Carolina Villegas-Sanchez

Quantifying Productivity Gains from Foreign Investment

We quantify the causal effect of foreign investment on total factor productivity (TFP) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small.

Role of Multinational Corporations in Financial Globalization

We present a selective review of the financial globalization literature with a specific focus on the role of multinational corporations (MNCs). Foreign direct investment (FDI) has been one of the important conduits of the globalization process and most of the FDI is undertaken by MNCs. We describe both macro- and microevidence not only on the determinants of FDI but also on the effects of FDI on economic growth. In light of the previous emerging market and the recent global financial crisis, we also describe the literature on financial integration, volatility, and financial crises.

Specialization, Risk Sharing and the Euro

Under the prospect of productive specialization, the degree of potential success of the euro since its inception was seen as closely linked to the development of effective risk-sharing mechanisms across EU members. Without shared fiscal resources, financial integration was expected to play a leading role in this respect. This paper documents the failure in fulfilling this expectation: Along with an analysis of the evolution of specialization and risk-sharing, we present evidence supporting the claim that progress in financial integration has not been conducive to income risk-sharing across euro area members, while it might have favoured a specialization split between countries with low-medium and high technology productive structures. As a result, monetary union members face higher income fluctuation risk without enhanced insurance protection. Additionally, evidence suggests a differential impact of the specialization split on sector productivity, contributing to making the monetary union a club of non equals.