Firm Sorting, Endogenous Competition and Productivity in Developing Countries

Firm Sorting, Endogenous Competition and Productivity in Developing Countries

by | Jul 1, 2018 | by Roman Zarate, Fellowship, International Trade & Development, Research

by Roman Zarate

The goal of this project is to study how competition and firm market power shape the productivity distribution and the way that firms locate into space. In particular, low productive firms sort into places in which they exert more market power, while high productive firms sort into locations in which it is easier for customers (workers) to substitute among suppliers (employers) facing more competition. This mechanism is relevant in the context of developing countries in which a large number of small, unproductive firms coexist with productive firms. My primary hypothesis is that since in developing countries it is hard to commute, firms exert more labor market power generating two effects. On the one hand, low productive firms survive, and on the other, productive firms don’t expand in some locations. To test this hypothesis, I would use the economic censuses in Mexico and assess the productivity and pro-competitive effects in the labor market of transport projects designed to move people within cities.

Topics

Development

Initiatives

International Trade & Development

How Islamic are Islamic Banks

How Islamic are Islamic Banks

by | Jul 1, 2018 | by James Wilcox, Financial Globalization, Grant, Research

by James Wilcox

More than a dozen countries have both sizable conventional banks and Islamic banks. Instead of paying fixed deposit interest rates, which are prohibited by sharia law, Islamic banks offer profit and loss sharing (PLS) accounts. Payments to PLS accounts should vary with banks’ earnings. To the extent that they do, PLS accounts may be more equity-like than deposits at conventional banks. However, widespread consensus holds that Islamic banks’ payments to depositors are nearly indistinguishable from the interest rates paid by conventional banks. We estimate how much Islamic banks pass through their PLS-related earnings to PLS-related accounts and how much their responses to various factors differ from those of conventional banks. We also analyze how much Islamic banks’ profit and loss sharing has been obscured by previous data difficulties and by their smoothing over time the payments to PLS accounts. The results may shed light on the prospects for PLS loans and deposits as a source of more-equity-like financing from banks for smaller businesses, which often obtain few conventional loans from banks.

 

Topics

Capital flows

Initiatives

Financial Globalization

A New Engel on the Gains from Trade: Theory and Evidence Within and Across Countries

A New Engel on the Gains from Trade: Theory and Evidence Within and Across Countries

by | Jul 1, 2018 | by Ben Faber; David Atkin; Thibault Fally & Marco Gonzalez-Navarro, Grant, International Trade & Development, Research

by Ben Faber, with David Atkin, Thibault Fally & Marco Gonzalez-Navarro
In this paper, we propose and implement a new approach that uses rich, but widely available, expenditure survey microdata to estimate a theory-consistent and exact metric of changes in income-group specific price indices and welfare.

 

Topics

Development

Initiatives

International Trade & Development

Brexit, the City of London, and the Prospects for Portfolio Investment

Brexit, the City of London, and the Prospects for Portfolio Investment

by | Jul 1, 2018 | by Barry Eichengreen, Financial Globalization, Grant, Research

by Barry Eichengreen, William Jungerman and Mingyang Liu

Although multiple studies have attempted to estimate the impact of Brexit on FDI flows into and out of the UK, no previous study appears to have undertaken a similar analysis of portfolio capital flows and financial intermediation services.  This project will take three approaches to addressing these questions.  The first approach will use data from the IMF’s Consolidated Portfolio Investment Survey to estimate the impact of EU membership on capital flows.  Using these data, it will be possible to estimate a gravity-theoretic model of total gross portfolio capital inflows and total gross portfolio capital outflows for each country pair, pooling cross-sections for different years and attempting to identify an EU membership effect.  A second approach will then replicate this analysis using bank-intermediated flows using the Bank for International Settlements’ Locational Banking Statistics.  The third approach will then analyze the determinants of international financial center status and ask how this is affected by the same variables (notably by EU membership, customs union membership, and participation in the euro area).  The financial consultancy Z/Yen Group provides annually a list of top international financial centers based on an extensive online questionnaire.  Its Global Financial Centres Index (GFCI) is an ordinal ranking of financial centers around the world (averaging some 70 in number).  Rank-ordered logit models will be used to analyze the determinants of financial center status, where the key explanatory variables will be financial links (assets and liabilities of the country in which the financial center is located, again from the CPIS) and trade data (from the IMF’s balance of payments statistics), where the effects of these variables will allowed to vary with EU membership.  These estimates will then be used to construct counterfactuals for various Brexit scenarios to answer the question of how London’s financial center status will be affected.

For a paper draft, see this.

Topics

Capital flows

Initiatives

Financial Globalization