Integer Group Midwest for the year ended September 30, 2006

Summary Report for the Iowa Alzheimer's Task Force 2007 from the Iowa Alzheimer's Disease Demonstration Projects

The Iowa Department of Elder Affairs, in collaboration with the University of Iowa College of Nursing, has been engaged in developing and evaluating community based services for persons with dementia in the state of Iowa over the past 7 years under a grant form the Administration on Aging. This grant tested out several models of care (dementia nurse care manager, memory loss nurse specialist, “People Living Alone Need Support” (PLANS), varying models of respite care), surveyed agencies and service providers in regard to how they provide services for persons with dementia, and provided training to case management, community college instructors, adult day service providers and other related services providers including assisted living and nursing home facilities.

Supermarket key attributes and location decisions: A comparative study between British and Spanish consumers

The Maximum Capture problem (MAXCAP) is a decision model that addresses the issue of location in a competitive environment. This paper presents a new approach to determine which store s attributes (other than distance) should be included in the newMarket Capture Models and how they ought to be reflected using the Multiplicative Competitive Interaction model. The methodology involves the design and development of a survey; and the application of factor analysis and ordinary least squares. Themethodology has been applied to the supermarket sector in two different scenarios: Milton Keynes (Great Britain) and Barcelona (Spain).

Economic growth and investment in the Arab world

This paper analyses the economic growth performance in the Arab world overthe last forty years. The Arab world has managed to reduce povertyperformance despite its relatively disappointing growth performance. Werelate this poor performance of both oil and non-oil producers toinvestment. Contrary to widespread belief, we do not find evidence that lowquantity of investment is the main of low growth. The decline in theinvestment rate followed rather than preceded the reduction in the aggregategrowth rate. We conclude that the low quality of investment projects is thekey determinant of growth. The excessive reliance on public investment, thelow quality of financial institutions, the bad business environment (due topolitical and social instability and to excessive public intervention andoverregulation) and the low quality of human capital are importantdeterminants of systematically unproductive investment decisions and, thus,low economic growth.

Is confidence in decisions related to feedback? Evidence-and lack of evidence-from random samples of real-world managerial behavior?

Confidence in decision making is an important dimension of managerialbehavior. However, what is the relation between confidence, on the onehand, and the fact of receiving or expecting to receive feedback ondecisions taken, on the other hand? To explore this and related issuesin the context of everyday decision making, use was made of the ESM(Experience Sampling Method) to sample decisions taken by undergraduatesand business executives. For several days, participants received 4 or 5SMS messages daily (on their mobile telephones) at random moments at whichpoint they completed brief questionnaires about their current decisionmaking activities. Issues considered here include differences between thetypes of decisions faced by the two groups, their structure, feedback(received and expected), and confidence in decisions taken as well as inthe validity of feedback. No relation was found between confidence indecisions and whether participants received or expected to receivefeedback on those decisions. In addition, although participants areclearly aware that feedback can provide both confirming and disconfirming evidence, their ability to specify appropriatefeedback is imperfect. Finally, difficulties experienced inusing the ESM are discussed as are possibilities for further researchusing this methodology.

Pitfalls in the modeling of forward-looking price setting and investment decisions

The present paper makes progress in explaining the role of capital for inflation and output dynamics. We followWoodford (2003, Ch. 5) in assuming Calvo pricing combined with a convex capital adjustment cost at the firm level. Our main result is that capital accumulation affects inflation dynamics primarily through its impact on the marginal cost. This mechanism is much simpler than the one implied by the analysis in Woodford's text. The reason is that his analysis suffers from a conceptual mistake, as we show. The latter obscures the economic mechanism through which capital affects inflation and output dynamics in the Calvo model, as discussed in Woodford (2004).

A constituição e o funcionamento de uma comunidade de prática de professores em educação para o desenvolvimento sustentável

Os conceitos de desenvolvimento sustentável e de educação para o desenvolvimento sustentável estão ainda em evolução o que torna pertinente, hoje, a tentativa de uma clarificação conceptual e sua posterior operacionalização. Além de promover a definição e uso correto dos termos, compete também ao ensino criar e desenvolver as competências necessárias para a sua operacionalidade. Esta investigação pretende contribuir para a autoformação de professores, nomeadamente de professores de Física e Química, em educação para o desenvolvimento sustentável. Pretende que os professores, e aqueles que beneficiam da sua ação, possam ser cidadãos críticos e responsáveis, numa sociedade local e simultaneamente global, que vive num tempo concreto mas, cada vez mais, consciente das repercussões futuras das suas ações e decisões. Tendo por base este objetivo criou-se uma comunidade de prática virtual constituída por professores de Física e Química de Portugal e de países africanos de língua oficial portuguesa. A formação em educação para o desenvolvimento sustentável constituiu o domínio da comunidade de prática. A água foi o tema motivador e aglutinador, pois sendo essencial à vida, torna-se no contexto educativo, e concretamente em educação para o desenvolvimento sustentável, num desafio ético, simultaneamente social, económico, ambiental e político. A prática reflexiva constituiu uma ferramenta fundamental da atividade da comunidade. Da análise da prática desta comunidade, que constituiu o objeto desta investigação, verificámos que os diferentes contextos geográficos, educacionais, culturais e de desenvolvimento dos professores proporcionaram uma participação diversificada na comunidade de prática. Esta participação permitiu, aos membros da referida comunidade, a criação e/ou o desenvolvimento das competências requeridas em educação para o desenvolvimento sustentável. Apesar da pertinência do tema confrontámo-nos com a falta de projetos de investigação semelhantes ao desta investigação, o que constituiu um maior desafio à sua realização.

State and industry in the 1940s: The Spanish automobile industry

The decade of the 1940s was one of the darkest periods in the country's history, with years of famine, repression, general misery, and impoverishment of all aspects of national life ranging from culture to the economy. During those years plans were made to establish a Spanish motor industry once the Civil War had come to an end in 1939. It seemed a propitious moment for private enterprise and various foreign motor companies presented proposals for manufacturing their entire vehicle range, from cars to trucks. However, the government plans were for a State monopoly, a policy which meant that any private projects which did not contemplate the regime taking management decisions were rejected out of hand. From 1941 onwards, any new initiative was required to meet the plans set by INI. The main argument running through this paper is that one can only understand the development of the modern Spanish motor industry if one grasps the haggling between motor companies and government regarding market entry and the impact of the regime's autarchic policies in the 1940s.