Trade craft
Is Protectionism on the Rise? Assessing National Trade Policies during the Crisis of 2008
Hiau Looi Kee, Cristina Neagu & Alessandro Nicita
Review of Economics and Statistics, March 2013, Pages 342-346
Abstract:
This paper quantifies trade policy changes and the associated trade impacts for about 100 countries between 2008 and 2009. Results show that there has been no widespread increase in protectionism. Only a few countries, including Russia, Argentina, Turkey, and China, have increased tariffs on major imported products. The United States and the EU, by contrast, rely mainly on antidumping duties to shield domestic industries. Overall, while the rise in tariffs and antidumping duties may have jointly caused global trade to drop by US$43 billion, it explains less than 2% of the collapse in world trade during the crisis period.
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The Effect of Confucius Institutes on US Exports to China: A State Level Analysis
Donald Lien & Catherine Yap Co
International Review of Economics & Finance, forthcoming
Abstract:
This paper uses the trade gravity model to examine the effects of Confucius Institutes (CIs) on the exports of US states to China in 2006-2010. Overall, we detect a 5-6% increase in state exports for each additional CI branch established in a given state. This provides strong robust evidence that CIs provide direct economic benefits to the United States.
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Ronald Davies
Journal of Public Economics, May 2013, Pages 68-76
Abstract:
An increasing number of international agreements require "non-discrimination" from their participants, i.e. the government of one country cannot treat foreign firms differently from domestic firms. This is at odds with a government's desire to benefit its own citizens rather than foreign citizens. I show that the use of red tape - a wasteful application process - can achieve de-facto discrimination. Key to this result is firm heterogeneity since, although the red tape cost is the same across firms, only those sufficiently benefiting from an incentive program will find it worth the cost of applying. If the benefits of targeting subsidies outweigh the burden of red tape, red tape will be used.
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Foreign Corporations and the Culture of Transparency: Evidence from Russian Administrative Data
Serguey Braguinsky & Sergey Mityakov
Journal of Financial Economics, forthcoming
Abstract:
Firms from developed countries carry a culture of transparency in business transactions that is opposite to the culture of hiding and insider dealing in developing and transition economies. We employ Russian administrative data on reported earnings and market values of cars to measure wage misreporting for individual employees of domestic firms in Moscow. We show that closer ties to multinationals lead to improved transparency of wage reporting in private Russian companies. Employees located closest to movers from multinationals in the job quality space experience the largest gains in transparency. We find a robust correlation between wage misreporting and accounting fraud.
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Menzie Chinn & Shang-Jin Wei
Review of Economics and Statistics, March 2013, Pages 168-184
Abstract:
It is often asserted that a flexible exchange rate regime would facilitate current account adjustment. Using data on over 170 countries over the 1971-2005 period, we examine this assertion systematically. We find no strong, robust, or monotonic relationship between exchange rate regime flexibility and the rate of current account reversion, even after accounting for the degree of economic development and trade and capital account openness. This finding presents a challenge to the Friedman (1953) hypothesis and a popular policy recommendation by international financial institutions.
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Quantifying Productivity Gains from Foreign Investment
Christian Fons-Rosen et al.
NBER Working Paper, March 2013
Abstract:
We quantify the causal effect of foreign investment on total factor productivity (TFP) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small.
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A Network Analysis of Global Banking: 1978-2010
Camelia Minoiu & Javier Reyes
Journal of Financial Stability, June 2013, Pages 168-184
Abstract:
We analyze the global banking network using data on cross-border banking flows for 184 countries during 1978-2010. We find that the density of the global banking network defined by these flows is pro-cyclical, expanding and contracting with the global cycle of capital flows. We also find that country connectedness in the network tends to rise before banking and debt crises and to fall in their aftermath. Despite a historically unique build-up in aggregate flows prior to the global financial crisis, network density in 2007 was comparable to earlier peaks. This suggests that factors other than connectedness, such as the location of the initial shock to the core of the network, have contributed to the severity of the crisis. The global financial crisis stands out as an unusually large perturbation to the global banking network, with indicators of network density in 2008 reaching all-time lows.
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Saudi Arabia and the Oil Market
Anton Nakov & Galo Nuño
Economic Journal, forthcoming
Abstract:
In this paper we document two features that have made Saudi Arabia different from other oil producers. First, it has typically maintained ample spare capacity. Second, its production has been quite volatile even though it has witnessed few domestic shocks. These features can be rationalised in a general equilibrium model in which the oil market is modelled as a dominant producer with a competitive fringe. We show that the net welfare effect of oil tariffs on consumers is null. The reason is that Saudi Arabia's monopolistic rents fall entirely on fringe producers.
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Political Credit Cycles: The Case of the Euro Zone
Jesus Fernandez-Villaverde, Luis Garicano & Tano Santos
NBER Working Paper, March 2013
Abstract:
We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the Euro.
