Laura Alfaro
Warren Alpert Professor of Business Administration
Laura Alfaro is the Warren Alpert Professor of Business Administration. Professor Alfaro is the author of multiple articles published in leading academic journals, and of Harvard Business School cases related to the field of international economics and in particular international capital flows, foreign direct investment and sovereign debt. Her latest research has focused on the role local institutions play in attracting capital flows and allowing positive benefits of such flows, in particular foreign direct investment (FDI), to materialize. Other research interests include political economy, capital controls, and exchange-rate-based stabilization programs. She is also Faculty Research Fellow in the National Bureau of Economic Research's International Macroeconomics and Finance Program and Faculty Associate at Harvard's Weatherhead Center for International Affairs. In 2008, she was honored as a Young Global Leader by the World Economic Forum. She served as Minister of National Planning and Economic Policy in Costa Rica from 2010-2012.
She earned her Ph.D. in Economics from the University of California, at Los Angeles (UCLA) in 1999, where she was recipient of the Dissertation Fellowship award. She received a B.A in economics with honors from the Universidad de Costa Rica in 1992 and a 'Licenciatura' from the Pontificia Universidad Catolica of Chile in 1994, where she graduated with highest honors. In 1992, she was awarded a Francisco Marroquin Foundation scholarship.
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Article
| American Economic Journal: Economic Policy
|
Surviving the Global Financial Crisis: Foreign Ownership and Establishment Performance
Laura Alfaro and Maggie Chen
We examine the differential response of establishments to the recent global financial crisis with particular emphasis on the role of foreign ownership. Using a worldwide establishment panel dataset, we investigate how multinational subsidiaries around the world responded to the crisis relative to local establishments. We find that first, multinational subsidiaries fared on average better than local counterfactuals with similar economic characteristics. Second, among multinational subsidiaries, establishments sharing stronger vertical production and financial linkages with parents exhibited greater resilience. Finally, in contrast to the crisis period, the effect of foreign ownership and linkages on establishment performance was insignificant in non-crisis years.
Keywords: Globalization;
Financial Crisis;
Multinational Firms and Management;
Data and Data Sets;
Business Subsidiaries;
Production;
Finance;
Performance;
Ownership;
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Article
| India Policy Forum
|
India Transformed: Insights from the Firm Level 1988–2005
Laura Alfaro and Anusha Chari
Using firm-level data, this paper analyzes the transformation of India's economic structure following the implementation of economic reforms. The focus of the study is on publicly listed and unlisted firms from across a wide spectrum of manufacturing and services industries and ownership structures such as state-owned firms, business groups, and private and foreign firms. Detailed balance sheet and ownership information permit an investigation of a range of variables such as sales, profitability, and assets. Here we analyze firm characteristics shown by industry before and after liberalization and investigate how industrial concentration, the number, and size of firms of the ownership type evolved between 1988 and 2005. We find great dynamism displayed by foreign and private firms as reflected in the growth of their numbers, assets, sales, and profits. Yet, closer scrutiny reveals no dramatic transformation in the wake of liberalization. The story, rather, is one of an economy still dominated by the incumbents (state-owned firms) and, to a lesser extent, traditional private firms (firms incorporated before 1985). Sectors dominated by state-owned and traditional private firms before 1988-1990, with assets, sales, and profits representing shares higher than 50%, generally remained so in 2005. The exception to this broad pattern is the growing importance of new and large private firms in the services sector. Rates of return also have remained stable over time and show low dispersion across sectors and across ownership groups within sectors.
Keywords: Financial Statements;
Management Analysis, Tools, and Techniques;
Transformation;
Economics;
Ownership;
Assets;
Sales;
Profit;
Stock Shares;
Private Sector;
Investment Return;
Manufacturing Industry;
Service Industry;
India;
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Article
| Journal of International Money and Finance
|
Nominal versus Indexed Debt: A Quantitative Horse Race
Laura Alfaro and Fabio Kanczuk
The main arguments in favor of and against nominal and indexed debt are the incentive to default through inflation versus hedging against unforeseen shocks. We model and calibrate these arguments to assess their quantitative importance. We use a dynamic equilibrium model with tax distortion, government outlays uncertainty, and contingent-debt service. Our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment. Thus, the benefits of unexpected inflation are tempered by higher interest rates. We obtain that costs from inflation more than offset the benefits from reducing tax distortions. We further discuss sustainability of nominal debt in developing (volatile) countries.
Keywords: Borrowing and Debt;
Motivation and Incentives;
Inflation and Deflation;
System Shocks;
Taxation;
Risk and Uncertainty;
Framework;
Problems and Challenges;
Interest Rates;
Cost;
Developing Countries and Economies;
Service Operations;
Citation: Alfaro, Laura, and Fabio Kanczuk. " Nominal versus Indexed Debt: A Quantitative Horse Race." Journal of International Money and Finance 29, no. 8 (December 2010): 1706–1726. (Also Harvard Business School Working Paper No. 05-053 and NBER Working Paper No. 13131.)
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Article
| Journal of Development Economics
|
Does Foreign Direct Investment Promote Growth? Exploring the Role of Financial Markets on Linkages
Laura Alfaro, Sebnem Kalemli-Ozcan, Areendam Chanda and Selin Sayek
Do multinational companies generate positive externalities for the host country? The evidence so far is mixed varying from beneficial to detrimental effects of foreign direct investment (FDI) on growth, with many studies that find no effect. In order to provide an explanation for this empirical ambiguity, we formalize a mechanism that emphasizes the role of local financial markets in enabling FDI to promote growth through backward linkages. Using realistic parameter values, we quantify the response of growth to FDI and show that an increase in the share of FDI leads to higher additional growth in financially developed economies relative to financially under-developed ones.
Keywords: Foreign Direct Investment;
Multinational Firms and Management;
Financial Markets;
Value;
Stock Shares;
Development Economics;
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Journal Article
| American Economic Review
|
Intra-Industry Foreign Direct Investment
Laura Alfaro and Andrew Charlton
We use a new firm-level dataset that establishes the location, ownership, and activity of 650,000 multinational subsidiaries. Using a combination of four-digit-level information and input-output tables, we find the share of vertical FDI (subsidiaries that provide inputs to their parent firms) to be larger than commonly thought, even within developed countries. Most subsidiaries are not readily explained by the comparative advantage considerations whereby multinationals locate activities abroad to take advantage of factor cost differences. Instead, multinationals tend to own the stages of production proximate to their final production, giving rise to a class of high-skill, intra-industry vertical FDI.
Keywords: Business Subsidiaries;
Competency and Skills;
Foreign Direct Investment;
Geographic Location;
Multinational Firms and Management;
Industry Structures;
Production;
Citation: Alfaro, Laura, and Andrew Charlton. " Intra-Industry Foreign Direct Investment." American Economic Review 99, no. 5 (December 2009): 2096–2119. (Also Harvard Business School Working Paper No. 08-018 and NBER Working Paper No. 13447.)
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Article
| Review of International Economics
|
Debt Maturity: Is Long-Term Debt Optimal?
Laura Alfaro and Fabio Kanczuk
We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity premium, sustainability, and service smoothing. We use a dynamic equilibrium model with tax distortions and government outlays uncertainty, and model maturity as the fraction of debt that needs to be rolled over every period. In the model, the benefits of defaulting are tempered by higher future interest rates. We then calibrate our artificial economy and solve for the optimal debt maturity for Brazil as an example of a developing country and the U.S. as an example of a mature economy. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies higher welfare levels.
Keywords: Borrowing and Debt;
Investment Return;
Development Economics;
Taxation;
Risk and Uncertainty;
Cost;
Interest Rates;
Developing Countries and Economies;
Welfare or Wellbeing;
United States;
Brazil;
Citation: Alfaro, Laura, and Fabio Kanczuk. " Debt Maturity: Is Long-Term Debt Optimal?" Review of International Economics 17, no. 5 (2009): 890–905. (Also Harvard Business School Working Paper, No. 06-005 and NBER Working Paper No. 13119.)
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Article
| Journal of International Economics
|
Optimal Reserve Management and Sovereign Debt
Laura Alfaro and Fabio Kanczuk
Most models currently used to determine optimal foreign reserve holdings take the level of international debt as given. However, given the sovereign’s willingness-to-pay incentive problems, reserve accumulation may reduce sustainable debt levels. In addition, assuming constant debt levels does not allow addressing one of the puzzles behind using reserves as a means to avoid the negative effects of crisis: why do not sovereign countries reduce their sovereign debt instead? To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model calibrated to a sample of emerging markets. We obtain that the reserve accumulation does not play a quantitatively important role in this model. In fact, we find the optimal policy is not to hold reserves at all. This finding is robust to considering interest rate shocks, sudden stops, contingent reserves and reserve dependent output costs.
Keywords: Borrowing and Debt;
Motivation and Incentives;
Decisions;
Emerging Markets;
Balance and Stability;
Earnings Management;
Policy;
Interest Rates;
International Finance;
Cost;
Citation: Alfaro, Laura, and Fabio Kanczuk. " Optimal Reserve Management and Sovereign Debt." Journal of International Economics 77, no. 1 (February 2009): 23–36. (Also Harvard Business School Working Paper, No. 07-010, 2006 and NBER Working Paper No. 13216.)
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Article
| World Economy
|
FDI, Productivity, and Financial Development
Laura Alfaro, Sebnem Kalemli-Ozcan and Selin Sayek
This paper examines the effect of foreign direct investment (FDI) on growth by focusing on the complementarities between FDI inflows and financial markets. In our earlier work, we found that FDI is beneficial for growth only if the host country has well-developed financial institutions. In this paper, we investigate whether this effect operates through factor accumulation and/or improvements in total factor productivity (TFP). Factor accumulation – physical and human capital – does not seem to be the main channel through which countries benefit from FDI. Instead, we find that countries with well-developed financial markets gain significantly from FDI via TFP improvements. These results are consistent with the recent findings in the growth literature that shows the important role of TFP over factors in explaining cross-country income differences.
