Trade deals
International Trade and Job Polarization: Evidence at the Worker-Level
Wolfgang Keller & Hâle Utar
NBER Working Paper, June 2016
Abstract:
This paper examines the role of international trade for job polarization, the phenomenon in which employment for high- and low-wage occupations increases but mid-wage occupations decline. With employer-employee matched data on virtually all workers and firms in Denmark between 1999 and 2009, we use instrumental-variables techniques and a quasi-natural experiment to show that import competition is a major cause of job polarization. Import competition with China accounts for about 17% of the aggregate decline in mid-wage employment. Many mid-skill workers are pushed into low-wage service jobs while others move into high-wage jobs. The direction of movement, up or down, turns on the skill focus of workers’ education. Workers with vocational training for a service occupation can avoid moving into low-wage service jobs, and among them workers with information-technology education are far more likely to move into high-wage jobs than other workers.
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Who wrote the rules for the Trans-Pacific Partnership?
Todd Allee & Andrew Lugg
Research & Politics, July 2016
Abstract:
Twelve governments recently signed the much-anticipated Trans-Pacific Partnership (TPP), sparking heated debate about its merits. As a primary motivation for this first “mega-regional” agreement, US President Barack Obama argues that the TPP is a way for the USA, and not China or someone else, to write the global trade rules of the future. This begs some important questions, namely which country or countries really did write most of the TPP and thus whose agenda for 21st century trade might it advance? To answer these questions, we compare the recently-released text of the TPP to the language in the 74 previous trade agreements that TPP members signed since 1995. Our text-as-data analyses reveal that the contents of the TPP are taken disproportionately from earlier US trade agreements. The ten preferential trade agreements (PTAs) that most closely match the TPP are all US PTAs. Moreover, the contents of controversial chapters, such as the one on investment, are drawn even more heavily from past US treaty language. Our study and findings apply power-based accounts of international institutions to a landmark new agreement, and portray a more active, template-based process of international diffusion.
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Currency Wars, Coordination, and Capital Controls
Olivier Blanchard
NBER Working Paper, July 2016
Abstract:
The strong monetary policy actions undertaken by advanced economies' central banks have led to complaints of “currency wars” by some emerging market economies, and to widespread demands for more macroeconomic policy coordination. This paper revisits these issues. It concludes that, while advanced economies' monetary policies indeed have had substantial spillover effects on emerging market economies, there was and still is little room for coordination. It then argues that restrictions on capital flows were and are a more natural instrument for advancing the objectives of both macro and financial stability.
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Jakob Madsen & Minoo Farhadi
Economica, forthcoming
Abstract:
This paper suggests genetic proximity, in addition to geographic proximity and imports, as a factor facilitating international knowledge transmission, where knowledge is measured as the stock of knowledge as well as research intensity to allow for the possibility that international knowledge spillovers have permanent productivity growth effects. Using data for 31 countries with diverse development paths over the period 1870–2011, the results show that genetic proximity and imports are important in facilitating knowledge transmission, and that knowledge spillovers have permanent growth effects.
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A Global View of Productivity Growth in China
Chang-Tai Hsieh & Ralph Ossa
Journal of International Economics, forthcoming
Abstract:
How does a country’s productivity growth affect worldwide real incomes through international trade? In this paper, we take this classic question to the data by measuring the spillover effects of China’s productivity growth. Using a quantitative trade model, we first estimate China’s productivity growth between 1995-2007 and then isolate what would have happened to real incomes around the world if only China’s productivity had changed. We find that the spillover effects are small for all countries in our sample, ranging from a cumulative real income loss of at most -0.2 percent to a cumulative real income gain of at most 0.2 percent.
