Trade off
French Roast: Consumer Response to International Conflict - Evidence from Supermarket Scanner Data
Sonal Pandya & Rajkumar Venkatesan
Review of Economics and Statistics, forthcoming
Abstract:
Do consumers boycott in response to international conflict? We show that during the 2003 US-France dispute over the Iraq War the market share of French-sounding, US supermarket brands declined. The dispute was a negative shock to US consumers' associations with France. French-sounding brands, which consumers perceive to be French imports but are not, allow us to isolate the dispute's effect on economic behavior, as these brands' only link to France is through consumers' associations. Our estimates, derived from a nationwide sample of weekly supermarket sales for over 8,000 brands, are robust to a variety of alternate explanations. Additionally, we show that supermarkets with a higher proportion of customers who are US citizens (i.e. who more strongly identify with the US national identity) exhibited sharper boycotts.
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Trade Exposure and the Polarization of Government Spending in the American States
Brian Krueger & Ping Xu
American Politics Research, forthcoming
Abstract:
Studies of economic globalization and government spending often view the United States as an outlier case. Surprisingly, ours is the first empirical study to take advantage of the variation in U.S. states' exposure to global markets, ideological orientations of the governments, and the relative size of the public sector, to assess the role of trade exposure on government spending in the American states. Using state-level data from the past three decades, we use error correction models (ECMs) to test three competing globalization theories. We find that the effect of trade exposure on government spending varies across states. Our results suggest that when conservatives control state governments, high levels of trade exposure negatively relate to changes in public expenditures such as welfare and infrastructure. With liberal governments in power, trade exposure does not accelerate state spending growth in welfare and infrastructure, which diverges from the pattern found in European social democracies.
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Youngmi Choi
Political Research Quarterly, forthcoming
Abstract:
Scholarly studies of U.S. legislators' voting behavior have concluded that constituent interests exercise only limited influence, but these conclusions may result from inadequate measurement. I develop new measures of economic interests that emphasize import/export (sectoral) cleavages in addition to business/labor (factoral) cleavages and, in the process, transcend geographic boundaries. Results of logistic regression analysis suggest that the interests of economic and nongeographic constituencies, as reflected in campaign contributions, were highly significant predictors of voting in the U.S. Congress on the U.S.-Korea Free Trade Agreement and that the import/export cleavage was more salient than the business/labor cleavage. In addition, legislators' ideological positions with respect to national security were more significant than their partisan affiliations and more significant than their positions on other dimensions of ideology.
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The Impact of the U.S. Sugar Program Redux
John Beghin & Amani Elobeid
Applied Economic Perspectives and Policy, March 2015, Pages 1-33
Abstract:
We analyze the various welfare costs, transfers, trade, and employment consequences of the current U.S. sugar program for U.S. consumers, other sugar users, sugar refiners, cane and beet growing and processing industries, other associated agricultural sectors, and world markets. The removal of the sugar program would increase U.S. consumers' welfare by 2.9 to 3.5 billion each year and generate a modest job creation of 17,000 to 20,000 new jobs in food manufacturing and related industries. Imports of sugar containing products would fall dramatically, especially confectioneries substituting for domestic inputs under the sugar program. Sugar imports would rise substantially to 5-6 million short tons raw sugar equivalent. World sugar price increases would be minor, equivalent to about 1 cent per pound.
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Preferential Trade Agreements and Trade Expectations Theory
Timothy Peterson & Peter Rudloff
International Interactions, Winter 2015, Pages 61-83
Abstract:
Studies find that members of preferential trade agreements (PTAs) are less likely to be involved in militarized conflict. An expectation of continuing amicable trade relations is among the factors linking PTAs to peace. However, this role of PTAs is difficult to test due to the problem of observational equivalence; PTAs correlate with trade levels and liberalization, factors also linked to peace. In this article, we isolate the impact of PTAs on trade expectations by distinguishing between signed agreements and those in force. A focus on signed but not-yet-in-force PTAs allows us to assess the correlation between agreements and peace before other pacifying, and therefore potentially confounding, elements emerge. Statistical tests spanning 1957 to 2000 demonstrate that signed PTAs are pacifying, while in-force agreements have no statistically significant impact when controlling for other factors linked to peace.