Keywords: Foreign Direct Investment;
Financial Markets;
Financial Institutions;
Human Capital;
Cross-Cultural and Cross-Border Issues;
Performance Productivity;
Income Characteristics;
Citation: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Selin Sayek. " FDI, Productivity, and Financial Development." Special Issue on Multinational Enterprises and Foreign Direct Investment World Economy 32, no. 1 (January 2009): 111–135.
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Article
| Review of Economics and Statistics
|
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation
Laura Alfaro, Sebnem Kalemli-Ozcan and Vadym Volosovych
We examine the empirical role of different explanations for the lack of capital flows from rich to poor countries—the "Lucas Paradox." The theoretical explanations include cross country differences in fundamentals affecting productivity and capital market imperfections. We show that during 1970-2000, low institutional quality is the leading explanation. Improving Peru's institutional quality to Australia's level implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development.
Keywords: Income Characteristics;
Development Economics;
Capital Markets;
International Finance;
Cross-Cultural and Cross-Border Issues;
Wealth and Poverty;
Australia;
Peru;
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Article
| Journal of International Economics
|
Capital Flows and Capital Goods
Laura Alfaro and Eliza Hammel
Studying the relation between equity market liberalization and imports of capital goods, we examine one channel through which international financial integration can promote growth. For the period 1980–1997, we find that after controlling for other policies and fundamentals, stock market liberalizations are associated with a significant increase in the share of imports of machinery and equipment. We hypothesize this can be attributed to the consequences of financial integration, which allows access to foreign capital, and provide evidence consistent with this channel. Our results suggest that increased access to international capital allows countries to enjoy the benefits embodied in capital goods.
Keywords: Cash Flow;
Equity;
Financial Markets;
Economy;
Distribution Channels;
Machinery and Machining;
Capital;
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Article
| Journal of International Economics
|
Sovereign Debt As a Contingent Claim: A Quantitative Approach
Laura Alfaro and Fabio Kanczuk
We construct a dynamic equilibrium model with contingent service and adverse selection to quantitatively study sovereign debt. In the model, benefits of defaulting are tempered by higher future interest rates. For a wide set of parameters, the only equilibrium is one in which the sovereign defaults in all states; additional output losses, however, sustain equilibria that resemble the data. We show that due to the adverse selection problem, some countries choose to delay default to reduce loss of reputation. Moreover, although equilibria with no default imply in greater welfare levels, they are not sustainable in highly indebted and volatile countries.
Keywords: Sovereign Finance;
Borrowing and Debt;
Interest Rates;
Balance and Stability;
Risk and Uncertainty;
Risk Management;
Mathematical Methods;
Management Style;
Segmentation;
Debt Securities;
Banking Industry;
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Article
| Journal of Development Economics
|
Inflation, Openness, and Exchange Rate Regimes
Laura Alfaro
This paper further tests Romer's (1993) extension of Kydland and Prescott's (1977) predictions for dynamic-inconsistency problems in open economies. In a panel data set of developed and developing countries from 1973 to 1998, I find that openness does not play a role in restricting inflation in the short-run. On the other hand, a fixed exchange-rate regime plays a significant role. The results are robust to controlling for other variables that determine inflation, performing sensitivity analysis, and using a de facto exchange-rate regime classification.
Keywords: Forecasting and Prediction;
Economy;
Currency Exchange Rate;
Developing Countries and Economies;
Inflation and Deflation;
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Article
| Journal of International Economics
|
FDI and Economic Growth: The Role of Local Financial Markets
Laura Alfaro, Areendam Chanda, Sebnem Kalemli-Ozcan and Selin Sayek
The purpose of this paper is to examine the various links among foreign direct investment, financial markets and growth. We model an economy with a continuum of agents indexed by their level of ability. Agents have two choices: they can work for the foreign company in the FDI sector and use their wealth to earn a return or they can choose to undertake entrepreneurial activities, which are subject to a fixed cost. Better financial markets allow agents in the economy to take advantage of knowledge spillovers from FDI. The empirical evidence suggests that FDI plays an important role in contributing to economic growth. However, the level development of local financial markets is crucial for these positive effects to be realized.
Keywords: Foreign Direct Investment;
Financial Markets;
Economic Growth;
Cost;
Wealth;
Investment Return;
Knowledge;
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Article
| Economía
|
Multinationals and Linkages: An Empirical Investigation
Laura Alfaro and Andres Rodriguez-Clare
Several recent papers have used plant-level data and panel econometric techniques to carefully explore the existence FDI externalities. One conclusion that emerges from this literature is that it is difficult to find evidence of positive externalities from multinationals to local firms in the same sector (horizontal externalities). In fact, many studies find evidence of negative horizontal externalities arising from multinational activity while confirming the existence of positive externalities from multinationals to local firms in upstream industries (vertical externalities). In this paper we explore the channels through which these positive and negative externalities may be materializing, focusing on the role of backward linkages. In particular, we criticize the common usage of the domestic sourcing coefficient as an indicator of a firm's linkage potential and propose an alternative, theoretically derived indicator. We then use plant-level data from several Latin American countries to compare multinationals' linkage potential to that of domestic firms. We find that multinationals' linkage potential in Brazil, Chile and Venezuela is higher than for domestic firms. For Mexico, we cannot reject the hypothesis that foreign and local firms have similar linkage potential. Finally, we discuss the relationship between this finding and the conclusions that emerge from the recent empirical literature.
Keywords: Foreign Direct Investment;
Factories, Labs, and Plants;
Relationships;
Multinational Firms and Management;
Brazil;
Chile;
Venezuela;
Mexico;
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Article
| Review of International Economics
|
Capital Controls: A Political Economy Approach
Laura Alfaro
This paper examines the economic consequences of political conflicts that arise when countries implement capital controls. In an overlapping-generations model, agents vote on whether to open or close an economy to capital flows. The young (workers) receive income from wages only while the old (capitalists) receive income from savings only. We characterize the set of stationary equilibria for an infinite horizon game. Assuming dynamic-efficiency, when the median representative is a worker (capitalist), capital-importing countries will open (close) while capital-exporting countries will close (open). These predicted patterns are consistent with data on liberalization policies over time and across various countries.
Keywords: Economy;
Voting;
Conflict of Interests;
Capital;
Government and Politics;
Wages;
Saving;
Forecasting and Prediction;
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Article
| Review of International Economics
|
Capital Controls, Risk and Liberalization Cycles
Laura Alfaro and Fabio Kanczuk
The paper presents an overlapping-generations model where agents vote on whether to open or close the economy to international capital flows. Political decisions are shaped by the risk over capital and labor returns. In an open economy, the capitalists (old) completely hedge their savings income. In contrast, in a closed economy, the workers (young) partially insulate wages from the productivity shocks.There are three possible equilibrium outcomes: economies that eventually remain open; those that eventually remain closed; and those that cycle between open and closed. In line with the stylized facts, cycles are more common in economies with intermediate development levels.
Keywords: Business Cycles;
Development Economics;
Voting;
Risk and Uncertainty;
Cash Flow;
Saving;
Investment;
Economy;
Wages;
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Article
| Challenge
|
Capital and Control: Lessons from Malaysia
Rawi Abdelal and Laura Alfaro
Keywords: Capital;
Malaysia;
Citation: Abdelal, Rawi, and Laura Alfaro. " Capital and Control: Lessons from Malaysia." Challenge 46, no. 4 (July/August 2003): 36–53. (Also published in French as "Contrôle des capitaux: les enseignements de lexpérience malaisienne." Problèmes économiques, no. 2,837 (December 2003), pp. 21-28.)
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Article
| Economics & Politics
|
On the Political Economy of Temporary Stabilization Programs
Laura Alfaro
This paper provides a political economy explanation for temporary exchange-rate-based stabilization programs by focusing on the distributional effects of real exchange-rate appreciation. I propose an economy in which agents are endowed with either tradable or nontradable goods. Under a cash-in-advance assumption, a temporary reduction in the devaluation rate induces a consumption boom accompanied by real appreciation, which hurts the owners of tradable goods. The owners of nontradables have to weigh two opposing effects: an increase in the present value of nontradable goods wealth and a negative intertemporal substitution effect. For reasonable parameter values, owners of nontradables are better off.
Keywords: Government and Politics;
Economy;
Balance and Stability;
Programs;
Currency Exchange Rate;
Cash;
Value;
Distribution;
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Article
| Journal of Applied Economics
|
Why Governments Implement Temporary Stabilization Programs
Laura Alfaro
Keywords: Government and Politics;
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Chapter
| Reforms and Economic Transformation in India
| Forthcoming
Reforms and the Competitive Environment
Laura Alfaro and Anusha Chari
Keywords: Competition;
Governing Rules, Regulations, and Reforms;
Citation: Alfaro, Laura, and Anusha Chari. "Reforms and the Competitive Environment." In Reforms and Economic Transformation in India, edited by Jagdish N. Bhagwati, and Arvind Panagariya. Oxford University Press, forthcoming.
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Chapter
| Encyclopedia of Financial Globalization
Foreign Direct Investment and Growth: On the Role of Complementarities, the Search for Mechanisms, and the Potential for Linkages
Laura Alfaro and Matthew Johnson
This paper examines the evolution of the literature on the relationship between foreign direct investment (FDI) and growth in host countries, particularly developing countries. It provides a broad overview, with a focus on two elements that have recently become particularly important, (1) the role of complementary local conditions conducive to reaping the benefits of FDI (which relate to when FDI will generate growth) and (2) the mechanisms by which FDI creates positive externalities (which relate to how FDI generates growth).
Keywords: Globalization;
Foreign Direct Investment;
Citation: Alfaro, Laura, and Matthew Johnson. "Foreign Direct Investment and Growth: On the Role of Complementarities, the Search for Mechanisms, and the Potential for Linkages." In Encyclopedia of Financial Globalization, edited by S. Claessens. Elsevier, forthcoming.
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Chapter
| NBER International Seminar on Macroeconomics 2008
| 2009
Plant-Size Distribution and Cross-Country Income Differences
Laura Alfaro, Andrew Charlton and Fabio Kanczuk
We investigate, using plant-level data for 79 developed and developing countries, whether differences in the allocation of resources across heterogeneous plants are a significant determinant of cross-country differences in income per worker. For this purpose, we use a standard version of the neoclassical growth model augmented to incorporate monopolistic competition among heterogeneous plants. For our preferred calibration, the model explains 58% of the log variance of income per worker. This figure should be compared to the 42% success rate of the usual model.
