Essays in Empirical International Economics
This dissertation comprises three chapters, each one representing an independent paper. In chapter 1, I study the relevance of a lack of popular support for the government and its leader ("government stability") for macroeconomic adjustment programs. A lack of government stability negatively affects the credibility of such programs because it impacts market expectations on the government's ability to execute the adjustment and increases the probability that reforms are postponed, not implemented or reversed. I apply the Synthetic Control Method to a plausibly exogenous shock to government stability during the adjustment carried out by the Macri government in Argentina (2015-19). The results show that the shock caused a nominal exchange rate depreciation of 15% over seven weeks, reflecting the adverse impact on the program's credibility. In chapter 2, we combine matched Japanese bank-firm credit data with firm-level FDI data and estimate how idiosyncratic bank shocks affect FDI (1986–2019). An increase in the bank shock by one standard deviation increases the probability of new FDI projects by 0.4%, which is equivalent to about 8% of the average FDI probability. Furthermore, bank shocks increase the initial value of new investment by 11%, but the effect is not statistically significant. Channels include destinations' financial development and companies' productivity, size, and internal capital markets. In chapter 3, we study how bank lending is affected by the cessation of violent conflict. We leverage Colombia’s peace process (2012-16), which ended the five-decade-long conflict between the government and the FARC. The peace process significantly raised bank credit in municipalities formerly affected by FARC violence. The increase in credit translates into greater economic activity, emphasizing the important role of credit markets in fostering economic recovery in post-conflict settings.
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