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Denis Chetverikov, Bradley Larsen & Christopher Palmer
NBER Working Paper, March 2015
Abstract:
We present a methodology for estimating the distributional effects of an endogenous treatment that varies at the group level when there are group-level unobservables, a quantile extension of Hausman and Taylor (1981). Because of the presence of group-level unobservables, standard quantile regression techniques are inconsistent in our setting even if the treatment is independent of unobservables. In contrast, our estimation technique is consistent as well as computationally simple, consisting of group-by-group quantile regression followed by two-stage least squares. Using the Bahadur representation of quantile estimators, we derive weak conditions on the growth of the number of observations per group that are sufficient for consistency and asymptotic zero-mean normality of our estimator. As in Hausman and Taylor (1981), micro-level covariates can be used as internal instruments for the endogenous group-level treatment if they satisfy relevance and exogeneity conditions. An empirical application indicates that low-wage earners in the US from 1990-2007 were significantly more affected by increased Chinese import competition than high-wage earners. Our approach applies to a broad range of settings in labor, industrial organization, trade, public finance, and other applied fields.
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Quid Pro Quo: Technology Capital Transfers for Market Access in China
Thomas Holmes, Ellen McGrattan & Edward Prescott
Review of Economic Studies, forthcoming
Abstract:
By the 1970s, quid pro quo policy, which requires multinational firms to transfer technology in return for market access, had become a common practice in many developing countries. While many countries have subsequently liberalized quid pro quo requirements, China continues to follow the policy. In this paper, we incorporate quid pro quo policy into a multicountry dynamic general equilibrium model, using microevidence from Chinese patents to motivate key assumptions about the terms of the technology transfer deals and macroevidence on China's inward foreign direct investment (FDI) to estimate key model parameters. We then use the model to quantify the impact of China's quid pro quo policy and show that it has had a significant impact on global innovation and welfare.
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A Positive Analysis of Fairtrade Certification
Andrea Podhorsky
Journal of Development Economics, forthcoming
Abstract:
The Fairtrade program transfers income to farmers by establishing a price floor and an alternate distribution channel that bypasses intermediaries between the raw commodity and world markets. I develop a model of the international commodity supply chain, with monopolistically competitive final goods producers and consumers who value the ethical quality of goods. A small number of oligopsonistic intermediaries purchase the raw commodity from farmers in a given country and then sell to final goods producers in the world market. I consider the effects of a Fairtrade program that is too small to have an effect on the world price of the commodity. I show that the Fairtrade program decreases the intermediaries' market power and consequently, even farmers that are not selected into the program receive a higher wage than in the absence of the program. I establish the Pareto optimal Fairtrade price and assess the overall efficiency of the program. The program is a more efficient way to transfer income to farmers than a direct transfer equal to the premium commanded by certified products if the Fairtrade price is not set too high above the efficient wage for farmers. If the number of intermediaries were large, however, then the direct transfer would be more efficient than the program for all binding Fairtrade prices.
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Protecting Infant Industries: Canadian Manufacturing and the National Policy, 1870-1913
Richard Harris, Ian Keay & Frank Lewis
Explorations in Economic History, forthcoming
Abstract:
Infant industry protection has been the cornerstone of a debate on tariff policy that extends at least from the eighteenth century to the current day. In contrast to traditional neo-classical models of international trade that imply net negative effects, industrial organization and learning-by-doing trade models describe how protective tariffs can encourage output expansion, productivity improvement, and price reductions. Taking Canada's 1879 National Policy as a natural experiment, we explore the effect of a policy that substantially increased tariff protection to some, but not all, Canadian manufacturing industries. Using treatment intensity and difference-in-differences approaches, we find strong support for the predictions of the new trade models. After 1879, industries that received greater protection experienced faster growth in output and productivity, as well as larger price reductions. The industries targeted by the National Policy also exhibited greater returns to scale and faster learning rates. These results have important implications for the infant-industry debate in addition to addressing a central theme in Canadian economic history.
