Firat Demir

The Rise of Rentier Capitalism and the Financialization of Real Sectors in Developing Countries

Using microlevel company panel data, the article analyzes the impacts of financial liberalization on real investment behavior under capital market imperfections, volatile macroprices, and changing country risk levels. The findings suggest that financial liberalization in developing countries has become instrumental in channeling real sector savings to speculative short-term investments instead of long-term investment projects and hence altering the pattern of capital accumulation in the real sectors of the economy.

Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation

We investigate the level and volatility effects of real exchange rates on productivity growth of manufacturing firms with heterogeneous access to debt, and domestic and foreign equity markets in Turkey. We find that while volatility affects productivity growth negatively, having access to foreign or domestic equity, or debt markets does not alleviate these effects. Furthermore, foreign or publicly traded companies do not appear to perform significantly better than the rest. We detect, however, that productivity is positively related to credit market access. Additionally, we find that while export-oriented firms react positively to currency appreciations, they are hurt more from volatility.

Trade Flows, Exchange Rate Uncertainty, and Financial Depth: Evidence from 28 Emerging Countries

This paper investigates the effects of real exchange rate uncertainty on manufactures exports from 28 emerging economies, representing 82\% of all developing country manufactures exports, and explores the sources of heterogeneity in the uncertainty effects by controlling for the direction of trade (South-North or South-South), and the level of financial development of the exporting country. The empirical results show that for more than half of the countries the uncertainty effect is unidirectional, either South-South or South-North, and the median impact is negative. In addition, while we find that financial development augments trade, exchange rate shocks can negate this effect. Last but not the least, trade among developing economies improves export growth under exchange rate shocks.

Volatility of Short-term Capital Flows and Private Investment in Emerging Markets

Abstract Using micro-level panel data, the paper analyses the impacts of short-term capital flow volatility on new fixed investment spending of publicly traded real sector firms in three major emerging markets – Argentina, Mexico and Turkey. The empirical results, including sensitivity tests, suggest that increasing volatility of capital inflows has an economically and statistically significant negative effect on new investment spending of private firms. Accordingly, a 10 per cent increase in capital flow volatility reduces fixed investment spending in the range of 1–1.7, 2.3–15, and 1 per cent in Argentina, Mexico and Turkey respectively.

South-South Trade in Manufactures: Current Performance and Obstacles for Growth

The last two decades have witnessed resurgence in South-South trade, investment, and regional integration. This article examines trade performance in total and technology-and-skill-intensive manufactures for a sample of twenty-eight developing countries with both developed (South-North) and other developing (South-South) countries. Previous studies and our sample data show that South-South trade in manufactures is characterized by higher capital and skill-intensive factor content relative to South-North trade, with major implications for development in the South, including the possibility of dynamic gains through learning by exporting, technological externalities, allocative efficiencies, and scale economies. The article concludes by discussing obstacles to increasing South-South trade and possibilities for future research on the topic.

Preferential trade agreements and manufactured goods exports: does it matter whom you PTA with?

This article explores two questions. First, do preferential trade agreements (PTAs) affect manufactured goods exports of developing countries? Second, does it matter for developing countries whom they sign the PTAs with? We find that the answer to both questions is yes. Using bilateral manufactured goods exports data from 28 developing countries during 1978–2005; we find that South–South PTAs have a significantly positive effect on manufactured goods exports. In contrast, no such effect is detected in the case of South–North PTAs. We confirmed the robustness of these findings to estimation methodology, sample selection, time period, zero trade flows and multilateral trade resistance.

Total Factor Productivity, Foreign Direct Investment, and Entry Barriers in the Chinese Automotive Industry

ABSTRACT We explore three questions on foreign direct investment (FDI): (1) What are the differences in entry barriers for foreign, public, and private investors? (2) What are the effects of past productivity levels on future foreign direct investment (FDI) decisions? (3) What is the effect of equity structure on future total factor productivity (TFP) levels? The empirical results based on a monopolistic competition model and using a firm-level data set from the Chinese automobile industry suggest that foreign investors face higher entry barriers and react stronger to past TFP levels. FDI is also found to improve future TFP more than other forms of investment. Finally, World Trade Organization (WTO) accession is found to reduce entry barriers for foreign and domestic private investors while increasing entry barriers for public investors.

