Essays on Foreign Direct Investment and International Business Cycles.

This dissertation studies two topics. First, a thorough analysis of the investment strategies of multinational firms is conducted. Empirical relationships that govern the evolution of foreign equity participation at the firm level are provided, followed by a theoretical model to explain these relationships. Econometric estimations evidence how equity participation affects firm performance. Second, the role of trade in capital goods in international business cycles is investigated. Empirical facts that describe the relationship between key business cycle variables are documented for a group of emerging market economies. Existing models are revised to capture the empirical observations. Multinational enterprises (MNEs) are often confronted with the question of what degree of ownership they should assume at subsidiaries. Chapter 1 uses detailed plant-level data from Turkey to show that MNEs typically engage in partial integration. It then lays out a theoretical model to capture the evidence presented and provides a consistent test of the theory using econometric models. The theory highlights the role of joint productivities between MNEs and domestic suppliers and predicts that MNEs will choose to hold a higher share of equity when revealed productivity is higher. Chapter 2 examines the relationship between foreign equity participation and average plant wages. An econometric result is presented to demonstrate the bias that arises when traditional practice in the literature is followed. Nonparametric methods are employed to show that the true relationship between foreign ownership and average wages is linear. A ten percent increase in foreign equity participation is found to increase the average wage of a non-production worker by four percent. Chapter 3, co-authored with Jing Zhang, documents the relation between key business cycle variables in a set of emerging and developed economies. The real exchange rate is found to be much more procyclical in emerging economies. Exports are highly procyclical in developed economies, but acyclical in emerging economies. A two-country stochastic growth model with a tradable investment goods sector is developed to explain the empirical findings. Home bias in capital plays a crucial role in the model, which replicates the business cycle characteristics in both sets of economies.Ph.D.EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/91396/1/cbircan_1.pd

Violent Conflict and Inequality

This paper analyzes the distributive impacts of violent conflicts, which is in contrast to previous literature that has focused on the other direction. We use cross-country panel data for the time period 1960-2005 to estimate war-related changes in income inequality. Our results indicate rising levels of inequality during war and especially in the early period of post-war reconstruction. However, we find that this rise in income inequality is not permanent. While inequality peaks around five years after the end of a conflict, it declines again to pre-war levels within the end of the first post-war period. Lagged effects of conflict and only subsequent adjustments of redistributive policies in the period of post-war reconstruction seem to be valid explanations for these patterns of inequality. A series of alternative specifications confirms the main findings of the analysis.conflict, war, inequality, reconstruction, income distribution

Violent Conflict and Inequality

This paper analyzes the distributive impacts of violent conflicts, which is in contrast to previous literature that has focused on the other direction. We use cross-country panel data for the time period 1960-2005 to estimate war-related changes in income inequality. Our results indicate rising levels of inequality during war and especially in the early period of post-war reconstruction. However, we find that this rise in income inequality is not permanent. While inequality peaks around five years after the end of a conflict, it declines again to pre-war levels within the end of the first post-war period. Lagged effects of conflict and only subsequent adjustments of redistributive policies in the period of post-war reconstruction seem to be valid explanations for these patterns of inequality. A series of alternative specifications confirms the main findings of the analysis.Conflict, Inequality, Reconstruction, Income Distribution

The middle-income trap from a Schumpeterian perspective

We provide an outline for viewing the middle-income trap through the lens of the Schumpeterian growth paradigm, which places the notion of creative destruction at the center of economic growth. Economic growth and development come from the interplay between changes in economic structure and supporting institutions at different stages of development, i.e., structural transformation. We present a view of the process of economic development that takes the microlevel growth of firms and their competitive interaction as its building blocks. We discuss how institutional factors affect the evolution of these building blocks in understanding growth outcomes at different stages of development

The Limits of Lending:Banks and Technology Adoption Across Russia

We exploit historical and contemporaneous variation in local credit markets across Russia to identify the impact of credit constraints on firm-level innovation. We find that access to bank credit helps firms to adopt existing products and production processes that are new to them. They introduce these technologies either with the help of suppliers and clients or by acquiring external know-how. We find no evidence that bank credit also stimulates firm innovation through in-house R&D. This suggests that banks can facilitate the discussion of technologies within developing countries but that their role in pushing the technological frontier is limited

Lending Cycles and Real Outcomes: Costs of Political Misalignment

We document a strong political cycle in bank credit and industry outcomes in Turkey. In line with theories of tactical redistribution, state-owned banks systematically adjust their lending around local elections compared with private banks in the same province based on electoral competition and political alignment of incumbent mayors. This effect only exists in corporate lending and creates credit constraints for firms in opposition areas, which suffer drops in assets, employment and sales but not firm entry. Financial resources and factors of production are misallocated as more effient provinces and industries suffer the greatest constraints, reducing aggregate productivity

The limits of lending: Banks and technology adoption across Russia

We exploit historical and contemporaneous variation in local credit markets across Russia to identify the impact of credit constraints on firm-level innovation. We find that access to bank credit helps firms to adopt existing products and production processes that are new to them. They introduce these technologies either with the help of suppliers and clients or by acquiring external know-how. We find no evidence that bank credit also stimulates firm innovation through in-house R&D. This suggests that banks can facilitate the discussion of technologies within developing countries but that their role in pushing the technological frontier is limited

www.hicn.org Violent Conflict and Inequality

Abstract: This paper analyzes the distributive impacts of violent conflicts, which is in contrast to previous literature that has focused on the other direction. We use cross-country panel data for the time period 1960-2005 to estimate war-related changes in income inequality. Our results indicate rising levels of inequality during war and especially in the early period of post-war reconstruction. However, we find that this rise in income inequality is not permanent. While inequality peaks around five years after the end of a conflict, it declines again to pre-war levels within the end of the first post-war period. Lagged effects of conflict and only subsequent adjustments of redistributive policies in the period of post-war reconstruction seem to be valid explanations for these patterns of inequality. A series of alternative specifications confirms the main findings of the analysis