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Compensating the Losers: An Examination of Congressional Votes on Trade Adjustment Assistance
Stephanie Rickard
International Interactions, Winter 2015, Pages 46-60
Abstract:
Globalization intensifies political conflict between citizens whose circumstances improve from foreign trade and those whose lives deteriorate as a result of trade. To pacify these rival interests, governments may assist citizens who become unemployed due to trade. When and under what conditions will legislators fund such assistance programs? The current study addresses this question by examining Congressional roll call votes in the United States during a period of rapid economic integration (1980-2004). The analysis reveals that protrade legislators who represent relatively more exporters are more likely to vote for increased spending on Trade Adjustment Assistance (TAA) programs. Exporters and their elected representatives arguably support such expenditures to broaden the protrade coalition.
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The Politics of the United States' Bilateral Investment Treaty Program
Adam Chilton
University of Chicago Working Paper, March 2015
Abstract:
Scholars consistently argue that the United States has signed Bilateral Investment Treaties (BITs) with developing countries to promote the development of international investment law and to protect American capital invested abroad. I challenge this view of the United States' BITs program. I argue that the United States has used BITs as a foreign policy tool to improve relationships with strategically important countries in the developing world, and, as a result, the program should in part be evaluated based on whether it has produced political benefits. I empirically test this theory in two ways. First, I test whether investment or political considerations are better at explaining U.S. BIT signings. This analysis shows that investment considerations do not help to explain the pattern of U.S. BIT formation, but that political considerations do. Second, I estimate the political benefits the United States has received from signing BITs with developing states. This analysis suggests that having signed a BIT makes countries likely to vote similarly to the United States at the United Nations. This project thus provides the first empirical evidence that the U.S. BITs program has been motivated by political considerations, and that the program may have produced modest foreign policy dividends.
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Income Differences and Prices of Tradables: Insights from an Online Retailer
Ina Simonovska
Review of Economic Studies, forthcoming
Abstract:
I study the positive relationship between prices of tradable goods and per-capita income. I develop a highly tractable general equilibrium model of international trade with heterogeneous firms and non-homothetic consumer preferences that positively links prices of tradables to consumer income. Guided by the model's testable prediction, I estimate the elasticity of price with respect to per-capita income from a unique dataset that I construct, which features prices of 245 identical goods sold in 29 European, Asian, and North American markets via the Internet by Spain's second largest apparel manufacturer - Mango. I find that doubling a destination's per-capita income results in an 18% increase in the price of identical items sold there. Per-capita income differences account for a third, while shipping cost differences can explain up to a third of the cross-country price variations of identical items purchased via the Internet by consumers who do not take advantage of quantity discounts. The price elasticity estimates compare favorably to estimates that I obtain from a standard dataset that features prices across retail locations around the world, suggesting that variable mark-ups play a key role in accounting for observed cross-country differences in prices of tradables.
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The Repercussions of Realignment: United States-China Interdependence and Exchange Rate Politics
Robert Galantucci
International Studies Quarterly, forthcoming
Abstract:
Analysts generally believe that a weaker currency primarily benefits a country's manufacturing and primary goods sectors. However, many of these industries - and the elected officials who represent them - frequently oppose legislation designed to combat the dollar's overvaluation relative to the Chinese yuan. I argue that legislators hesitate to take aggressive action on the exchange rate issue because doing so could lead to a disruption of the broader United States-China economic relationship. The threat of an economic conflict emerges as a particularly important consideration in the context of currency bills, where proposed legislation is linked to trade policy and other areas of international economic regulation. A Bayesian statistical analysis of legislative behavior on two recent exchange rate bills in the US Congress provides overall support for my hypotheses. Legislators with ties to business interests that rely heavily on the Chinese economy were more likely to oppose the bills, while the strongest support came from legislators representing import-competing domestic producers. The results highlight the ways that economic interdependence shapes bilateral exchange rate politics in particular, and United States-China interactions more generally.
