Competing with everyone
International Trade, Technology, and the Skill Premium
Ariel Burstein & Jonathan Vogel
Journal of Political Economy, forthcoming
What are the consequences of international trade on the skill premium? We incorporate skill-intensity differences across firms and sectors into a standard model of international trade. Reductions in trade costs reallocate factors toward a country's comparative advantage sectors, increasing the skill premium in countries with a comparative advantage in skill-intensive sectors and decreasing it elsewhere. Reductions in trade costs also reallocate factors toward more productive and skill-intensive firms within sectors and toward skill-intensive sectors in all countries, increasing the skill premium in all countries. Quantitatively, we find that trade liberalization increases the skill premium in almost all countries.
Evaluating the effects of local content measures in a CGE model: Eliminating the US Buy America(n) programs
Peter Dixon, Maureen Rimmer & Robert Waschik
Economic Modelling, forthcoming
Like many countries, the U.S. implements local content policies. Through these policies, the U.S. government attempts to stimulate employment, especially in the manufacturing sector, by favoring U.S. contractors for public sector projects (Buy American regulations) and by insisting that these contractors themselves favor domestic suppliers of inputs such as steel (Buy America regulations). We refer to these policies collectively as Buy America(n). Enforcement of the policies is via complex legalistic processes and often contractors to the U.S. government adopt a cautious approach by favoring U.S. suppliers even when this may not be strictly legally required. In these circumstances, it is not possible to provide a definitive model-based quantification of the effects of Buy America(n). Nevertheless, as demonstrated in this paper, a detailed CGE analysis can give valuable guidance concerning the efficacy of these policies. In an illustrative simulation we find that scrapping Buy-America(n) would reduce U.S. employment in manufacturing but boost employment in the rest of the economy with a net gain of about 300 thousand jobs. Even in the manufacturing sector, there would be many winning industries including those producing machinery and other high-tech products. Employment would increase in 50 out of 51 states and 430 out of 436 congressional districts.
Beyond the Liberal Moment? Tariff Revenue, Political Institutions, and Interstate Conflict
NYU Working Paper, August 2017
While previous scholarship has focused on the role of gains from trade in fostering peace, I argue that such theoretical propositions and their corresponding empirical measures are founded tacitly upon an outdated unitary rational actor assumption. I show with a simple formal model that the foundations of the liberal commercial peace are sensitive to this assumption being loosened. In line with the trend in the literature towards leader-centric thinking, I argue that bilateral tariff revenues generate more immediate opportunity costs for international conflict when the incentives leaders face to survive politically are considered. I support this argument empirically by developing a novel form of sensitivity analysis, introducing a new truly continuous estimates of winning coalition and selectorate sizes, and utilizing previously unrecognized data on bilateral tariff revenues. My findings call into question a large swath of academic literature as well as the common policy prescription that barriers to trade should be reduced to promote interstate peace. Moreover, my findings suggest that policy recommendations in general should not be made without properly assessing the epistemic uncertainty inherent to the academic study of politics.
Environmental protectionism: The case of CAFE
Economics Letters, November 2017, Pages 20-23
In 2011 the US changed its automobile fuel economy standards from a uniform, fleet-wide average, miles-per-gallon target, to one that varies with car sizes. Smaller cars now must meet stricter standards. While the motive for any policy change can be disputed, the consequence of this change looks like environmental protectionism, because the favored larger cars are disproportionately assembled in the US. The change imposes costs on imported cars equivalent to a tariff of $50 to $200 per vehicle.
Escape Through Export? Women-Owned Enterprises, Domestic Discrimination, and Global Markets
Iain Osgood & Margaret Peters
Quarterly Journal of Political Science, September 2017, Pages 143-183
Does globalization provide an escape from discriminatory legal and social institutions for women-owned enterprises? We develop an original test of this proposition based on a model of firm heterogeneity with discriminatory costs. Discriminatory institutions raise barriers to entry and increase costs of production, allowing only the most productive women-owned firms to survive. If the costs of discrimination are lower in export markets, the average surviving woman-owned firm is more likely to export and exports a higher proportion of total sales. Using a cross-national data set of firms, we show that while there are significantly fewer women-owned enterprises in countries with discriminatory institutions, these businesses export at higher rates. Global markets therefore provide an important, albeit imperfect, alternative to markets with poor protections of women's rights.
Peer-to-Peer File Sharing and Cultural Trade Protectionism
Andres Hervas-Drane & Eli Noam
Information Economics and Policy, forthcoming
We examine the Internet’s impact on the cross-border distribution of cultural goods and assess its implications for cultural policy and cultural diversity. We present a stylized model of a two-country economy where governments are endowed with political preferences over the consumption of domestic content and enact import barriers and subsidies to protect it. We introduce peer-to-peer file sharing as a distinct distribution channel enabled by the Internet that provides access to all media products at a low cost. We report two main findings. First, the Internet renders legacy cultural policy inefficient, and the elimination of import barriers and the reduction of subsidized production can be desirable even when governments exhibit paternalistic preferences favoring the consumption of domestic content. And second, even though the Internet increases cultural diversity within countries, it can also reduce diversity across them.