Keywords: Factories, Labs, and Plants;
Developing Countries and Economies;
Wages;
Resource Allocation;
Mathematical Methods;
Citation: Alfaro, Laura, Andrew Charlton, and Fabio Kanczuk. "Plant-Size Distribution and Cross-Country Income Differences." In NBER International Seminar on Macroeconomics 2008, edited by Jeffrey A. Frankel, and Christopher Pissarides. Cambridge, MA: National Bureau of Economic Research, 2009.
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Chapter
| Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences
| 2007
Capital Flows in a Globalized World: The Role of Policies and Institutions
Laura Alfaro, Sebnem Kalemli-Ozcan and Vadym Volosovych.
Keywords: International Finance;
Capital;
Government and Politics;
Policy;
Financial Institutions;
Citation: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych. " Capital Flows in a Globalized World: The Role of Policies and Institutions." In Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, edited by Sebastian Edwards. National Bureau of Economic Research Conference Report. University of Chicago Press, 2007. (Also NBER Working Paper No. 11696.)
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Article
| Vox
|
Firm Organisation: What We Know and Why We Should Care
Laura Alfaro, Paola Conconi, Harald Fadinger, Patrick Legros and Andrew Newman
Keywords: industrial organization;
International trade;
firm organization;
firms;
trade;
protectionism;
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Article
| World Bank Research Digest
|
Surviving the Global Financial Crisis: The Role of Foreign Ownership
Laura Alfaro and Maggie X. Chen
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Other Article
| Vox
|
Upstream Sovereigns
Laura Alfaro, Sebnem Kalemli-Ozcan and Vadym Volosovych
Citation: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych. " Upstream Sovereigns." Vox (October 29, 2011).
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Article
| Law and Contemporary Problems
|
Lawsuits and Empire: On the Enforcement of Sovereign Debt in Latin America
Faisal Z. Ahmed, Laura Alfaro and Noel Maurer
The re-occurring phenomenon of sovereign default has prompted an enormous theoretical and empirical literature. Most of this research has focused on why countries ever chose to pay their debts (or why private creditors ever expected repayment). The problem originates from the fact that repayment incentives for sovereign debts are minimal since little can be used as collateral and the ability of a court to force a sovereign entity to comply has been extremely limited, especially given the lack of a supranational legal authority capable of enforcing contracts across borders. In this paper we contrast the market reaction to attempts to enforce sovereign debt contracts via U.S. "dollar diplomacy" in Latin America in the pre-World War II period and by legal action in the 1990s and early 2000s. We argue that dollar diplomacy created an effective and credible enforcement regime while legal actions by creditors, conversely, do not appear to have done so.
Keywords: Lawsuits and Litigation;
Insolvency and Bankruptcy;
Sovereign Finance;
Borrowing and Debt;
Debt Securities;
Motivation and Incentives;
Markets;
Equity;
Banking Industry;
Latin America;
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Other Article
| Vox
|
Multinational Firms, Agglomeration, and Global Networks
Laura Alfaro and Maggie Chen
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Other Article
| Vox
|
The Transformation of India: Incumbent Control, Reforms, and Newcomers
Laura Alfaro and Anusha Chari
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Other Article
| Christian Science Monitor
|
India's Pockets of Prosperity?: Special Economic Zones Are Attractive on Paper, But They Pose Thorny Political Problems
Laura Alfaro, Lakshmi Iyer and Semil Shah
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Book Review
| Journal of Economic Literature
|
Review of 'Foreign Direct Investment: Analysis of Aggregate Flows' by A. Razin and E. Sadka
Laura Alfaro
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Comment
| Brookings Trade Forum
|
Comments on 'FDI and Economic Development' by Ted Moran
Laura Alfaro and Beata Smarzynska Javorcik
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Chapter
| The Latin American Competitiveness Report
| 2006
Latin American Multinationals
Laura Alfaro and Eliza Hammel
Keywords: Multinational Firms and Management;
Latin America;
Citation: Alfaro, Laura, and Eliza Hammel. " Latin American Multinationals." In The Latin American Competitiveness Report. New York: Oxford University Press, 2006. (Issued by WEF/CID.)
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Comment
| Journal of International Economics
|
Review of "The Monetary Geography of Africa," by Paul R. Masson and Catherine Patillo
Laura Alfaro
Citation: Alfaro, Laura. Review of "The Monetary Geography of Africa," by Paul R. Masson and Catherine Patillo. Journal of International Economics 67, no. 2 (December 2005): 515–520.
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Working Paper
| HBS Working Paper Series
| 2013
Carry Trade, Reserve Accumulation, and Exchange-Rate Regimes
Laura Alfaro and Fabio Kanczuk
Carry-trade activity and foreign participation in local-currency-bond markets in emerging countries have increased dramatically over the past decade. In light of these trends, we revisit the question of the optimal exchange-rate regime when developing countries can borrow internationally with local-currency-denominated debt. We find that, as local-currency-bond markets develop, a "pseudo-flexible regime," whereby a country accumulates reserves in conjunction with debt, to be the best policy alternative under real external shocks for emerging nations.
Keywords: carry trade;
exchange rate;
foreign reserves;
local-currency bonds;
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Working Paper
| HBS Working Paper Series
| 2013
Market Reallocation and Knowledge Spillover: The Gains from Multinational Production
Laura Alfaro and Maggie X. Chen
Quantifying the gains from multinational production has been a vital topic of economic research. Positive productivity gains are often attributed to knowledge spillover from multinational to domestic firms. An alternative, less emphasized explanation is market reallocation, whereby competition from multinationals leads to factor reallocation and the survival of only the most productive domestic firms. We develop a model that incorporates both aspects and quantify their relative importance in the gains from multinational production by exploring their distinct predictions for domestic distributions of productivity and revenue. We show that knowledge spillover shifts both distributions rightward while market reallocation raises the left truncation of the distributions and shifts revenue leftward. Using a rich firm-level panel dataset that spans 60 countries, we find that both market reallocation and knowledge spillover are significant sources of productivity gain. Ignoring the role of market reallocation can lead to significant bias in understanding the nature of gains from multinational production.
Keywords: Gains from Multinational Production;
Market Reallocation;
Knowledge Spillover;
Multinational Firms and Management;
Production;
Performance Productivity;
Competition;
Mathematical Methods;
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Working Paper
| HBS Working Paper Series
| 2012
Deregulation, Misallocation, and Size: Evidence from India
Laura Alfaro and Anusha Chari
This paper examines the impact of the deregulation of compulsory industrial licensing in India on firm-size dynamics and the reallocation of resources within industries over time. Following deregulation, we find that the extent of resource misallocation declines and a considerable thickening of the left-hand tail of the firm-size distribution suggesting a significant increase in the number of small firms. However, the dominance and growth of large incumbents remains unchallenged. Quantile regressions reveal that the distributional effects of deregulation on firm size are significantly non-linear. The size distribution we observe—namely, a large number of small firms and a small number of large firms—can be characterized as the "missing middle" in Indian manufacturing and suggests that small firms may continue to face constraints in their attempts to grow.
Keywords: Capital Budgeting;
Markets;
Economic Growth;
Governing Rules, Regulations, and Reforms;
Business and Government Relations;
Development Economics;
Production;
Performance Capacity;
Business Strategy;
India;
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Working Paper
| 2010
International Capital Allocation, Sovereign Borrowing, and Growth
Laura Alfaro, Sebnem Kalemli-Ozcan and Vadym Volosovych
The key in the investigation of "where" and "why" capital flows, relative to the neoclassical benchmark, is how we measure these flows. The macro literature has been using three main yardsticks: the current account balance, returns to capital, and the volume of net capital flows. We argue that all of these measures will partly reflect non-private non-market activities, while the neoclassical predictions are about private-market behavior. After a careful separation of public and private components of capital flows three main findings emerge: 1) International capital flows net of aid flows are positively correlated with different proxies of growth and productivity consistent with the predictions of the neoclassical model. 2) International capital flows net of government debt are also allocated according to the neoclassical predictions. 3) Government debt is negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results are robust to different country and time samples including the recent period characterized by global imbalances. Overall these findings suggest that recent “puzzles" in the literature about the lack of correlation (or negative correlation) between capital flows and growth are due to the role of sovereign to sovereign borrowing (debt or aid) while private capital flows are indeed allocated according to the predictions of the neoclassical model.
Citation: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych. "International Capital Allocation, Sovereign Borrowing, and Growth." NBER Working Paper Series, No. w17396.
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Working Paper
| HBS Working Paper Series
| 2012
Do Prices Determine Vertical Integration? Evidence from Trade Policy
Laura Alfaro, Paola Conconi, Harald Fadinger and Andrew F. Newman
This paper shows that product prices determine organizational design by studying how trade policy affects vertical integration. Property rights theory asserts that firm boundaries are chosen by stakeholders to mediate organizational goals (e.g., profits) and private benefits (e.g., operating in preferred ways). We present an incomplete-contracts model in which vertical integration raises output at the expense of lower private benefits. A key implication is that higher prices should result in more integration, since the organizational goal becomes relatively more valuable than private benefits. Trade policy provides a source of exogenous price variation to test this proposition: higher tariffs should lead to more vertical integration; moreover, ownership structures should be more alike across countries with similar levels of protection. To assess the evidence, we construct firm-level indices of vertical integration for a large set of countries and industries and exploit cross-section and time-series variation in import tariffs to examine the impact of prices on organizational choices. Our empirical results provide strong support for the predictions of the model.
Keywords: Trade;
Policy;
Ownership;
Business and Government Relations;
Vertical Integration;
Boundaries;
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Working Paper
| HBS Working Paper Series
| 2009
The Global Agglomeration of Multinational Firms
Laura Alfaro and Maggie Chen
The explosion of multinational activities in recent decades is rapidly transforming the global landscape of industrial production. But are the emerging clusters of multinational production the rule or the exception? What drives the offshore agglomeration of multinational firms? Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. Our analysis shows that the emerging offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Location fundamentals including market access and comparative advantage and under-emphasized agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals' offshore agglomeration.
