Research

Working Papers

Has the US exorbitant privilege become a rich world privilege? Rates of return and foreign assets from a global perspective, 1970-2022 with Alice Sodano.

Abstract

How have rates of return on foreign assets and liabilities impacted different groups of countries across the financial globalization observed in recent decades? We address this question by combining data from a wide variety of sources, encompassing the entire world (216 economies) for the period 1970-2022. We find that the excess yield - i.e. the gap between returns on foreign assets and returns on foreign liabilities - has increased significantly for the top 20% richest countries (population weighted) since 2000. In effect, the exorbitant privilege of the US that was observed in previous decades has grown in size and scope and has become a rich world privilege. The richest countries have become the bankers of the world, attracting excess savings by providing low-yield safe assets and investing these inflows in more profitable ventures. Such a privilege is translated in net income transfers from the poorest to the richest equivalent to 1% of the GDP of top 20% countries (and 2% of GDP for top 10% countries), alleviating the current account balance of the latter while deteriorating that of the bottom 80% by about 2-3% of their GDP. We show that rich countries accumulate positive capital gains, which improves their international investment position (IIP), and invest in relative less risky assets with respect to the world, refuting prior beliefs of them earning a return premia to compensate for potential loses and risk undertaken. Our results seem to be explained by the fact that richer countries are issuers of international reserve currencies and are able to access cheaper financing (both for the public and private sector). Our study has implications for the reform of the international monetary and financial system and for the analysis of unequal development paths.

Media coverage: The Guardian (en). Alternatives Economiques (fr). Diario16 (es).

Slides

Trade and diplomacy Economic determinants of international cooperation agreements and its effect on international trade in the post World War II era: 1945-2022 with Antoni Estevadeordal.

Abstract

We study the determinants of international cooperation and its effect on trade. We rely on a unique database of 31,982 International Cooperation Agreements (ICAs) signed between 1945-2022 by 193 countries. Estimating bilateral gravity equations, we find that trade follows the flag: ICAs increase bilateral exports by around 3-11%. We provide complementary results using firm level exporting data and address potential endogeneity through panel approach and an instrumental variable that exploits the network structure of international relations. Further, using LPM we find that gravity forces explain country pairs entering an ICA, as well as their similarity in UNGA voting and democratic levels. Importantly, we find that ICAs serve as stepping stones towards Regional Trade Agreements, with stronger effects for North-South relations. Our results shed new light on the international relations-trade nexus and contribute to the current debate on friendshoring.

Chapters in books

Trade and GVC Integration in Latin America and the Caribbean with Ana Margarida Fernandes and Deborah Winkler.

Abstract

Reports that trade in Latin America and the Caribbean (LAC) proves low in relation to its economic size, and the region remains less open to trade than other regions at comparable levels of development. Both backward participation in global value chains (the use of imported inputs for production for export) and forward participation (the export of inputs used in production for the importing country’s exports) remain limited due to the region’s geographical distance from global value chain (GVC) hubs, average domestic market size, and endowments of low-skilled labor and capital. These characteristics, along with LAC’s sectoral specialization in commodities and food exports, explain the low average backward GVC participation and several LAC countries’ high forward GVC participation. Deep trade agreements present an avenue to overcome geographical remoteness, expand effective market size, and increase access to imported services that could support GVC participation and upgrading in the region. They can also improve domestic institutions, further strengthening GVC participation.