This paper examines the impact of trade costs on real exchange rate volatility. We incorporate a multi-country Ricardian model of trade, based on the work of Eaton and Kortum (2002), into a macroeconomic model to show how bilateral real exchange rate volatility depends on relative technological...

This paper examines the impact of trade costs on real exchange rate volatility. The channel is examined by constructing a two-country Ricardian model of trade, based on the work of Dornbusch, Fischer, and Samuelson (1977), which shows that higher trade costs result in a larger nontradable...

In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of...

This Selected Issues paper assesses the impact of Vietnam’s World Trade Organization (WTO) accession. It describes the main terms of Vietnam’s accession as regards trade in goods and services, and uses a partial equilibrium simulation model to estimate the likely impact of WTO...

This Selected Issues paper on Sri Lanka underlies the dynamics of growth and external competitiveness. The slowdown in the contribution of sectors that are labor intensive, together with faster growth in sectors that are capital intensive and have higher productivity levels, resulted in total...

This Selected Issues paper and Statistical Appendix analyzes labor market institutions and reforms for Cyprus. The paper describes the legal and institutional framework of the Cypriot labor market, and discusses the voluntary framework for negotiations, the degree of unionization and the system...

This Selected Issues paper on Burundi highlights that after the Arusha Peace Agreement in 2000 Burundi has faced a wide range of challenges to generate sustained and equitable economic growth and improve social conditions. Burundi has begun to stabilize the economy, liberalized the trade and...

This Selected Issues paper for the Republic of Armenia shows that building up fiscal space during economic expansions is crucial for the effective implementation of stimulatory policies during downturns. Armenia’s tax revenue remains one of the lowest in the region, and significantly below...

The financial sector is mostly comprised of the banking sector, which largely provides insurance and asset management services. A large part of banking system assets relates to subsidiaries and branches of foreign banks. The banking sector poses risks by virtue of its size and concentration. The...