Keywords: Geographic Location;
Multinational Firms and Management;
Globalized Markets and Industries;
Market Entry and Exit;
Industry Clusters;
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Working Paper
| HBS Working Paper Series
| 2008
International Financial Integration and Entrepreneurial Firm Activity
Laura Alfaro and Andrew Charlton
We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm-level data set in a broad sample of developed and developing countries, which enables us to present both cross-country and industry-level evidence. We find a positive robust correlation between de jure and de facto measures of international financial integration and proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution. We then explore potential channels through which foreign capital may encourage entrepreneurship. We find that entrepreneurial activity is higher in industries which have a large share of foreign firms in vertically linked industries. Second, we find that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration.
Keywords: Country;
Capital;
Integration;
Entrepreneurship;
Developing Countries and Economies;
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Working Paper
| HBS Working Paper Series
| 2005
Sovereign Debt: Indexation and Maturity
Laura Alfaro and Fabio Kanczuk
Citation: Alfaro, Laura, and Fabio Kanczuk. " Sovereign Debt: Indexation and Maturity." Working Paper (Inter-American Development Bank. Research Dept.), No. 560, December 2005. (Prepared for IADB Conference on Sovereign Debt, December 2005.)
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Working Paper
| HBS Working Paper Series
| 2011
Sovereigns, Upstream Capital Flows and Global Imbalances
Laura Alfaro, Sebnem Kalemli-Ozcan and Vadym Volosovych
We decompose capital flows-both debt and equity-into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign to sovereign transactions. Specifically, we show: (i) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (ii) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; (iii) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.
Keywords: Economic Growth;
Borrowing and Debt;
Capital Markets;
International Finance;
Sovereign Finance;
Government and Politics;
Performance Productivity;
Mathematical Methods;
Balance and Stability;
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Casebook
| 2010
Global Capital and National Institutions: Crisis and Choice in the International Financial Architecture
Laura Alfaro
All managers face a business environment in which international and macroeconomic phenomena matter. International capital flows can significantly affect countries' development efforts and provide clear investment opportunities for businesses. During the 1990s and early 2000s, the world witnessed an explosion in capital flows at the global level. Gross foreign assets and liabilities stood at two or three times GDP for many countries, as compared to just two decades ago. This explosive growth, especially in emerging markets, has been fueled both by changes in world politics (e.g., the end of the Cold War, collapse of the Soviet Union, shifting political climate in China, and political changes in Latin America and Asia) and advances in technology. Private capital flows—debt finance, equity capital, and foreign direct investment (FDI)—became larger than current and past official capital flows. This new era of foreign capital mobility has also been characterized by low interest rates in industrial countries, growing external imbalances in the U.S. economy, and the rise of China, all of which posed new challenges to policy management. In 2009, the global economy remained mired in a deep crisis following the subprime meltdown in the U.S. The situation was also a true testimony of how intertwined individual economies had become over the years. The effect of policies to deal with the ongoing global crisis and new policy choices remain to be seen. Understanding these phenomena—the determinants of capital flows, the effects of foreign capital on host countries, the impact of exchange-rate movements, and the genesis of financial and currency crises—is a crucial aspect to making informed managerial decisions. The cases in this book have been designed to give students an appreciation of the critical role of institutions and policies in affecting patterns of international capital flows and the abilities of government to manage them effectively. The case studies are tied together by two broad themes: (1) the determinants and effects of international capital, and (2) policy-makers' management of these flows. The cases approach these themes by exploring institutional detail in deep local context. The cases expose students to recent key events that have shaped the way economists think about these subjects. The events covered have a clear global perspective as the cases are set in Africa, Asia, Europe and Latin America, as well as the United States. The cases also cover events that occurred during the last three decades as not only do they affect the business environment that managers face today but they also hold important lessons. An important feature the cases reveal is the cyclical nature of international capital flows. Global Capital and National Institutions: Crisis and Choice in the International Financial Architecture is composed of three intellectual segments: (1) Determinants and Effects of International Capital Flows, (2) Policies and Strategies for Harnessing the Benefits of Financial Globalization, (3) Challenges and Policies of Large Economies. Chapter I presents a detailed overview of the cases and readings in the module and relates the cases included to the main patterns of international capital flows in the last thirty years. Finally, the chapter also presents the key insights from the field of international economics covered in the cases as well as the current state of debate among policy-makers.
Keywords: Financial Crisis;
Capital;
International Finance;
Globalized Economies and Regions;
Policy;
Government and Politics;
Business and Government Relations;
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Supplement
| HBS Case Collection
|
2013
Kinyuseisaku: Monetary Policy in Japan (C)
Laura Alfaro and Hilary White
Assuming office in December 2012, Prime Minister Shinzo Abe was determined to revive Japan’s stagnating economy through an ambitious plan known as ‘Abenomics.’ Under the guidance of the newly appointed governor of the central bank, Haruhiko Kuroda, the Bank of Japan adopted quantitative easing as its new monetary policy, pledging to double the nation’s monetary base in two years through the purchase of long-term government bonds. While Kuroda insisted that Japan needed to “use every means available” to combat deflation, critics wondered whether inflation would increase the nation’s public-sector debt to unsustainable levels or outpace growth in wages. Furthermore, skeptics debated whether Prime Minister Abe was wise to make the Bank of Japan the key player in moving the nation toward economic growth. Others questioned whether, unlike in the past, the Bank of Japan would take the necessary steps to carry through with the policy.
Keywords: Japan;
inflation targeting;
inflation;
Abenomics;
monetary policy;
stimulus;
quantitative easing;
government bonds;
Macroeconomics;
Inflation and Deflation;
Money;
Economic Slowdown and Stagnation;
Japan;
Citation: Alfaro, Laura, and Hilary White. "Kinyuseisaku: Monetary Policy in Japan (C)." Harvard Business School Supplement 713-086, May 2013.
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Case
| HBS Case Collection
|
2013
Currency Wars
Laura Alfaro and Hilary White
In February 2013, the G-20 finance ministers met in Moscow, Russia to discuss the rising anxieties over a potential international currency war. It was speculated that certain countries were purposely devaluing their currencies in order to improve their competitiveness in global markets. Emerging markets contended that the expansionary monetary policies of the major central banks, such as the US Federal Reserve, European Central Bank, and the Bank of England, were causing significant and detrimental spillover effects, such as currency appreciation, declining exports, and rising inflation, in less developed economies. Conversely, the major central banks insisted that such policies were necessary for reviving economic growth both domestically and internationally. Would these policies successfully create a resurgence of growth? Can expansionary monetary policies be considered "beggar-thy-neighbor" actions by emerging markets? How should developing nations respond?
Keywords: currency;
competitiveness;
Trade policy;
Devaluation;
exchange rate;
monetary policy;
quantitative easing;
inflation targeting;
capital flows;
Central Banking;
Currency Exchange Rate;
Competitive Strategy;
Emerging Markets;
Policy;
Trade;
Conflict and Resolution;
Banking Industry;
Public Administration Industry;
Moscow;
Citation: Alfaro, Laura, and Hilary White. " Currency Wars." Harvard Business School Case 713-074, March 2013.
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Teaching Note
| HBS Case Collection
|
2013
Australia: Commodities and Competitiveness (TN)
Laura Alfaro, Richard H.K. Vietor and Hilary White
For the past few decades, Australia has dealt with the benefits and costs of repeated mining booms—inflation, a housing bubble, a current account deficit and growing dependence on China. Between 1996 and 2007, however, Australia had most of these issues under control and grew at impressive rates, becoming one of the richest of developed countries. Yet competitiveness in its non-mining sectors declined. Since the financial crisis, additional challenges associated with climate change, minerals taxes, migration and an overvalued currency have complicated the issues facing Julia Gillard and her Labor Party, with a very thin majority.
Keywords: competitiveness;
inflation;
mining;
current account;
Exchange rates;
trade;
capital flows;
commodities;
environment;
carbon tax;
Goods and Commodities;
Australia;
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Case
| HBS Case Collection
|
2013
(Revised from original 2012 version)
Brazil's Enigma: Sustaining Long-Term Growth
Laura Alfaro and Hilary White
Over the past decade, Brazil's future as a leading world economic power appeared certain. An expanding middle class and commodity boom had fueled economic growth, with GDP growth hitting a peak of 7.5% in 2010. However, the high cost of conducting business in Brazil, known as "Custo Brasil," was hurting domestic manufacturing, while incoming foreign investments threatened to overwhelm Brazilian markets. Under President Dilma Rousseff, economic growth stagnated, and the Rousseff administration struggled to find the best balance between reducing inflation, maintaining a flexible exchange rate, and improving the competitiveness of Brazilian exports.
Keywords: capital controls;
inflation;
Exchange rates;
stimulus;
competitiveness;
productivity growth;
foreign investment;
infrastructure;
Inflation and Deflation;
Currency Exchange Rate;
Brazil;
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Case
| HBS Case Collection
|
2012
(Revised from original 2012 version)
Australia: Commodities and Competitiveness
Laura Alfaro, Richard H.K. Vietor, Bill Russell and Hilary White
For the past few decades, Australia has dealt with the benefits and costs of repeated mining booms—inflation, a housing bubble, a current account deficit and growing dependence on China. Between 1996 and 2007, however, Australia had most of these issues under control and grew at impressive rates, becoming one of the richest of developed countries. Yet competitiveness in its non-mining sectors declined. Since the financial crisis, additional challenges associated with climate change, minerals taxes, migration and an overvalued currency have complicated the issues facing Julia Gillard and her Labor Party, with a very thin majority.
Keywords: commodities;
competitiveness;
carbon tax;
environment;
capital flows;
current account;
mining;
Goods and Commodities;
Australia;
Citation: Alfaro, Laura, Richard H.K. Vietor, Bill Russell, and Hilary White. " Australia: Commodities and Competitiveness." Harvard Business School Case 713-015, October 2012. (Revised from original August 2012 version.)