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Mona Ali
Cambridge Journal of Economics, July 2016, Pages 997-1018
Abstract:
In advanced economies, foreign direct investment (FDI) is usually a two-way process, involving both inwards and outwards investment, often in the same industries. Why, then, is US FDI so profitable whilst FDI in the USA is conspicuous in its unprofitability? Using sectoral-based data from 1999 to 2005 to investigate this puzzle, I find that US-owned FDI (USDIA) demonstrates far higher returns particularly relative to foreign-owned direct investment in the USA (FDIUS) but also compared to all US-based industries (NIPA). FDIUS is the worst performing of all three portfolios, exhibiting the poorest and most volatile returns for the period examined. These results hold for both the aggregate non-financial data as well as for the ‘narrow measured value added’. For the period tested, US inwards FDI isn’t employment generating whereas US direct investment abroad produces the fastest gains in labour productivity, output, employment, investment expenditures and tax revenues. Whilst it is debatable that ‘dark matter’ or intangible proprietary assets drive superior relative returns to USDIA, labour exploitation appears to play a role. Increases in labour productivity coupled with declining wage shares for all three portfolios (especially pronounced for USDIA) suggest ‘race to bottom’ outcomes. A burgeoning aspect of this race is cross-border profit-shifting to minimise firms’ global tax burdens. I suspect but am unable to confirm that profits are being shifted overseas — vanishing into the ‘black holes’ of tax havens, transfer pricing and other modes of tax avoidance.
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Partisan Cycles in Offshore Outsourcing: Evidence from U.S. Imports
Pablo Pinto & Stephen Weymouth
Economics & Politics, forthcoming
Abstract:
The wage and employment effects of offshoring roil politics in the United States and around the world. Firms that offshore either outsource their activities to unaffiliated businesses, or internalize production by establishing subsidiaries from which they import intrafirm. We argue that the political environment in trade partner countries influences U.S. offshoring patterns in ways that have been ignored in the extant literature. Drawing on the political business cycle literature, we expect higher production costs and lower profits for firms in capital (labor) intensive sectors when the Left (Right) is in power. These partisan cycles, in turn, shape the sectoral composition of exports from the partner to the United States, and the degree to which trade is conducted intrafirm. Under a Left- (Right-) leaning government in a partner country, U.S. intrafirm imports of capital- (labor-) goods increase relative to total imports in these industries. Examining highly disaggregated U.S. import data, we find strong support for our argument. Our results indicate that the effect of partisan governments on offshore outsourcing depends on factor intensities of production, which vary across industries. The degree of internalization in global sourcing is shaped in part by the distributional objectives of partisan governments, and not by economic factors alone.
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The Effects of Import Competition on Worker Health
Clay McManus & Georg Schaur
Journal of International Economics, forthcoming
Abstract:
Occupational health is an important determinant of workers' welfare. Existing mechanisms and evidence from the international trade and occupational safety literatures combine to predict that import competition impacts work place injuries, especially at small firms that are most affected by foreign imports. We examine this prediction with novel data on injuries at US manufacturers using Chinese import growth in 1996–2007 as a shock to competition. The data show that injury rates in the competing US industries increase over the short to medium run, particularly at smaller establishments. Back of the envelope calculations show that injury risk increases by 13% at the smallest establishments, the equivalent of a 1 to 2% reduction in workers' wages.
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Does Partisan Conflict Deter FDI Inflows to the US?
Marina Azzimonti
NBER Working Paper, June 2016
Abstract:
I analyze the effects of political uncertainty on foreign direct investment flows to the US using a novel indicator, the partisan conflict index (PCI). Partisan conflict is relevant for the evolution of cross-border capital flows because the expected returns on investment projects are less predictable when the timing, size, and composition of fiscal policy is uncertain. The partisan conflict index tracks the evolution of political disagreement among policymakers as reported by the media. Using aggregate quarterly data from 1985 to 2015, I show that an innovation of the PCI is associated with a significant decline in FDI flows to the US. The magnitude of the effect is similar when disaggregated data from a panel of parent countries is considered instead.
