Ouarda Merrouche

Landmines and Poverty: IV Evidence from Mozambique

The International Campaign to Ban Landmines production and use estimates that there are more than 80 billion landmines in the ground in more than 80 countries. Despite the scale of the problem and large investments by OECD countries to clear mines in low income countries, the economic consequences of landmine contamination have been so far unexamined by economists working on the economics of wars, perhaps due to the lack of data thus far. This paper exploits a unique dataset on landmine contamination intensity covering 126 Mozambican districts. Because landmines (unlike other weapons) are used as a weapon of choice to protect territories, the empirical strategy uses an indicator of distance to strategic borders as an instrumental variable to correct for selection in landmine placement. Instrumental variables estimates indicate a large effect of landmine contamination on poverty and consumption several years after the ceasefire. Hence, despite the very high cost to clear a mine a conservative costbenefit evaluation of the national de-mining program indicates that the program generates a large positive return.

The Transmission of Liquidity Shocks: The Role of Internal Capital Markets and Bank Funding Strategies

We analyze the transmission of bank-specific liquidity shocks triggered by a credit rating downgrade through the lending channel. Using bank-level data for US Bank Holding Companies, we find that a credit rating downgrade is associated with an immediate and persistent decline in access to non-core deposits and wholesale funding, especially during the global financial crisis. This translates into a reduction in lending to households and non-financial corporates at home and abroad. The effect on domestic lending, however, is mitigated when banks (i) hold a larger buffer of liquid assets, (ii) diversify away from rating-sensitive sources of funding, and (iii) activate internal liquidity support measures. Foreign lending is significantly reduced during a crisis at home only for subsidiaries with weak funding self-sufficiency.

Countercyclical Foreign Currency Borrowing:Eurozone Firms in 2007-2009

Despite international financial disintegration, we document a dramatic increase in dollar borrowing among leveraged Eurozone corporates during the Great Financial Crisis. Using loan-level data, we trace this increase to the twin crisis in the credit market and in funding markets. The reduction in the supply of credit by Eurozone banks caused riskier borrowers to shift to foreign banks, in particular US banks. The coincident rise in the relative cost of euro wholesale funding and the disruptions in the FX swap market caused a rise in dollar borrowing from US banks, especially for firms in export-oriented sectors. Although global bank lending is often reported to amplify the international credit cycle, we show that foreign banking acted as a shock absorber that weathered the real consequences of the credit crunch in Europe.