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Supplement
| HBS Case Collection
|
2010
(Revised from original 2010 version)
Chile's Copper Surplus: The Road Not Taken (B)
Laura Alfaro, Dante Roscini and Renee Kim
In 2009, Chile's Finance Minister Andres Velasco's fortunes had been reversed. His fiscal policy that had come under attack just a year ago had been used to finance a $4 billion fiscal stimulus package amid the global economic downturn. Velasco was now Chile's most popular minister. However, the future of Chile's fiscal policy was questionable with the election of a new president, Sebastian Pinera, the first conservative leader to lead Chile in two decades.
Keywords: Developing Countries and Economies;
Financial Crisis;
Financial Strategy;
Financing and Loans;
Policy;
Government and Politics;
Chile;
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Case
| HBS Case Collection
|
2012
(Revised from original 2009 version)
Crisis and Reform in Japan's Banking System (A)
Thierry Porte, Rawi E. Abdelal, Laura Alfaro and Jonathan Schlefer
In 1997, amidst Japan's ongoing financial problems, Prime Minister Ryutaro Hashimoto sought to restructure the financial sector to make it more transparent and globally competitive. He hoped that this effort, dubbed the "Big Bang" after the British financial restructuring a decade earlier, would prove as successful. But the financial problems, which seemed to have abated, looked as if they might be worsening. Thus, Hashimoto had to weigh priorities. Should he focus on long-term restructuring, immediate financial rescue, or both? Might an over-emphasis on long-term restructuring increase the chances that major banks could collapse? And what were the best economic and political strategies in these arenas? As a major developed economy, Japan offers an analog to the problems that faced the United States in its 2008–2009 financial crisis.
Keywords: Financial Crisis;
Capital;
Banks and Banking;
Crisis Management;
Business and Government Relations;
Banking Industry;
Japan;
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Supplement
| HBS Case Collection
|
2012
(Revised from original 2009 version)
Crisis and Reform in Japan's Banking System (B)
Thierry Porte, Rawi E. Abdelal, Laura Alfaro and Jonathan Schlefer
In 1997, amidst Japan's ongoing financial problems, Prime Minister Ryutaro Hashimoto sought to restructure the financial sector to make it more transparent and globally competitive. He hoped that this effort, dubbed the "Big Bang" after the British financial restructuring of a decade earlier, would prove as successful. But the financial problems, which seemed to have abated, looked as if they might be worsening. Thus, Hashimoto had to weigh priorities. Should he focus on long-term restructuring, immediate financial rescue, or both? Might an over-emphasis on long-term restructuring increase the chances that major banks could collapse? And what were the best economic and political strategies in these arenas? As a major developed economy, Japan offers an analog to the problems that faced the United States in its 2008-09 financial crisis.
Keywords: History;
Adaptation;
Policy;
Globalized Markets and Industries;
Financial Crisis;
Business and Government Relations;
Macroeconomics;
Restructuring;
Global Strategy;
Banks and Banking;
Banking Industry;
Japan;
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Teaching Note
| HBS Case Collection
|
2010
Australia: The Riches and Challenges of Commodities (TN)
Laura Alfaro and Renee Kim
Teaching Note for 709007.
Keywords: Futures and Commodity Futures;
Financial Crisis;
Demand and Consumers;
Trade;
Natural Environment;
Business and Government Relations;
Policy;
Growth and Development Strategy;
Australia;
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Case
| HBS Case Collection
|
2009
Australia: The Riches and Challenges of Commodities
Laura Alfaro and Renee Kim
Australia's Prime Minister Kevin Rudd faced a daunting task that he never imagined he would have to face when he was elected two years ago. Australia at that time was poised to enter its 17th year of uninterrupted growth. Commodity exports were booming, largely driven by China's insatiable appetite for raw materials. Then the global financial crisis erupted in 2008, brewing challenges for the world's biggest exporter of coal and iron ore. Prime Minister Rudd pushed for massive stimulus packages to revive domestic consumption and demand. Yet as an economy heavily dependent on trade, tumbling commodity prices brewed difficult times for Australia's trade deficit and its persistent large current account deficit. What was in hold for Australia's deficit, which had been in the red all but four years since 1950? In addition, how should policymakers address the intense concerns regarding China's growing interest in Australia's prized natural resources sector?
Keywords: Financial Crisis;
Trade;
Foreign Direct Investment;
Policy;
Crisis Management;
China;
Australia;
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Case
| HBS Case Collection
|
2012
(Revised from original 2008 version)
Special Economic Zones in India: Public Purpose and Private Property (A)
Laura Alfaro and Lakshmi Iyer
In 2005, the government of India enacted the Special Economic Zones (SEZ) Act in order to attract investment, generate export revenues, and create manufacturing jobs. However, several planned projects faced difficulties in acquiring land for setting up the SEZ. In December 2007, the government introduced a new piece of legislation, which proposed to extend the power of eminent domain to allow the government to acquire land for SEZs. Was this the right response to the land acquisition problems of private firms? Was the SEZ strategy the right one for India's economic growth?
Keywords: Acquisition;
Development Economics;
Economic Growth;
Policy;
Government Legislation;
Property;
Business and Community Relations;
Business and Government Relations;
India;
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Case
| HBS Case Collection
|
2012
(Revised from original 2009 version)
Tata Motors in Singur: Public Purpose and Private Property (B)
Laura Alfaro, Lakshmi Iyer and Namrata Arora
In October 2008, Tata Motors canceled their car manufacturing plant in West Bengal state, in the face of widespread farmer protests over land acquisition issues. This meant abandoning a project in which the company had invested $300 million and delaying the launch of the Nano, the world's cheapest car. What strategy could Tata have pursued to avoid this outcome? Would similar problems arise in Gujarat state, where the project had been relocated?
Keywords: Business Exit or Shutdown;
Rights;
Emerging Markets;
Property;
Business and Government Relations;
Conflict and Resolution;
Auto Industry;
Manufacturing Industry;
West Bengal;
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Teaching Note
| HBS Case Collection
|
2009
Public Purpose and Private Property (TN) (A) and (B)
Laura Alfaro and Lakshmi Iyer
Teaching Note for [709027] and [709029].
Keywords: Property;
Government and Politics;
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Case
| HBS Case Collection
|
2009
The First Global Financial Crisis of the 21st Century
Laura Alfaro and Renee Kim
The global economy was expected to suffer from negative growth for the full year in 2009, a phenomenon not seen since World War II. While the U.S. subprime mortgage disaster was blamed as the original instigator, it was noted that the "global imbalances" of the U.S. current account deficit funded for many years by other nations such as China were also a chief culprit of the crisis. Policymakers around the world recognized that the scope and scale of the financial crisis required a coordinated global response. Yet there were conflicting views on what kind of action was needed to address the first global financial crisis of the 21st century.
Keywords: Financial Crisis;
Mortgages;
Globalized Economies and Regions;
Policy;
International Relations;
Business and Government Relations;
Conflict and Resolution;
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Case
| HBS Case Collection
|
2009
(Revised from original 2008 version)
U.S. Subprime Mortgage Crisis: Policy Reactions (A)
Laura Alfaro and Renee Kim
By March 2008, the U.S. Government and the U.S. Federal Reserve Board had taken various policy measures over the last few months to tackle the subprime mortgage crisis that threatened to drag the economy into a recession. The Bush administration approved a fiscal stimulus package exceeding $150 billion. Interest rates had been repeatedly cut at the fastest pace in decades, to 2.25% as of March 2008. The Fed, in an unprecedented move, helped JPMorgan Chase to take over Bear Stearns, which was on the brink of collapse. Yet as the global economy faced slower growth stemming from the U.S. mortgage crisis, policy makers were caught in an intense debate over what the 'right' solution would be, and the implication of these policies on global imbalances.
Keywords: Financial Crisis;
Inflation and Deflation;
Central Banking;
Mortgages;
Policy;
Business and Government Relations;
United States;
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Case
| HBS Case Collection
|
2010
(Revised from original 2009 version)
U.S. Subprime Mortgage Crisis: Policy Reactions (B)
Laura Alfaro and Renee Kim
In March 2009, the U.S. economy was in a severe recession not seen since the Great Depression after the subprime mortgage crisis had spiraled out of control. The situation had dramatically changed in one year since the Federal Reserve Board had helped to bailout investment bank Bear Stearns. Deflation, not inflation, had become a top concern. Interest rates were near zero percent. Five million jobs had been lost. The new Barack Obama administration had pushed forward with a $787 billion stimulus package, coupled with various programs to address the frozen credit markets and depressed investors' confidence. Yet the burning question in every policymaker's mind was-how effective would the various plans work to revive the U.S. economy?
Keywords: Financial Crisis;
Central Banking;
Mortgages;
Globalized Economies and Regions;
Policy;
United States;
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Teaching Note
| HBS Case Collection
|
2009
U.S. Subprime Mortgage Crisis: Policy Reactions (TN) (A) and (B)
Laura Alfaro and Renee Kim
Teaching Note for [708036] and [709045].
Keywords: Mortgages;
Crisis Management;
Government and Politics;
Financial Services Industry;
United States;
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Case
| HBS Case Collection
|
2009
(Revised from original 2008 version)
Sovereign Wealth Funds: For Profits or Politics?
Laura Alfaro and Renee Kim
On March 21, 2008, the U.S. government secured an agreement from two leading sovereign wealth funds (SWFs) to adopt a new set of investment principles to govern the Funds' activities. SWFs, broadly defined as an investment fund owned by a national or a government, were gaining prominence across the globe, especially with their recent investments in troubled U.S. financial firms that had suffered significant losses from the subprime mortgage crisis. Yet SWFs were viewed with suspicions amid concerns that they could have potential political interests behind their investments. Many SWFs also lacked disclosure or transparency regarding their activities or investment goals. Countries such as the United States felt that some kind of international regulation had to be imposed, but would it be possible?
Keywords: Foreign Direct Investment;
Investment Funds;
Sovereign Finance;
Corporate Disclosure;
Governing Rules, Regulations, and Reforms;
International Relations;
State Ownership;
United States;
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Case
| HBS Case Collection
|
2009
(Revised from original 2008 version)
Kinyuseisaku: Monetary Policy in Japan (A)
Laura Alfaro and Akiko Kanno
Toshihiko Fukui, Governor of the Bank of Japan, faced a complex situation in the fall of 2007. An economic recovery had allowed the central bank to abandon its zero interest rate policy, which had been in place for years, and raise rates to 0.5%. The Bank of Japan was eager to increase them to more “normal” levels to exert effective monetary policy. Yet the appropriate timing and approach was a controversial issue, especially as the government did not want a rate hike that could potentially hinder economic growth and increase its already large fiscal debt burden.
