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• Article | Vox

  You Can't Always Get What You Want: The Real Exchange Rate and Manufacturing Performance in a World of Global Value Chains

  Laura Alfaro, Alejandro Cuñat, Harald Fadinger and Yanping Liu

  Real exchange rate devaluations are typically seen as a viable development strategy, but the effectiveness of the approach may vary over time and across countries. This column explores this issue by focusing on the microeconomics of firm-level responses to exchange rate fluctuations. Results show varying patterns of responses to fluctuations by region and by import/export orientation. These results highlight the crucial role of a firm’s integration in global value chains.

  Keywords: manufacturing performance; Real exchange rate; Global value chains; Economics; Production; Performance;

  Citation:

  Alfaro, Laura, Alejandro Cuñat, Harald Fadinger, and Yanping Liu. "You Can't Always Get What You Want: The Real Exchange Rate and Manufacturing Performance in a World of Global Value Chains." Vox (October 2, 2018).  View Details

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• Article | Vox | September 26, 2018

  Ownership and Power Structure: Together at Last

  Laura Alfaro, Nicholas Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman, Raffaella Sadun and John Van Reenen

  Economists have largely ignored the deep interdependency between integration and delegation. This column describes a new theory of integration and delegation choices aimed at shedding light on how these distinct elements of organizational design interact. Contrary to what is suggested by a naïve one-dimensional approach, the model predicts that delegation and outsourcing should be negatively correlated, a prediction that holds up well when the model is applied to data for thousands of firms across many industries and countries.

  Keywords: Power; ownership; organisational design; Economics; Ownership; Organizational Design;

  Citation:

  Alfaro, Laura, Nicholas Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman, Raffaella Sadun, and John Van Reenen. "Ownership and Power Structure: Together at Last." Vox (September 26, 2018).  View Details

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• Case | HBS Case Collection | July 2005 (Revised August 2018)

  The U.S. Current Account Deficit

  Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, Jonathan Schlefer, Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson and Jonathan Schlefer

  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 Di Tella, Ingrid Vogel, Renee Kim, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised August 2018.)  View Details

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