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Domestic Institutions and the Taxing of Multinational Corporations
Nathan Jensen
International Studies Quarterly, forthcoming
Abstract:
Political scientists have examined how domestic politics and the competition for international capital affect the setting of national tax rates. In this paper, I explore how political institutions, specifically the level of democracy, affect firm-level taxation across the world. I argue that electoral competition leads democratic governments to higher levels of taxation on firms. Using a data set on firm tax payments on the foreign affiliates of US multinational corporations from the US Bureau of Economic Analysis, I show that there are large variations within countries on the tax burdens faced by firms that are not explained by national tax rates. I find evidence that the mobility of the specific investment project, the types of spillovers these investments provide to a community, and attributes of the parent firm are all important determinants of taxation. While firm-level factors clearly affect corporate taxation, I argue that democratic institutions limit the offering of tax incentives and generate electoral benefits to policing tax avoidance by multinational corporations. After controlling for parent firm and foreign affiliate-level factors, I find that democratic countries generate as much as 26% more tax revenues from multinational corporations relative to authoritarian countries.
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Media coverage and location choice
Elena Kulchina
Strategic Management Journal, forthcoming
Abstract:
Emphasizing the importance of informed location choice, prior strategy research has examined how private information about locations affects foreign direct investment. Publicly available media information has received little attention, however, perhaps because its impact on location choice is expected to be trivial. This study examines the relationship between the extent of a location's media coverage and the number of entering foreign firms in Russia, using a novel instrumental variable for media coverage, a major anniversary of a city's establishment date. The results suggest that extensive foreign media coverage of a city increases the number of foreign entrants. This effect is stronger for firms with less private information about Russian cities, i.e., more socially and geographically distant firms and foreign entrepreneurs.
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How Big are the Gains from International Financial Integration?
Indrit Hoxha, Sebnem Kalemli-Ozcan & Dietrich Vollrath
Journal of Development Economics, July 2013, Pages 90-98
Abstract:
The literature has shown that the implied welfare gains from international financial integration are very small. We revisit the existing findings and document that welfare gains can be substantial if capital goods are not perfect substitutes. We use a model of optimal savings that includes a production function where the elasticity of substitution between capital varieties is less then infinity, but more than the value that would generate endogenous growth. This production structure is consistent with empirical estimates of the actual elasticity of subsitution between capital types, as well as with the relatively slow speed of convergence documented in the growth literature. Calibrating the model, our results are that welfare gains from financial integration are equivalent to a 9% increase in consumption for the median developing country, and up to 14% for the most capital-scarce. These gains rise substantially if capital's share in output increases even modestly above the baseline value of 0.3 or if the elasticity of substitution is set so that our model matches the observed convergence speed of output per capita. The gains remain large even if inflows of foreign capital after integration are limited to a fraction of the existing capital stock.
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David Bearce et al.
International Studies Quarterly, March 2013, Pages 163-170
Abstract:
After a decade of Aid for Trade (AfT) allocations, we can now begin to assess whether this new development strategy has been effective. Focusing on the short-term goal of export growth, we examine whether AfT from the US government promoted exports within recipient national economies over the period 1999-2008. Our results suggest that a $1 dollar increase in total US AfT has been associated with about a $69 increase in recipient exports 2 years later. We also show that the export effect of US AfT has not been confined to the US market and is driven primarily by exports to the rest of the world. In addition, we show that US AfT has been effective in reaching more needy countries as the substantive effect of US aid for trade has been larger in lesser-developed, landlocked, and more distant recipient countries.
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Time zone differences as trade barriers
Peter Egger & Mario Larch
Economics Letters, May 2013, Pages 172-175
Abstract:
This paper estimates the impact of time zone differences between trading locations on trade costs and trade in general equilibrium. Using homogeneous bilateral trade data between U.S. states and Canadian provinces, time zone differences are found to reduce bilateral trade by 11% on average, which amounts to about one-sixth of the international border effect between the U.S. and Canada.
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Sven Stöwhase
Journal of Public Economic Theory, April 2013, Pages 185-207
Abstract:
This paper models a Stackelberg tax setting game between two revenue-maximizing countries which compete for the location of a single production plant owned by a multinational firm. We introduce the possibility of profit-shifting activities by the multinational firm and investigate how a change in the costs of profit shifting affects equilibrium tax rates, revenue, and the tax burden of the multinational firm. We show that in most cases, tax rates of the two countries will be higher under profit shifting than without. If the costs for profit shifting are not too low, the strategic adjustment of profit tax rates will typically harm the multinational firm.
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The Olympic Games and the Improvement of Economic Well Being
Terence Chong & Pik Hung Hui
Applied Research in Quality of Life, March 2013, Pages 1-14
Abstract:
This paper investigates whether hosting the Olympic Games will improve economic well being of host countries. It is shown that the economic benefits of hosting the Games can last for up to 16 years. The economy of the host country improves after announcement of successful bid. The improvement peaks in the year of the Games and remains significant for 8 years after the Games.