Keywords: Inflation and Deflation;
Money;
Central Banking;
Interest Rates;
Policy;
Japan;
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Supplement
| HBS Case Collection
|
2009
Kinyuseisaku: Monetary Policy in Japan (B)
Laura Alfaro and Akiko Kanno
Toshihiko Fukui, Governor of the Bank of Japan, faced a complex situation in the fall of 2007. An economic recovery had allowed the central bank to abandon its zero interest rate policy, which had been in place for years, and raise rates to 0.5%. The Bank of Japan was eager to increase them to more “normal” levels to exert effective monetary policy. Yet the appropriate timing and approach was a controversial issue, especially as the government did not want a rate hike that could potentially hinder economic growth and increase its already large fiscal debt burden.
Keywords: Inflation and Deflation;
Money;
Central Banking;
Interest Rates;
Policy;
Japan;
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Teaching Note
| HBS Case Collection
|
2009
(Revised from original 2008 version)
Kinyuseisaku: Monetary Policy in Japan (TN) (A) & (B)
Laura Alfaro and Renee Kim
Teaching Note for [708017].
Keywords: Money;
Policy;
Japan;
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Case
| HBS Case Collection
|
2009
(Revised from original 2008 version)
Chronology of the Asian Financial Crisis
Laura Alfaro, Rafael Di Tella and Renee Kim
In July 1997, Thailand became the first Asian "tiger" economy to abandon its fixed exchange rate system in response to speculative attacks on its currency. Investors started to flee Asia, and the crisis rapidly spread to other countries. Central banks spent billions of dollars to try and defend their currencies, only to seek emergency bailouts from the International Monetary Fund. This case presents a chronology of events that unraveled during the Asian financial crisis from 1997 to the end of 1998.
Keywords: Financial Crisis;
Currency Exchange Rate;
Central Banking;
Policy;
Crisis Management;
Asia;
Thailand;
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Case
| HBS Case Collection
|
2008
(Revised from original 2007 version)
Transforming Korea Inc: Financial Crisis and Institutional Reform
Laura Alfaro and Renee Kim
South Korea, as one of the Asian "tiger" economies, transformed itself into the world's 11th largest economy and major exporter by 1996, emerging from being one of the lowest income countries in the region back in the 1960s. Yet one year later in 1997, Korea was swept up in the Asian financial crisis and sought a record $58 billion bailout from the International Monetary Fund. The crisis exposed fundamental weaknesses in the Korean economy, from bad loans to reckless growth policies pursued by large conglomerates. Sweeping reforms took place and the Korean economy rebounded quickly. Yet as Korea approached the 10-year anniversary of the crisis, the nation found itself pondering whether it had implemented enough institutional and structural reforms, or whether more had to be done, such as searching for a new economic development model to ensure its future.
Keywords: Development Economics;
Financial Crisis;
Governing Rules, Regulations, and Reforms;
Business and Government Relations;
South Korea;
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Teaching Note
| HBS Case Collection
|
2007
Transforming Korea Inc: Financial Crisis and Institutional Reform (TN)
Laura Alfaro and Renee Kim
Teaching Note for 708007.
Keywords: Financial Crisis;
Governing Rules, Regulations, and Reforms;
Transformation;
Policy;
Development Economics;
Investment Funds;
International Finance;
Financing and Loans;
South Korea;
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Case
| HBS Case Collection
|
2008
(Revised from original 2007 version)
Korea: After the 1997 Financial Crisis
Laura Alfaro, Rafael M. Di Tella and Renee Kim
Examines what happened to Korea after the 1997 financial crisis and the implementation of the IMF-mandated reforms imposed on Korea as conditionalities to the country's emergency loan package.
Keywords: Financial Crisis;
Macroeconomics;
Financing and Loans;
Governing Rules, Regulations, and Reforms;
Crisis Management;
South Korea;
Citation: Alfaro, Laura, Rafael M. Di Tella, and Renee Kim. " Korea: After the 1997 Financial Crisis." Harvard Business School Case 707-042, January 2008. (Revised from original March 2007 version.)
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Case
| HBS Case Collection
|
2007
(Revised from original 2006 version)
Creditor Activism in Sovereign Debt: "Vulture" Tactics or Market Backbone
Laura Alfaro and Ingrid Vogel
The role of distressed debt funds, also known as "vulture funds," in sovereign debt restructuring was a hotly debated topic, especially after the success of Elliot Associates in converting an $11 million investment in Peruvian bonds worth $21 million into a $58 million cash payout from the country, representing the full face value of the bonds plus past-due interest. Highlights the problems associated with debt restructuring coordination. On the one hand, many observers derided firms such as Elliot and Dart as "vultures" or "rouge creditors" who sought to profit on sovereign debt restructurings at the expense of countries suffering economic hardship and of the majority of bondholders whose cooperation allowed the restructurings to take place. Critics believed that these holdout creditors created "collective action problems" and presented a major obstacle to successful sovereign debt restructurings. On the other hand, other observers argued that activist investors actually improved the market overall by demonstrating the enforceability of contracts. In fact, they argued that creditors faced too many hurdles in collecting against countries after receiving favorable judgments in support of claims.
Keywords: Borrowing and Debt;
Bonds;
Investment Activism;
Investment Funds;
Sovereign Finance;
Government and Politics;
Contracts;
Business and Government Relations;
Peru;
Citation: Alfaro, Laura, and Ingrid Vogel. Creditor Activism in Sovereign Debt: " Vulture" Tactics or Market Backbone. Harvard Business School Case 706-057, December 2007. (Revised from original June 2006 version.)
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Teaching Note
| HBS Case Collection
|
2007
Creditor Activism in Sovereign Debt: "Vulture" Tactics or Market Backbone (TN)
Laura Alfaro and Ingrid Vogel
Teaching Note to 706057.
Keywords: Borrowing and Debt;
Financing and Loans;
Bonds;
Contracts;
Investment Activism;
Citation: Alfaro, Laura, and Ingrid Vogel. Creditor Activism in Sovereign Debt: " Vulture" Tactics or Market Backbone (TN). Harvard Business School Teaching Note 708-010, August 2007.
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Background Note
| HBS Case Collection
|
2007
(Revised from original 2006 version)
International Capital Markets and Sovereign Debt: Crisis Avoidance and Resolution
Laura Alfaro and Ingrid Vogel
Successive economic crises of the 1990s and early 2000s intensified focus on reform of the "international financial architecture." Because many of these crises involved defaults on sovereign bonds, an important component of the discussion revolved around the composition of international capital flows and sovereign debt restructuring. With the official sector, private creditors, and sovereign debtors focused on different issues, proposals surrounding the topic varied widely. Describes some of the proposals and summarizes scholarship on their advantages and disadvantages.
Keywords: Capital;
Markets;
Sovereign Finance;
Conflict and Resolution;
Financial Crisis;
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Case
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2007
(Revised from original 2007 version)
Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (A)
Laura Alfaro, Eric D. Werker and Renee Kim
At the 2005 Group of Eight summit, world leaders agreed to relieve the world's poorest countries' debt burdens and double aid to Africa by 2010. The announcement raised questions whether debt relief would really help the poor. By examining past aid trends and policies of multilateral institutions, such as the International Monetary Fund and the World Bank, this case also questions whether aid can allow poor countries to break the vicious cycle of poverty, and/or how aid can be used effectively.
Keywords: Developing Countries and Economies;
Borrowing and Debt;
Capital;
International Relations;
Nonprofit Organizations;
Poverty;
Welfare or Wellbeing;
Africa;
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Supplement
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2007
(Revised from original 2007 version)
Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (B)
Laura Alfaro, Eric D. Werker and Renee Kim
Keywords: Money;
Borrowing and Debt;
Trade;
Poverty;
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Teaching Note
| HBS Case Collection
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2008
(Revised from original 2007 version)
Aid, Debt Relief, and Trade: An Agenda for Fighting World Poverty (TN) (A) and (B)
Laura Alfaro, Eric D. Werker and Renee Kim
Keywords: Money;
Borrowing and Debt;
Trade;
Poverty;
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Case
| HBS Case Collection
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2007
Bolivia and Evo Morales
Rafael M. Di Tella, Laura Alfaro and Ezequiel Reficco
Keywords: Development Economics;
Developing Countries and Economies;
Economy;
Policy;
Bolivia;
Citation: Di Tella, Rafael M., Laura Alfaro, and Ezequiel Reficco. " Bolivia and Evo Morales." Harvard Business School Case 707-041, February 2007.
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Case
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2010
(Revised from original 2007 version)
Rovna Dan: The Flat Tax in Slovakia
Laura Alfaro, Rafael M. Di Tella, Ane Damgaard Jensen and Vincent Marie Dessain
Explores the tax policy choices made by Slovakia and the impact of reforms. Set in 2006, looks at the decision facing new Prime Minister Robert Fico as he faces the public's "reform fatigue." Traces the development of tax and fiscal policies since Slovakia's independence in 1993, focusing on the 2004 implementation of the rovna dan, or "equal tax," a drastic simplification of the tax system. A major theme is the impact of labor market and welfare reform, as well as the effective tax rates of both investors and workers. Another important theme relates to Slovakia's desire to join the EU and adopt the Euro.
Keywords: Investment;
Governing Rules, Regulations, and Reforms;
Policy;
Taxation;
Labor;
Welfare or Wellbeing;
Slovakia;
Citation: Alfaro, Laura, Rafael M. Di Tella, Ane Damgaard Jensen, and Vincent Marie Dessain. " Rovna Dan: The Flat Tax in Slovakia." Harvard Business School Case 707-043, March 2010. (Revised from original March 2007 version.)
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Teaching Note
| HBS Case Collection
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2007
Rovna Dan: The Flat Tax in Slovakia (TN)
Laura Alfaro, Rafael M. Di Tella and Renee Kim
Teaching Note to 707043.
