Borderline Trade
Global Ripple Effects of Corporate Tax Reforms
Sebastian Dyrda et al.
NBER Working Paper, January 2026
Abstract:
We study international spillovers of corporate tax reforms in a fragmented global tax regime. Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks throughout the global economy. Our framework emphasizes two key intrinsic properties of intangible capital: non-rivalry and mobile ownership. We find the TCJA generated positive outward spillovers: First, it boosted U.S. MNEs’ intangible investment, raising their foreign subsidiaries’ output. Second, it increased tangible investment of foreign MNEs’ U.S. subsidiaries, incentivizing them to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) implemented by the rest of the world generates negative inward spillovers for the United States, even if U.S.-parented MNEs are exempt. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.
Securing technological leadership? The cost of export controls on firms
Matteo Crosignani et al.
Journal of Financial Economics, January 2026
Abstract:
To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. Consequently, domestic suppliers experience sizable losses in market capitalization, along with reductions in profitability, employment, and bank lending. Chinese firms are more proactive in reconfiguring supply chains, though not without costs. Overall, export controls impose larger costs on U.S. firms developing the very technologies these policies aim to protect.
The Geography of Science
Abhishek Nagaraj & Randol Yao
NBER Working Paper, January 2026
Abstract:
Science has long been concentrated in the Western world, but the global research landscape is undergoing a profound reorganization. Using data on 44 million publications from 1980 to 2022, we document the geography of science in terms of who produces it, what it studies, and where it diffuses. The share of publications produced in the United States has fallen from 40% in 1980 to 15% in 2022, while China’s share has risen from near-zero to 32%. This pattern extends even to elite outlets, with China now producing over 35% of top-journal publications. Notably, this is driven not only by an expanding researcher base but also -- to a large extent -- by increases in individual productivity. This growth varies by fields: China leads in the Engineering and Physical Sciences (such as Chemistry), while the US retains its lead in Biomedical and Health Sciences. Moreover, China’s expanding leadership in scientific production has not translated into a commensurate shift in global diffusion and integration. Elite research remains disproportionately focused on US topics (40% of breakthrough publications), and citations to Chinese research disproportionately come from within China rather than from other regions, even for top-tier science. Similar to China, other middle- and low-income countries (including India, Russia, and Brazil) have also expanded output producing as much research as high-income European Union countries combined (about 21% overall) but they remain underrepresented in top-tier journals. Overall, our findings highlight both the democratization and fragmentation of global science, raising important questions about the future of the global scientific enterprise.
Conduct and Scale Economies: Evaluating Tariffs in the U.S. Automobile Market
Marco Duarte et al.
University of Wisconsin Working Paper, January 2026
Abstract:
This paper shows how to test for firm conduct under non-constant marginal costs in differentiated product markets. We show that multiple sources of variation can be used for testing as long as they are economically distinct, enabling identification of scale economies while preserving power to test conduct. We extend recent testing procedures (Duarte, Magnolfi, Sølvsten, and Sullivan, 2024) to operationalize this insight, maintaining the ability to assess instrument strength. Applying our methodology to the US automobile market and leveraging state-of-the-art demand estimates, we find that quantity setting with economies of scale best fits the data. This model substantially affects the predicted impact of trade policy relative to a standard price-setting model with constant marginal costs: a 10% tariff on foreign vehicles would lead domestic producers to reduce prices and increase market share, resulting in welfare gains for buyers of American vehicles. Our results highlight the importance of accounting for non-constant marginal costs and testing firm conduct.
How Restrictive is U.S. Trade Policy?
Michael Waugh
NBER Working Paper, January 2026
Abstract:
This short note computes Trade Restrictiveness Index measures for current U.S. trade policy. Building on the ideas of Anderson and Neary (1996, 2005), the Trade Restrictiveness Index is the uniform tariff that leaves the U.S. consumer as well off as under actual policy. As of October 2025, U.S. trade policy is twice as restrictive as headline tariff numbers suggest. The Trade Restrictiveness Index is 23 percent, which stands in contrast to the 11 percent average tariff rate. Trade policy towards Canada and Mexico is two to three times more restrictive than average tariff rates suggest. Sectoral analysis shows that the restrictiveness is concentrated in vehicles, machinery, and electrical equipment.
