Atif Mian, Associate Professor of Finance
John Romalis, Associate Professor of Economics
Summary: Mian and Romalis propose to create a new data set related to trading patterns that can be used to study a pair of issues: pushing foreign-aid loans on borrowers and foreign-exchange windfalls.
The first relates to the efficiency of subsidized foreign financial assistance to developing countries. This literature has mostly focused on recipient countries’ characteristics, and the broader evidence suggests that foreign subsidized credit is not always beneficial. Mian and Romalis propose to shift the focus to include a role for characteristics of the lending country. In particular, they will investigate whether the adverse outcomes might arise because lender countries might actively pursue a policy of “pushing” loans on developing economies as part of their domestic trade policy to boost exports. They will explore whether increased financial flows of different types increase the quantity and/or price of exports from the donor country in the cross-section as well as time-series and whether the effects differ by product type, governance characteristics of the recipient country or influence of the donor economy.
Many developing economies rely heavily on commodities as their main export. Yet these countries are often small enough that they can be treated as price takers. This implies that unexpected fluctuations in commodity prices can have create large foreign exchange windfalls. How do these economies deal with such boons? Mian and Romalis propose to look at the connection between the spending associated with the windfalls and commodity-producing sector: the governance, financial and industrial structure of the commodity producing sector.