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Predictability Versus Flexibility: Secrecy in International Investment Arbitration
Emilie Hafner-Burton, Zachary Steinert-Threlkeld & David Victor
World Politics, July 2016, Pages 413-453
Abstract:
There is heated debate over the wisdom and effect of secrecy in international negotiations. This debate has become central to the process of foreign investment arbitration because parties to disputes nearly always can choose to hide arbitral outcomes from public view. Working with a new database of disputes at the world's largest investor-state arbitral institution, the World Bank's International Centre for Settlement of Investment Disputes, the authors examine the incentives of firms and governments to keep the details of their disputes secret. The authors argue that secrecy in the context of investment arbitration works like a flexibility-enhancing device, similar to the way escape clauses function in the context of international trade. To attract and preserve investment, governments make contractual and treaty-based promises to submit to binding arbitration in the event of a dispute. They may prefer secrecy in cases when they are under strong political pressure to adopt policies that violate international legal norms designed to protect investor interests. Investors favor secrecy when managing politically sensitive disputes over assets they will continue to own and manage in host countries long after the particular dispute has passed. Although governments prefer secrecy to help facilitate politically difficult bargaining, secrecy diminishes one of the central purposes of arbitration: to allow governments to signal publicly their general commitment to investor-friendly policies. Understanding the incentives for keeping the details of dispute resolution secret may help future scholars explain more accurately the observed patterns of wins and losses from investor-state arbitration as well as patterns of investment.
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Economic Crises and Trade Policy Competition
Cameron Ballard-Rosa, Allison Carnegie & Nikhar Gaikwad
British Journal of Political Science, forthcoming
Abstract:
How do crises affect trade policy? This article reconciles starkly diverging accounts in the literature by showing that economic adversity generates endogenous incentives not only for protection, but also for liberalization. It first formally develops the mechanisms by which two features of shocks – intensity and duration – influence the resources and political strategies of distressed firms. The central insight is that policy adjustments to resuscitate afflicted industries typically generate ‘knock-on’ effects on the profitability and political maneuverings of other firms in the economy. The study incorporates these countervailing pressures in its analysis of trade policy competition. In the wake of crises, protection initially increases when affected firms lobby for assistance, but then decreases as industries run low on resources to expend on lobbying and as firms in other industries mobilize to counter-lobby. The theoretical predictions are tested using sub-national and cross-national data, and real-world illustrations are presented to highlight the mechanisms driving the results.
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Centers of Gravity: Regional Powers, Democracy, and Trade
Timothy Peterson & Thomas Lassi
International Interactions, forthcoming
Abstract:
Classic studies on hegemonic stability and power transition suggest that concentration of capabilities favoring a single state can promote economic cooperation and discourage militarized conflict. However, tests of these arguments have been primarily limited to examining temporal variation in global capability distributions and corresponding levels of system-wide cooperation; few have examined the impact of capability concentration at the region level. In this article, we contend that concentration of regional military capabilities corresponds to lower trade costs for states throughout a region and to an incentive for weaker states to de-prioritize expenditure on the military, freeing resources that can be used to promote trade. As a result, this condition promotes higher levels of trade, particularly within the region. We also argue that democratic regional powers are better able to foster confidence in the sustainability of cooperation; thus, the trade-enhancing impact of concentrated regional capabilities is stronger when the predominant state is more democratic. We find evidence in support of our expectations in statistical models examining state trade between 1960 and 2007.
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Human Rights, NGO Shaming and the Exports of Abusive States
Timothy Peterson, Amanda Murdie & Victor Asal
British Journal of Political Science, forthcoming
Abstract:
Does the attention of human rights organizations limit exports from rights-abusing states? This article examines how naming and shaming by human rights organizations (HROs) conditions the influence of human rights abuse on exports, and argues that human rights abuse alone is insufficient to damage a state’s exports. However, as attention to abuse via HRO shaming increases, abuse has an increasingly negative impact on exports. Importantly, this relationship is also conditional on the respect for human rights among importing states; human rights abuse, even if it is shamed, has no effect when importers are similarly abusive. Empirical tests utilizing gravity models of trade incorporating data on physical integrity rights abuse and HRO shaming in 1990–2008 yield strong support for our expectations.