NAFTA and drug-related violence in Mexico
Eduardo Hidalgo, Erik Hornung & Pablo Selaya
Journal of Development Economics, forthcoming
Abstract:
We study how NAFTA changed the geography of violence in Mexico. We propose that this open border policy increased trafficking profits of Mexican cartels, resulting in violent competition among them. We test this hypothesis by comparing changes in drug-related homicides after NAFTA’s introduction in 1994 across municipalities with and without drug-trafficking routes. Routes are predicted least cost paths connecting municipalities with a recent history of detected drug trafficking with U.S. land ports of entry. On these routes, homicides increase by 2.1 per 100,000 inhabitants, which is equivalent to 26% of the pre-NAFTA mean. These results cannot be explained by changes in worker’s opportunity costs of using violence resulting from the trade shock.
The Political Economy of Antibribery Enforcement
Lauren Cohen & Bo Li
Management Science, forthcoming
Abstract:
Using exogenous variation in the timing and geographic location of U.S. Congressional elections, we find that the probability of Foreign Corrupt Practices Act (FCPA) enforcement actions against foreign firms increases significantly preceding senatorial elections, spiking more than 21%, with no commensurate increase for globally operating domestically headquartered firms in these same senators’ states. Using hand-collected case-level data from the Securities and Exchange Commission (SEC) and U.S. Department of Justice (DOJ), we observe that these pre-election cases tend to be weaker overall and that they are brought significantly more often against foreign firms that operate in less-important industries in the senator’s state and when they have a smaller overall U.S. presence. This spike in foreign firm targeting is accompanied by a significant spike in traditional and social media coverage coupled with sharply negative sentiment. Furthermore, these enforcement actions and media spikes are associated with electoral consequences, specifically greater vote shares and better poll results for enforcement-state senators. The FCPA enforcement actions have real impacts on firms. These include a 10% reduction in market value after enforcement actions against foreign firms and a significant decrease in credit ratings.
Making Bribery Profitable Again? The Market Effects of Suspending Accountability for Overseas Bribery
Lorenzo Crippa, Edmund Malesky & Lucio Picci
International Organization, Fall 2025, Pages 739-758
Abstract:
In February 2025, US President Trump signed an executive order blocking the initiation of any new investigations or enforcement actions under the Foreign Corrupt Practices Act (FCPA), which had made it unlawful for US companies to bribe foreign public officials. We analyze market valuations of publicly traded multinationals on US financial markets before and after the announcement. On the day of the executive order, former FCPA targets whose stocks are publicly traded experienced returns on equity markets that were about 0.69 percentage points higher than what would have been expected from stock market trends. The effects cumulated substantively, resulting in capitalization gains for the portfolio of past targets of corporate corruption cases of about USD 39 billion and outsized returns to shareholders. These results allow us to contribute to long-standing debates about how much of the costs multinationals experience from corruption are due to legal enforcement versus the inefficiency and uncertainty it generates for firm operations. When legal enforcement is removed, valuations of firms at risk of corruption rise dramatically, indicating that investors perceive the legal costs as an important threat to investment in corrupt firms. Suspending FCPA enforcement is thus likely to induce market confidence in risky investments.
Trade Competition and the Decline in Union Organizing: Evidence from Certification Elections
Kerwin Kofi Charles, Matthew Johnson & Nagisa Tadjfar
Journal of Labor Economics, January 2026, Pages 83-117
Abstract:
The long-term decline in US workers’ attempts to organize labor unions accelerated after 2000. We find that the swift rise of imports from China arising from a change in trade policy accounts for nearly all of this post-2000 acceleration: union certification elections decreased substantially among workers in manufacturing industries directly exposed to imports, but also among workers indirectly exposed through their local labor market. Consistent with a simple model of workers’ decision to seek union representation, direct exposure lowered the expected wage gain from unionization, whereas indirect exposure increased the cost of job loss -- both of which discourage organizing.