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 Water Pollution Control Works and Drinking Water Facilities Financing Programs, (Joint Programs of the Iowa Finance Authority and the Iowa Department of Natural Resources), Independent Auditor's Reports, Financial Statements and Supplementary Information, Schedule of Findings, June 30, 2005

State Audit Reports

Institutions, Public Debt and Foreign Finance

We study the role of domestic financial institutions in sustaining capital flows to the private and public sector of a country whose government can default on its debt. As in recent public debt crises, in our model public defaults weaken banks' balance sheets, disrupting domestic financial markets. This effect leads to a novel complementarity between private capital inflows and public borrowing, where the former sustain the latter by boosting the government's cost of default. Our key message is that, by shaping the direction of private capital flows, financial institutions determine whether financial integration improves or reduces government discipline. We explore the implications of this complementarity for financial liberalization and debt-financed bailouts of banks. We present some evidence consistent with complementarity.

Adjustment to Target Capital, Finance, and Growth

Does financial development result in capital being reallocated more rapidly to industries where it is most productive? We argue that if this was the case, financially developed countries should see faster growth in industries with investment opportunities due to global demand and productivity shifts. Testing this cross-industry cross-country growth implication requires proxies for (latent) global industry investment opportunities. We show that tests relying only on data from specific (benchmark) countries may yield spurious evidence for or against the hypothesis. We therefore develop an alternative approach that combines benchmark-country proxies with a proxy that does not reflect opportunities specific to a country or level of financial development. Our empirical results yield clear support for the capital reallocation hypothesis.

Therapeutic play in preparing for surgery: behavior of preschool children during the perioperative period

Objective:to describe the behavior of children during the instructional session of therapeutic play (ITP) in the preoperative period and to verify the behavior presented by them during the perioperative period. Methods: Exploratory descriptive study with a quantitative approach, developed in a large private hospital in Sao Paulo, in which the behaviors presented by 30 children between three and five years old, undergoing minor surgery were seen at the hospital during the session of TP and in the surgical center, from admission to awaken from anesthesia. Results: Most children participated in the ITP session (21; 70%), entered the surgical room spontaneously (22; 73.3%) without resisting mother separation (24; 80%), collaborating with the anesthetic procedure (16; 53.3%) and quietly awakening from anesthesia (26; 87%). Conclusion: The use of ITP led the child to understand the surgical procedure, making it less traumatic.


Laboratory Study of Structural Behavior of Alternative Dowel Bars, April 2006

Load transfer across transverse joints has always been a factor contributing to the useful life of concrete pavements. For many years, round steel dowels have been the conventional load transfer mechanism. Many problems have been associated with the round steel dowels. The most detrimental effect of the steel dowel is corrosion. Repeated loading over time also damages joints. When a dowel is repeatedly loaded over a long period of time, the high bearing stresses found at the top and bottom edge of a bar erode the surrounding concrete. This oblonging creates multiple problems in the joint. Over the past decade, Iowa State University has performed extensive research on new dowel shapes and materials to mitigate the effects of oblonging and corrosion. This report evaluates the bearing stress performance of six different dowel bar types subjected to two different shear load laboratory test methods. The first load test is the AASHTO T253 method. The second procedure is an experimental cantilevered dowel test. The major objective was to investigate and improve the current AASHTO T253 test method for determining the modulus of dowel support, k0. The modified AASHTO test procedure was examined alongside an experimental cantilever dowel test. The modified AASHTO specimens were also subjected to a small-scale fatigue test in order to simulate long-term dowel behavior with respect to concrete joint damage. Loss on ignition tests were also performed on the GFRP dowel specimens to determine the resin content percentage. The study concluded that all of the tested dowel bar shapes and materials were adequate with respect to performance under shear loading. The modified AASHTO method yielded more desirable results than the ones obtained from the cantilever test. The investigators determined that the experimental cantilever test was not a satisfactory test method to replace or verify the AASHTO T253 method.

APPROACH AND TREATMENT OF SUICIDAL BEHAVIOR IN THE CLINICAL PRACTICE OF DIFFERENT GROUPS OF HEALTH PROFESSIONALS IN SPAIN: RESULTS OF THE PROJECT EUREGENA.

According to the WHO (World Health Organization) and the European Union, suicide is considered to be a health problem of prime importance and to be one of the principal causes of unnatural death. In Spain, the number of suicides has increased 12% since 2005 . The Research Project “European Regions Enforcing Actions against Suicide (EUREGENAS), funded by the Health Program 2008-2013, has as main objective the description of an integrated model of Mental Health orientated to the prevention of suicide. The differences that allow distinguishing the meaning of prevention in suicide behavior are described and explained through a qualitative methodological strategy and through the creation of discussion groups formed by different groups of health professionals. The results highlight the existing differences between the diverse health professionals who come more in contact with this problem and it shows as well the coincidence of meaning that suicide has to be considered as a priority in the field of health.

Activity and exploratory behavior after lesions of the medial entorhinal cortex in the woodmouse (Apodemus sylvaticus).