Can Europe Run Greece? Lessons from U.S. Fiscal Receiverships in Latin America, 1904-31
Noel Maurer & Leticia Arroyo Abad
George Washington University Working Paper, June 2017
In 2012 and again in 2015, the German government proposed sending German administrators to manage Greece’s tax and privatization authorities. The idea was that shared governance would reduce corruption and root out inefficient practices. (In 2017 the Boston Globe proposed a similar arrangement for Haiti.) We test a version of shared governance using eight U.S. interventions between 1904 and 1931, under which American officials took over management of Latin American fiscal institutions. We develop a stylized model in which better monitoring by incorruptible managers does not lead to higher government revenues. Using a new panel of data on fiscal revenues and the volume and terms of trade, we find that revenue fell under receiverships. Our results hold under instrumental variables estimation and with counterfactual specifications using synthetic controls.
Do Free Trade Agreements Affect Tariffs of Non-Member Countries? A Theoretical and Empirical Investigation
Kamal Saggi, Andrey Stoyanov & Halis Murat Yildiz
American Economic Journal: Applied Economics, forthcoming
We investigate the effects of free trade agreements (FTAs) on tariffs of non-member countries. In our multi-country model, the formation of an FTA leads members to reduce their exports to the rest of the world. Such external trade diversion weakens the ability of non-members to manipulate their terms of trade vis-à-vis FTA members, a mechanism that induces them to lower their tariffs on FTA members. We empirically confirm this insight using industry-level trade data for 192 importing and 253 exporting countries, along with information on all FTAs formed in the world during 1989–2011.
The Foreign Investor Bias and Its Linguistic Origins
Russell Lundholm, Nafis Rahman & Rafael Rogo
Management Science, forthcoming
We study how misaligned language between the investor and the firm contributes to the underweighting of foreign securities in an international portfolio. In particular, we document a significant U.S. institutional investor bias against firms located in Quebec relative to firms located in the rest of Canada (ROC). The differential bias is surprising given that (i) Quebec and the other Canadian provinces share the same nationality, federal law, stock exchange, and accounting standards; (ii) their regulatory filings are prepared in English and French; and (iii) U.S. institutional investors are sophisticated and located close to Quebec and the ROC. We also examine Quebec firms with different levels of French versus English online presences as well as those with CEOs who have U.S. work experience or board members or financial analysts who reside in the United States. We find that each factor affects the relative underweighting of investment in Quebec versus the ROC. Finally, we contrast the holdings of institutional investors located in the United Kingdom and France to bolster our conclusion that incongruent languages contribute to the underweighting of Quebec firms relative to firms in the ROC.
The Impact of Private Equity on Employment: The Consequences of Fund Country of Origin — New Evidence from France
Loris Guery et al.
Industrial Relations, October 2017, Pages 723–750
This article explores the country of origin effects of private equity investment on employment in France. Using propensity score matching methodology applied to establishment-level survey data, we find that foreign investors are significantly more likely to induce job shedding and employment insecurity than are French investors. As suggested by the literature on comparative capitalism, national differences may persist in conjunction with commonalities and trends in global capitalism.
Information and Legislative Bargaining: The Political Economy of U.S. Tariff Suspensions
Rodney Ludema, Anna Maria Mayda & Prachi Mishra
Review of Economics and Statistics, forthcoming
This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a legislative bargaining model in which firms influence legislators by transmitting information about the value of protection, using verbal messages and lobbying expenditures. Model estimation using firm-level data on tariff suspension bills and lobbying expenditures reveals that the probability a suspension is granted decreases with each additional firm that expresses opposition. This effect is significantly larger than that of either opponent or proponent lobbying, due to the greater information content of verbal opposition and legislative bargaining costs.
Learning by Ruling and Trade Disputes
Giovanni Maggi & Robert Staiger
NBER Working Paper, September 2017
Over the WTO years, the frequency of disputes and court rulings has trended downwards. Such trends are sometimes interpreted as symptoms of a dispute resolution system in decline. In this paper we propose a theory that can explain these trends as a result of judicial learning; thus according to our theory such trends represent good news, not bad news. We then offer evidence that the predictions of our model are consistent with WTO trade dispute data, and we take a first step towards estimating the strength and scope of court learning.
Diplomacy and the Settlement of International Disputes
Julia Gray & Philip Potter
University of Pennsylvania Working Paper, August 2017
International legal frameworks exist to formalize interactions between countries, supposedly muting the need for behind-the-scenes bargaining in the event of disagreements. Yet diplomacy persists, and sometimes escalates, even after countries invoke dispute settlement mechanisms. What is the purpose and impact of diplomatic engagement in the presence of international law? To date, the answer to this question has been elusive due to a shortage of both granular, systematic data on diplomatic interaction and precise theories about its effects. This paper redresses these deficits by exploring the relationship between diplomacy and the settlement of international trade disputes prior to a final legal judgment. We argue that even when states resort to international legal mechanisms, they still engage in a considerable amount of diplomacy outside of those processes. But the effects of diplomatic engagement vary depending on pre-existing state affinity. Specifically, we argue that diplomatic interactions help states that have dissimilar policy preferences resolve their disputes before they reach a formal ruling. By contrast, diplomacy has minimal impact on dispute settlement in relationships between countries with higher affinity. To establish this argument, we focus on the diplomatic interactions behind litigation involving the United States (US) at the World Trade Organization (WTO).