Eduardo Borensztein

Inter-American Development Bank
1300 New York Avenue N.W.
Washington D.C. 20577

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NBER Working Papers and Publications

October 2015The Welfare Gains from Macro-Insurance Against Natural Disasters
with Eduardo Cavallo, Olivier Jeanne: w21674
This paper uses a dynamic optimization model to estimate the welfare gains that a small open economy can derive from insuring against natural disasters with catastrophe (CAT) bonds. We calibrate the model by reference to the risk of earthquakes, floods and storms in developing countries. We find that the countries most vulnerable to these risks would find it optimal to use CAT bonds for insurance only if the cost of issuing these bonds were significantly smaller than it is in the data. The welfare gains from CAT bonds range from small to substantial depending on how insurance affects the country's external borrowing constraint. The option of using CAT bonds may bring a welfare gain of several percentage points of annual consumption by improving external debt sustainability. These large ga...

Published: Eduardo Borensztein & Eduardo Cavallo & Olivier Jeanne, 2016. "The Welfare Gains from Macro-Insurance Against Natural Disasters," Journal of Development Economics, . citation courtesy of

October 2009Macro-Hedging for Commodity Exporters
with Olivier Jeanne, Damiano Sandri: w15452
This paper uses a dynamic optimization model to estimate the welfare gains of hedging against commodity price risk for commodity-exporting countries. We show that the introduction of hedging instruments such as futures and options enhances domestic welfare through two channels. First, by reducing export income volatility and allowing for a smoother consumption path. Second, by reducing the country's need to hold foreign assets as precautionary savings (or by improving the country's ability to borrow against future export income). Under plausibly calibrated parameters, the second channel may lead to much larger welfare gains, amounting to several percentage points of annual consumption.

Published: Borensztein, Eduardo & Jeanne, Olivier & Sandri, Damiano, 2013. "Macro-hedging for commodity exporters," Journal of Development Economics, Elsevier, vol. 101(C), pages 105-116. citation courtesy of

March 1995How Does Foreign Direct Investment Affect Economic Growth?
with Jose De Gregorio, Jong-Wha Lee: w5057
We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.

Published: Borensztein, E., J. De Gregorio and J. W. Lee. "How Does Foreign Direct Investment Affect Economic Growth?," Journal of International Economics, 1998, v45(1,Jun), 115-135. citation courtesy of

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