The effects of bilateral electrolytic lesions of the entorhinal cortex were studied in male adult woodmice. Experiments were designed to allow separate analysis of the basal activity level and exploratory behavior. Activity recording was conducted in three situations: (a) 24-hr wheel running in the home cage pre- and postoperatively; (b) 24-hr activity composition in a large enclosure over 4 days, 5 to 9 days postoperatively; and (c) sequence and duration of visits in a residential plus maze 11 to 14 days postoperatively. Medial entorhinal cortex lesion involving the para- and presubiculum increased the 24-hr amount of movements in the enclosure (b) without increasing wheel running in any situation (a or b). This lesion also enhanced the locomotor reactivity to being introduced into the plus maze and impaired exploratory behavior. This last effect was equally apparent when the whole situation was new or when part of the familiar maze was modified. Lesioned woodmice did notice the new element but did not show active focalization of their behavior on that element. Data showed that lesion induced hyperactivity and changes of exploratory behavior were not necessarily associated. Novelty detection was performed but it is not clear now on what information this discrimination was based.

Proteinaceous infectious behavior in non-pathogenic proteins is controlled by molecular chaperones.

External stresses or mutations may cause labile proteins to lose their distinct native conformations and seek alternatively stable aggregated forms. Molecular chaperones that specifically act on protein aggregates were used here as a tool to address the biochemical nature of stable homo- and hetero-aggregates from non-pathogenic proteins formed by heat-stress. Confirmed by sedimentation and activity measurements, chaperones demonstrated that a single polypeptide chain can form different species of aggregates, depending on the denaturing conditions. Indicative of a cascade reaction, sub-stoichiometric amounts of one fast-aggregating protein strongly accelerated the conversion of another soluble, slow-aggregating protein into insoluble, chaperone-resistant aggregates. Chaperones strongly inhibited seed-induced protein aggregation, suggesting that they can prevent and cure proteinaceous infectious behavior in homo- and hetero-aggregates from common and disease-associated proteins in the cell.

Iowa Finance Authority Agency Performance Plan, 2007

Agency Performance Plan

Iowa Department of Revenue & Finance, Agency Performance Plan, 2007

Annual Report, Agency Performance Plan

The molecular basis of social behavior: models, methods and advances.

Elucidating the molecular and neural basis of complex social behaviors such as communal living, division of labor and warfare requires model organisms that exhibit these multi-faceted behavioral phenotypes. Social insects, such as ants, bees, wasps and termites, are attractive models to address this problem, with rich ecological and ethological foundations. However, their atypical systems of reproduction have hindered application of classical genetic approaches. In this review, we discuss how recent advances in social insect genomics, transcriptomics, and functional manipulations have enhanced our ability to observe and perturb gene expression, physiology and behavior in these species. Such developments begin to provide an integrated view of the molecular and cellular underpinnings of complex social behavior.

Audit report on the Iowa Water Pollution Control Works Financing Program (Clean Water Program) and the Iowa Drinking Water Facilities Financing Program (Drinking Water Program), joint programs of the Iowa Finance Authority and the Iowa Department of Natural Resources, for the year ended June 30, 2006

Audit report on the Iowa Water Pollution Control Works Financing Program (Clean Water Program) and the Iowa Drinking Water Facilities Financing Program (Drinking Water Program), joint programs of the Iowa Finance Authority and the Iowa Department of Natural Resources, for the year ended June 30, 2006

Oviposition behavior and performance aspects of Ascia monuste (Godart, 1919) (Lepidoptera, Pieridae) on kale (Brassica oleracea var. acephala)

Host part selection by ovipositing females of Ascia monuste (Godart, 1919) (Lepidoptera, Pieridae) on kale (Brassica oleracea var. acephala) was determined in greenhouse and field. Performance of offspring (larval period, efficiency of food utilization, number of eggs/female and others) was investigated under laboratory conditions. In the field, the number of A. monuste egg clutches on the apical and medium parts of kale leaves was greater than on the basal part. In greenhouse, A. monuste exhibited a strong preference for the apical part of kale leaves for ovipositing. The best results on food utilization indices, pupal mass and female wing size were obtained with the leaf apical part. This part of kale leaves exhibited the highest nitrogen and protein concentration and the smallest water content, when compared to the other leaf parts. However, the apical part of the leaves seems not to provide ovipositing females with enough protection against birds, making them easy preys in the field. We suggest that good relationship between oviposition preference and performance of offspring was hindered by predation in field conditions.

Three essays in dynamic corporate finance

Summary Throughout my thesis, I elaborate on how real and financing frictions affect corporate decision making under uncertainty, and I explore how firms time their investment and financing decisions given such frictions. While the macroeconomics literature has focused on the impact of real frictions on investment decisions assuming all equity financed firms, the financial economics literature has mainly focused on the study of financing frictions. My thesis therefore assesses the join interaction of real and financing frictions in firms' dynamic investment and financing decisions. My work provides a rationale for the documented poor empirical performance of neoclassical investment models based on the joint effect of real and financing frictions on investment. A major observation relies in how the infrequency of corporate decisions may affect standard empirical tests. My thesis suggests that the book to market sorts commonly used in the empirical asset pricing literature have economic content, as they control for the lumpiness in firms' optimal investment policies. My work also elaborates on the effects of asymmetric information and strategic interaction on firms' investment and financing decisions. I study how firms time their decision to raise public equity when outside investors lack information about their future investment prospects. I derive areal-options model that predicts either cold or hot markets for new stock issues conditional on adverse selection, and I provide a rational approach to study jointly the market timing of corporate decisions and announcement effects in stock returns. My doctoral dissertation therefore contributes to our understanding of how under real and financing frictions may bias standard empirical tests, elaborates on how adverse selection may induce hot and cold markets in new issues' markets, and suggests how the underlying economic behaviour of firms may induce alternative patterns in stock prices.