Income inequality and structures of international trade

The effects of trade openness on within-country income inequality in developing countries are found to be inconclusive in existing literature. This study proposes a “threshold effect” to address this issue. We argue that when exports benefit a large portion of population, it is more likely to decrease income inequality within a country; otherwise, increasing exports will likely increase the income inequality. Using a data-set of 55 developing countries from 1981 to 2005, we find that if the employment share of manufacturing industry is above (below) a threshold, the increase in the share of manufactures exports reduces (increases) the within-country income inequality.

The Middle East and North Africa

The growth and development performance of the Middle East and North Africa (MENA) region presents one of the major anomalies that current economics literature seeks to resolve, which is how to reconcile the existence of massive natural resources with the high unemployment, low growth and the general underdevelopment of the region. In this debate, much attention is focused on the problems arising from: a) state oriented inward looking economic policies, b) lack of ‘integration’ with the world economy, c) underdeveloped financial sectors and chilling investment climate, and d) low levels of human capital development. In this paper, we attempt to present a summarized yet more balanced and hopefully more insightful analysis of the growth and development experience of the countries in the region with a special attention given to the existing bottlenecks hindering future development prospects. While discussing the MENA region as a whole we will divide the countries into five subgroups: 1) oil rich labor importing states (Bahrain, Kuwait, Oman, Libya, the United Arab Emirates, Qatar, and Saudi Arabia) 2) oil rich labor abundant states (Algeria, the Islamic Republic of Iran, Iraq, Syria), 3) oil poor labor abundant NICs (Egypt, Morocco, Turkey), 4) oilpoor limited natural resource states (Israel, Tunisia, West Bank and Gaza, Jordan, Lebanon), and 5) natural resource poor states (Sudan, Yemen). (Richards and Waterbury, 1996). Although the inclusion of Turkey, Israel, and Iran is controversial as the trajectory of the Arab and other Middle Eastern countries constitute a more appropriate whole, they share many commonalities as well. However, unless stated otherwise, the general statements will exclude Turkey and Israel. The economic history of MENA region is characterized by several cycles of growth and accumulation. In retrospect, the region formerly enjoyed higher levels of economic development and prosperity compared to its counterparts in Europe. While Istanbul with its 700,000 inhabitants in 16 century was the largest city in the world, North Africa overall was much more urbanized than Europe (Paris with 125,000 inhabitants vs. Cairo with 450,000 around 1500) (Bairoch, 1997:517-537). However, in the last of these cycles, the region experienced a decline in its growth and development indicators starting from early 18 century with the factors that precipitated this decline remaining a source of continuing debate. The current essay will focus

SOUTH–SOUTH AND NORTH–SOUTH ECONOMIC EXCHANGES: DOES IT MATTER WHO IS EXCHANGING WHAT AND WITH WHOM?

This paper surveys the literature on costs and benefits of South–South versus North–South economic exchanges. Unlike the case for North–South exchanges, academic work on South–South economic relations has been historically limited given their marginal importance in the global economy. After the 1990s, the literature has changed in two main ways. First, South–South trade and finance since then has increased dramatically, leading to a bourgeoning literature on the topic. Second, the rise of the Emerging South has opened up new lines of inquiry to include not just the traditional topics of trade and preferential trading agreements, but also cover technology transfer, capital flows, labor migration, institutions, and environment. We discuss how this literature has evolved to take into account the greater complexity of South–South relations with a focus on China in Africa as well as the blurring of the lines between heterodox and mainstream analysis of South–South relations. We end the review by showing how the empirical and theoretical literature is exploring the increasing divergence within the global South between what we refer to as the Emerging South and the Rest of South.