Keywords: Policy;
Taxation;
System;
Labor;
Governing Rules, Regulations, and Reforms;
Slovakia;
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Case
| HBS Case Collection
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2010
(Revised from original 2005 version)
Foreign Direct Investment and Ireland's Tiger Economy (A)
Laura Alfaro, Vinati Dev and Stephen McIntyre
Describes Ireland's transformation from one of Europe's poorest countries to one of its richest in just 10 years, earning it the title Celtic Tiger. The spectacular story of growth and recovery is attributed, in large part, to foreign direct investment (FDI), particularly from the United Sates. The government of Ireland has continually nurtured the climate for investment and through its investment promotion arm, Ireland Development Authority (IDA), has aggressively sought investment projects. Despite the apparent miracle, some question the FDI-focused policy and special incentives given. Their skepticism stems largely from the fact that Ireland's indigenous industry has remained on the periphery of this transformation, with limited linkages to the foreign sector. Offers an opportunity to examine the debate surrounding FDI. Was FDI the key ingredient in Ireland's success? What does it take for a country to attract FDI? Did government agencies, specifically IDA, play a role in the Irish success story? Also, analyzes other causes of growth--namely, Ireland's entry into the European Union and subsequent larger market access, as well as a sound macroeconomic policy.
Keywords: Developing Countries and Economies;
Economic Growth;
Macroeconomics;
Foreign Direct Investment;
Policy;
Business and Government Relations;
Republic of Ireland;
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Supplement
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2010
Foreign Direct Investment and Ireland's Tiger Economy (B)
Laura Alfaro and Matthew Johnson
Keywords: Foreign Direct Investment;
Northern Ireland;
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Teaching Note
| HBS Case Collection
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2010
(Revised from original 2005 version)
Foreign Direct Investment and Ireland's Tiger Economy (TN) (A) and (B)
Laura Alfaro
Keywords: Foreign Direct Investment;
Developing Countries and Economies;
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Supplement
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2007
(Revised from original 2006 version)
French Unemployment: The Crisis Continues
Laura Alfaro, Vincent Marie Dessain and Patrick Vachey
Keywords: Employment;
France;
Citation: Alfaro, Laura, Vincent Marie Dessain, and Patrick Vachey. " French Unemployment: The Crisis Continues." Harvard Business School Supplement 707-020, July 2007. (Revised from original October 2006 version.)
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Case
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2012
(Revised from original 2005 version)
The U.S. Current Account Deficit
Laura Alfaro, Rafael M. Di Tella, Ingrid Vogel, Renee Kim and Matthew Johnson
Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short and long-term implications of the current account deficit would ultimately yield.
Keywords: Macroeconomics;
Borrowing and Debt;
Currency;
Foreign Direct Investment;
Business and Government Relations;
United States;
Citation: Alfaro, Laura, Rafael M. Di Tella, Ingrid Vogel, Renee Kim, and Matthew Johnson. " The U.S. Current Account Deficit." Harvard Business School Case 706-002, October 2012. (Revised from original July 2005 version.)
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Teaching Note
| HBS Case Collection
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2008
(Revised from original 2005 version)
The U.S. Current Account Deficit (TN)
Laura Alfaro, Rafael M. Di Tella, Ingrid Vogel and Renee Kim
Teaching Note to (9-706-002).
Keywords: Sovereign Finance;
United States;
Citation: Alfaro, Laura, Rafael M. Di Tella, Ingrid Vogel, and Renee Kim. " The U.S. Current Account Deficit (TN)." Harvard Business School Teaching Note 706-008, December 2008. (Revised from original August 2005 version.)
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Supplement
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2005
The U.S. Current Account Deficit (CW)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
Keywords: Sovereign Finance;
United States;
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Case
| HBS Case Collection
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2010
(Revised from original 2006 version)
China: To Float or Not To Float? (A)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
On July 21, 2005 China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1% to 8.11 and, at the same time, introduced a more market-based exchange rate system. Many analysts and economists were disappointed with what they considered too small a change and called for more flexibility in the U.S. dollar/yuan exchange rate. Modification to China's exchange rate regime had been eagerly anticipated and much debated in the preceding months as China's trade surplus against the United States reached record highs and as friction intensified with Europe and Japan. Also, analysts argued that the tightly managed exchange rate put a strain on China's own economy. Not only was the exchange rate expensive to sustain, but it contributed to--as well as limited China's flexibility in responding to--a potentially overheating economy. Although China's extensive controls on the movement of capital into the country helped to counteract some inflationary pressure, controls were becoming more porous as China increasingly integrated with the world economy. It remained to be seen what China would ultimately choose to do with its exchange rate regime.
Keywords: Macroeconomics;
Trade;
Currency Exchange Rate;
Governance Controls;
Policy;
Growth and Development Strategy;
China;
Citation: Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. " China: To Float or Not To Float? (A)." Harvard Business School Case 706-021, April 2010. (Revised from original March 2006 version.)
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Case
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2013
(Revised from original 2006 version)
China: To Float or Not To Float? (B) - Timeline of Changes Relevant to the Chinese Renminbi
Laura Alfaro, Rafael M. Di Tella, Ingrid Vogel, Renee Kim and Bill Russell
On July 21, 2005 China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1 % to 8.11% and, at the same time, introduced a more market-based exchange rate system. Many analysts and economists were disappointed with what they considered too small a change and called for more flexibility in the U.S. dollar yuan exchange rate. Provides a timeline of further changes relevant to the Chinese renminbi.
Keywords: Macroeconomics;
Trade;
Currency Exchange Rate;
Governance Controls;
Policy;
China;
United States;
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Case
| HBS Case Collection
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2006
(Revised from original 2006 version)
China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
In July 2005, China revalued its currency by 2.1% and adjusted its exchange rate regime toward a more market-based system. Esquel Group, a family-run, privately held textiles firm specializing in high-quality cotton shirts with its most significant manufacturing base located in China, was among those companies confronted with the challenge of addressing the revaluation of the yuan and the possibility of future appreciation. Provides a brief overview of China's textile industry and background on Esquel Group.
Keywords: Family Business;
Currency Exchange Rate;
Private Ownership;
Problems and Challenges;
Value Creation;
China;
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Case
| HBS Case Collection
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2006
(Revised from original 2006 version)
China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
With its $3 billion investment in Chinese state bank China Construction Bank, Bank of America--the second U.S. bank behind Citigroup in terms of assets and market capitalization--was one of several foreign banks directly participating in China's banking sector reform. Banking sector reform was considered by some analysts to be an important complement to capital account liberalization and further changes to China's exchange rate regime.
Keywords: Currency Exchange Rate;
Banks and Banking;
Foreign Direct Investment;
International Relations;
Banking Industry;
China;
United States;
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Case
| HBS Case Collection
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2006
(Revised from original 2006 version)
China: To Float or Not To Float? (E)- ABB Investment in China
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
In July 2005, China revalued its currency by 2.1% and adjusted its exchange rate regime toward a more market-based system. ABB, a global power and automation technologies company based out of Switzerland with operations in China, was among those companies confronted with the challenge of addressing the revaluation of the yuan and the possibility of future appreciation. Provides background on ABB's activities in China as well as incentives provided by Chinese officials for multinational corporations to move inland.
Keywords: Currency Exchange Rate;
Investment;
Multinational Firms and Management;
International Relations;
Problems and Challenges;
Value Creation;
China;
Switzerland;
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Case
| HBS Case Collection
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2006
(Revised from original 2006 version)
China: To Float or Not To Float? (F)- Alcatel and Strong Chinese Competition
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
The Chinese operations of Alcatel, a global communications solution provider based in France, were faced with strong local competition and a difficult market. It remained unclear how Alcatel would be able to recover growth in the Chinese market. Initiatives were underway to increase focus on services over equipment, to increase Chinese research and development presence, and to merge with U.S. competitor Lucent.
Keywords: Currency Exchange Rate;
International Relations;
Growth and Development Strategy;
Research and Development;
Competitive Strategy;
Horizontal Integration;
Communications Industry;
China;
France;
United States;
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Teaching Note
| HBS Case Collection
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2007
(Revised from original 2006 version)
China: To Float or Not To Float? (TN) (A), (B), (C), (D), (E), and (F)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
Keywords: China;
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Case
| HBS Case Collection
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2007
(Revised from original 2005 version)
Capital Controls in Chile in the 1990s (A)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
In 1991, Chile adopted a framework of capital controls focused on reducing the massive flows of foreign investment coming into the country as international interest rates remained low. Capital inflows threatened the Central Bank's ability to manage the exchange rate within a crawling band, which aimed eventually to lower Chile's rate of inflation to international levels. Until the Asian financial crisis of 1997 and the Russian debt crisis of August 1998, the Chilean economy performed spectacularly under, or perhaps in spite of, these controls. In the aftermath of the Asian and Russian crises, Chile's economy began to suffer through both trade and financial channels. Chile's current account deteriorated not only because Chile relied on Asia as a market for one-third of its exports, but also as the price of cooper, Chile's largest export product, plummeted in the face of dwindling Asian demand. Financial flows to Chile, like to emerging markets in general, fell dramatically as investors panicked. By the end of 1999, Chile had experienced Latin America's most severe "sudden stop" of external capital flows. In this new economic environment, Chile was forced to reevaluate its system of capital controls. Many observers in the private sector blamed the controls for unnecessarily adding to the strain and demanded the controls be dismantled completely. Meanwhile, Chile's Central Bank continued to defend the controls and argued that they had helped insulate the country for worse contagion.
Keywords: Developing Countries and Economies;
Economic Growth;
Financial Crisis;
Capital;
Governance Controls;
Business and Government Relations;
Chile;
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Case
| HBS Case Collection
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2005
(Revised from original 2005 version)
Capital Controls in Chile in the 1990s (B)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
Supplements the (A) case.
Keywords: Governance Controls;
Financial Crisis;
Foreign Direct Investment;
Currency Exchange Rate;
Inflation and Deflation;
Demand and Consumers;
Interest Rates;
Capital;
System;
Central Banking;
Chile;
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Teaching Note
| HBS Case Collection
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2008
(Revised from original 2005 version)
Capital Controls in Chile in the 1990's (A & B) (TN)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
Teaching Note to (9-705-031).