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Reed Beall, Randall Kuhn & Amir Attaran
Health Affairs, March 2015, Pages 493-501
Abstract:
Compulsory licensing has been widely suggested as a legal mechanism for bypassing patents to introduce lower-cost generic antiretrovirals for HIV/AIDS in developing countries. Previous studies found that compulsory licensing can reduce procurement prices for drugs, but it is unknown how the resulting prices compare to procurements through the Global Fund to Fight AIDS, Tuberculosis, and Malaria; UNICEF; and other international channels. For this study we systematically constructed a case-study database of compulsory licensing activity for antiretrovirals and compared compulsory license prices to those in the World Health Organization's (WHO's) Global Price Reporting Mechanism and the Global Fund's Price and Quality Reporting Tool. Thirty compulsory license cases were analyzed with 673 comparable procurements from WHO and Global Fund data. Compulsory license prices exceeded the median international procurement prices in nineteen of the thirty case studies, often with a price gap of more than 25 percent. Compulsory licensing often delivered suboptimal value when compared to the alternative of international procurement, especially when used by low-income countries to manufacture medicines locally. There is an ongoing need for multilateral and charitable actors to work collectively with governments and medicine suppliers on policy options.
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Yi Che et al.
Journal of International Economics, forthcoming
Abstract:
In this study, we exploit one of the most important conflicts of the 20th century between what are currently the world's second and third largest economies, that is, the Japanese invasion of China from 1937 to 1945, to investigate the long-term impact of conflicts between countries on cross-border trade and investment. We find that Japanese multinationals are less likely to invest in Chinese regions that suffered greater civilian casualties during the Japanese invasion, and these regions also trade less with Japan. Our study shows that historical animosity still influences international trade and investment, despite the trend toward an increasingly globalized world.
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Are Preferential Agreements Significant for the World Trade Structure? A Network Community Analysis
Carlo Piccardi & Lucia Tajoli
Kyklos, May 2015, Pages 220-239
Abstract:
We assess the impact of preferential trade agreements (PTAs) on the structure of world trade by looking for communities in the world trade network (WTN), and allowing the presence of preferential trade patterns to emerge endogenously. The finding of significant communities (as defined in the topology of the networks) would imply that trading countries are organized in groups of preferential partners. We use different approaches to analyze communities in the WTN between 1962 and 2008, but all methods agree in finding no evidence of a significant partition, supporting the view that the existing PTAs are not strongly distorting the geography of trade patterns, at least at the aggregate level.
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Assessing the evolving fragility of the global food system
Michael Puma et al.
Environmental Research Letters, February 2015
Abstract:
The world food crisis in 2008 highlighted the susceptibility of the global food system to price shocks. Here we use annual staple food production and trade data from 1992-2009 to analyse the changing properties of the global food system. Over the 18 year study period, we show that the global food system is relatively homogeneous (85% of countries have low or marginal food self-sufficiency) and increases in complexity, with the number of global wheat and rice trade connections doubling and trade flows increasing by 42 and 90%, respectively. The increased connectivity and flows within these global trade networks suggest that the global food system is vulnerable to systemic disruptions, especially considering the tendency for exporting countries to switch to non-exporting states during times of food scarcity in the global markets. To test this hypothesis, we superimpose continental-scale disruptions on the wheat and rice trade networks. We find greater absolute reductions in global wheat and rice exports along with larger losses in network connectivity as the networks evolve due to disruptions in European wheat and Asian rice production. Importantly, our findings indicate that least developed countries suffer greater import losses in more connected networks through their increased dependence on imports for staple foods (due to these large-scale disturbances): mean (median) wheat losses as percentages of staple food supply are 8.9% (3.8%) for 1992-1996, increasing to 11% (5.7%) for 2005-2009. Over the same intervals, rice losses increase from 8.2% (2.2%) to 14% (5.2%). Our work indicates that policy efforts should focus on balancing the efficiency of international trade (and its associated specialization) with increased resilience of domestic production and global demand diversity.