Keywords: Capital;
Chile;
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Case
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2010
(Revised from original 2004 version)
Brazil 2003: Inflation Targeting and Debt Dynamics
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
In October 2002, Brazilians elected a left-wing president, Luis Inacio Lula da Silva, for the first time in that country's history. As markets faltered in response, Lula sought to reaffirm his commitment to fiscal discipline, a floating exchange rate, and inflation targeting. By August 2003, however, his attempt to change market sentiment was threatened as the country faced a looming recession. Skeptics began to worry that the new PT (Worker's Party) government would be forced to resort to printing money to meet its campaign promises. Furthermore, after Argentina's massive default on its public debt at the end of 2001, observers were questioning the sustainability of Brazil's debt situation. Lula was under intense pressure to deliver results immediately and implement measures that would help spur the economy.
Keywords: Economy;
Inflation and Deflation;
Money;
Borrowing and Debt;
Policy;
Emerging Markets;
Brazil;
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Case
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2012
Brazil 2003: Inflation Targeting and Debt Dynamics (Abridged)
Laura Alfaro and Rafael Di Tella
In October 2002, Brazilians elected a left-wing president, Luis Inacio Lula da Silva, for the first time in that country's history. As markets faltered in response, Lula sought to reaffirm his commitment to fiscal discipline, a floating exchange rate, and inflation targeting. By August 2003, however, his attempt to change market sentiment was threatened as the country faced a looming recession. Skeptics began to worry that the new PT (Worker's Party) government would be forced to resort to printing money to meet its campaign promises. Furthermore, after Argentina's massive default on its public debt at the end of 2001, observers were questioning the sustainability of Brazil's debt situation. Lula was under intense pressure to deliver results immediately and implement measures that would help spur the economy.
Keywords: Brazil;
inflation;
Brazil;
Citation: Alfaro, Laura, and Rafael Di Tella. "Brazil 2003: Inflation Targeting and Debt Dynamics (Abridged)." Harvard Business School Case 713-041, October 2012.
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Teaching Note
| HBS Case Collection
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2008
(Revised from original 2004 version)
Brazil 2003: Inflation Targeting and Debt Dynamics (TN)
Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel
Teaching Note to (9-704-028).
Keywords: Inflation and Deflation;
Borrowing and Debt;
Brazil;
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Case
| HBS Case Collection
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2003
(Revised from original 2002 version)
Malaysia: Capital and Control
Rawi E. Abdelal and Laura Alfaro
On September 1, 1998, the government of Malaysia imposed currency and capital controls in response to the financial crisis that had swept Asia. The controls sparked an enormous controversy in the world of international finance. Some celebrated the controls for insulating the Malaysian economy from the unstable international financial system. Others criticized the controls for trapping investors and allowing the government to protect the interests of "cronies." This debate also raised the central question about the future of the international financial architecture: What is the appropriate balance between financial market freedom and government discretion in the management of the global economy?
Keywords: Business and Government Relations;
International Finance;
Policy;
Crisis Management;
Balance and Stability;
Globalized Economies and Regions;
Malaysia;
Citation: Abdelal, Rawi E., and Laura Alfaro. " Malaysia: Capital and Control." Harvard Business School Case 702-040, April 2003. (Revised from original April 2002 version.)
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Teaching Note
| HBS Case Collection
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2002
Malaysia: Capital and Control (TN)
Rawi E. Abdelal and Laura Alfaro
Teaching Note for (9-702-040).
Keywords: Malaysia;
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Background Note
| HBS Case Collection
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2002
(Revised from original 2002 version)
Capital Controls
Rawi E. Abdelal and Laura Alfaro
Only in the waning years of the 20th century did international financial markets begin to enjoy the freedom from government regulation that they had experienced before the first world war. By 2002, international capital markets had grown to be enormous--$1.2 trillion flowed around the globe per day. The massive size of the market presented policy makers with a serious challenge as they were forced to grapple with the costs and benefits of such mobile capital. This note briefly relates the modern history of capital controls and summarizes scholarship on the advantages and disadvantages of international financial market regulation.
Keywords: History;
Policy;
Business and Government Relations;
Change Management;
Cost vs Benefits;
Governance Controls;
Governance Compliance;
Emerging Markets;
Financial Markets;
Network Effects;
Banking Industry;
Financial Services Industry;
Citation: Abdelal, Rawi E., and Laura Alfaro. " Capital Controls." Harvard Business School Background Note 702-082, September 2002. (Revised from original April 2002 version.)
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Case
| HBS Case Collection
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2005
(Revised from original 2003 version)
Botswana: A Diamond in the Rough
Laura Alfaro, Debora L. Spar, Faheen Allibhoy and Vinati Dev
In the years since independence, tiny, landlocked Botswana has gone from being one of the world's poorest nations to becoming a stable, prosperous state, blessed with the highest sustained growth rate in the world. This case highlights the role that foreign direct investment (FDI) has played in this success, as well as how strong local institutions have helped to harness the benefits that the foreign investor--here, the giant De Beers company--has brought. Also, examines how Botswana was able to avoid the natural resource curse that has haunted so many other resource-abundant countries.
Keywords: Foreign Direct Investment;
Growth and Development Strategy;
Economic Growth;
Natural Environment;
Developing Countries and Economies;
Botswana;
Citation: Alfaro, Laura, Debora L. Spar, Faheen Allibhoy, and Vinati Dev. " Botswana: A Diamond in the Rough." Harvard Business School Case 703-027, November 2005. (Revised from original March 2003 version.)
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Teaching Note
| HBS Case Collection
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2008
(Revised from original 2003 version)
Botswana: A Diamond in the Rough (TN)
Laura Alfaro
Teaching Note for (9-703-027).
Keywords: Botswana;
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Background Note
| HBS Case Collection
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2009
(Revised from original 2002 version)
Foreign Direct Investment
Laura Alfaro and Esteban Clavell
Briefly reviews motivations and trends behind foreign direct investment and multinational corporations as well as the policy debate that surrounds them.
Keywords: International Finance;
Foreign Direct Investment;
Multinational Firms and Management;
Policy;
Business and Government Relations;
Citation: Alfaro, Laura, and Esteban Clavell. " Foreign Direct Investment." Harvard Business School Background Note 703-018, March 2009. (Revised from original October 2002 version.)
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Case
| HBS Case Collection
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2004
(Revised from original 2003 version)
New Partnership for Africa's Development, The
Laura Alfaro, Debora L. Spar and Cate Reavis
In a world context of international institutions such as the World Trade Organization and the International Monetary Fund and their interaction with developing countries, this case looks at an African development initiative to address its own problems: The New Economic Partnership for Africa's Development (NEPAD). With an emphasis on democracy and governance, NEPAD's primary objective is to eradicate poverty in Africa and bring long-term and sustainable political, economic, and social change to the region. Examines in depth this initiative "by Africans for Africans" and how it is likely to evolve.
Keywords: Development Economics;
Developing Countries and Economies;
International Finance;
Investment;
Poverty;
Africa;
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Case
| HBS Case Collection
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2003
(Revised from original 2003 version)
Bombardier: Canada versus Brazil at the WTO
Rawi E. Abdelal, Laura Alfaro and Brett Laschinger
In less than a decade, Bombardier had grown from a medium-size Canadian company to a highly profitable global player largely on the strength of the introduction of a new generation of regional jet and successfully marketing its product to airlines around the world. Events taking place on the other side of the globe, however, threatened Bombardier's hard-earned success. A nasty trade dispute with Brazilian rival Embraer was dragging on into its fifth year with no end in sight. Recent developments in the dispute at the WTO were forcing CEO Robert Brown and his team to decide on a strategy for what could very well turn out to be the most critical year in the company's history.
Keywords: Trade;
Global Strategy;
Five Forces Framework;
Marketing Strategy;
Product Launch;
Business and Government Relations;
Situation or Environment;
Competition;
Air Transportation Industry;
Canada;
Brazil;
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Case
| HBS Case Collection
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2002
(Revised from original 2001 version)
Brazil: Embracing Globalization?
Laura Alfaro
In 2001, Brazil stands at a crossroads. The country seems to be emerging from decades of economic stagnation. The economic situation remains tenuous, however, Brazil's leaders must now chart a forward course. Most critically, they must decide whether Brazil's future rests with close links to the global economy.
Keywords: Developing Countries and Economies;
Development Economics;
Economic Slowdown and Stagnation;
Cooperation;
Globalized Economies and Regions;
Cost vs Benefits;
Brazil;
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Teaching Note
| HBS Case Collection
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2002
Brazil: Embracing Globalization? TN
Laura Alfaro
Teaching Note for (9-701-104).
Keywords: Brazil;
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Case
| HBS Case Collection
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2004
(Revised from original 2001 version)
Power to the States: "Fiscal Wars" for FDI in Brazil
Laura Alfaro, Yasheng Huang and Marios S. Kalochoritis
On January 6, 1999, Itamar Franco, the governor of the state of Minas Gerais, the second-largest state in Brazil, declared a 90-day moratorium on its debt payment to the federal government. The announcement triggered a run on the Brazilian currency, the Real, and threatened the macroeconomic stability carefully constructed by President Fernando Henrique Cardoso since 1993. Confidence in the country on the part of foreign investors was badly shaken. This case traces the origin of this crisis.
Keywords: History;
Risk and Uncertainty;
International Finance;
Research;
Foreign Direct Investment;
Borrowing and Debt;
Financial Crisis;
Macroeconomics;
Brazil;
Citation: Alfaro, Laura, Yasheng Huang, and Marios S. Kalochoritis. Power to the States: " Fiscal Wars" for FDI in Brazil. Harvard Business School Case 701-079, February 2004. (Revised from original March 2001 version.)
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Other Teaching and Training Material
| 2008
Globalization Meets National Institutions: International Capital Flows, Harvard Business School Module Note Instructor Only, 708-041
Laura Alfaro
Keywords: Globalization;
Capital;
Financial Institutions;
International Finance;
Citation: Alfaro, Laura. "Globalization Meets National Institutions: International Capital Flows, Harvard Business School Module Note Instructor Only, 708-041." 2008.
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