Getting past customs

Kevin Lewis

February 08, 2017

Suspiciously Timed Trade Disputes

Paola Conconi et al.

Journal of International Economics, March 2017, Pages 57-76

This paper shows that electoral incentives crucially affect the initiation of trade disputes. Focusing on WTO disputes filed by the United States during the 1995-2014 period, we find that U.S. presidents are more likely to initiate a dispute in the year preceding their re-election. Moreover, U.S. trade disputes are more likely to involve industries that are important in swing states. To explain these regularities, we develop a theoretical model in which re-election motives can lead an incumbent politician to file trade disputes to appeal to voters motivated by reciprocity.


Trade Liberalization and the Environment: Evidence from NAFTA and U.S. Manufacturing

Jevan Cherniwchan

Journal of International Economics, March 2017, Pages 130-149

The unobserved responses of individual polluters are often used to rationalize the aggregate effects of international trade on the environment. In this paper, I provide the first evidence of these responses. I estimate the effects of NAFTA on the emissions of particulate matter (PM10) and sulfur dioxide (SO2) from manufacturing plants in the United States. My findings suggest that trade liberalization led to significant reductions of these pollutants at affected plants. On average, nearly two-thirds of the reductions in PM10 and SO2 emissions from the U.S. manufacturing sector between 1994 and 1998 can be attributed to trade liberalization following NAFTA.


Domestic Gains from Offshoring? Evidence from TAA-linked U.S. Microdata

Ryan Monarch, Jooyoun Park & Jagadeesh Sivadasan

Journal of International Economics, March 2017, Pages 150-173

We construct a new linked data set with over one thousand offshoring events by matching Trade Adjustment Assistance (TAA) program petition data to U.S. Census Bureau microdata. We exploit these data to study the short- and long-term effects of offshoring on domestic firm-level employment, output, wages, and productivity in this large sample of offshoring events. As implied by heterogeneous firm models with high fixed costs of offshoring, we find that the average offshoring firm in the TAA sample is larger, more productive, older, and more likely to be an exporter, than the average non-offshorer. After initiating offshoring, TAA-certified offshorers experience large declines in employment (0.38 log points), output (0.33 log points) and capital (0.25 log points), and a concomitant increase in capital and skill intensity, relative to their industry peers. We find no significant change in average wages or productivity measures. Even six years after the initial offshoring event, we find no recovery in employment, output, or capital, and a higher probability of exit. We find similar results (including decline in output, and unchanged wages and productivity) for the aggregate of non-TAA certified plants of multi-plant offshoring firms. We find that the substitution of domestic activity by offshoring is stronger for relatively lower wage, lower capital intensity, lower productivity offshorers. Our results are consistent across two separate difference-in-differences (DID) approaches, and a number of robustness checks.


Does Compliance Pay? Firm-Level Trade and Social Institutions

Greg Distelhorst & Richard Locke

MIT Working Paper, December 2016

How does international trade shape social institutions in the developing world? The research literature is conflicted: importing firms may demand their trading partners adhere to higher labor and environmental standards, or they may penalize higher standards that raise costs. This study offers the first large-scale analysis of how firm-level trade responds to information about social standards. Contrary to the "race to the bottom" hypothesis, it finds that importers reward exporters for complying with labor and environmental standards. In difference-in-differences estimates from over two thousand manufacturing establishments in 36 countries, achieving compliance is associated a 4% [1%, 7%] average increase in annual purchasing. The effect is robust to controlling for manufacturing performance and reflects both rewards for reaching compliance and penalties for falling out of compliance. The results suggest that activist campaigns and transnational private regulation have created economic incentives for higher social standards in certain trade relationships.


If the Fed sneezes, who catches a cold?

Luca Dedola, Giulia Rivolta & Livio Stracca

Journal of International Economics, forthcoming

This paper studies the international spillovers of US monetary policy shocks on a number of macroeconomic and financial variables in 36 advanced and emerging economies. In most countries, a surprise US monetary tightening leads to depreciation against the dollar; industrial production and real GDP fall, unemployment rises. Inflation declines especially in advanced economies. At the same time, there is significant heterogeneity across countries in the response of asset prices, and portfolio and banking cross-border flows. However, no clear-cut systematic relation emerges between country responses and likely relevant country characteristics, such as their income level, dollar exchange rate flexibility, financial openness, trade openness vs. the US, dollar exposure in foreign assets and liabilities, and incidence of commodity exports.


State Export Promotion and Firm-level Employment

Andrew Cassey & Spencer Cohen

Public Finance Review, forthcoming

Most US states have export promotion programs, but it is unknown if these programs create long-term employment, which is often the policy's stated goal. We merge administrative export promotion and employment data from Washington State to test the effect of firm-level export promotion on firm-level employment using the differences-in-differences estimator. We believe we are the first to have US state data at this level of detail. We find firm participation in an export assistance program increases firm-level employment fleetingly, but not in subsequent periods. Thus, we do not find a statistically significant impact to long-term employment from program participation.


Import Competition and Internal Migration

Andrew Greenland, John Lopresti & Peter McHenry

College of William and Mary Working Paper, November 2016

We examine the U.S. internal migration response to increased import competition following the granting of Permanent Normal Trade Relations to China in 2001. Using a range of data sets, we find that local labor markets most exposed to the policy change experienced a reduction in population growth over the following decade. The result is more pronounced among young individuals and men. Examining annual data on migration, we find that approximately 30% of the response takes place within one year of the shock, while the majority of the remaining effect occurs at a lag of 7 to 10 years. Population adjustments like those we find should influence the interpretation of evidence in the large and growing literature on the effects of import competition on local labor markets. Selective migration away from trade-shocked areas (consistent with our findings) alters local demographics so that measured location-specific changes before and after shocks can be explained by both compositional changes and direct effects of import competition on local residents.


The Wind of Change: Maritime Technology, Trade and Economic Development

Luigi Pascali

American Economic Review, forthcoming

The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the introduction of the steamship in the shipping industry produced an asymmetric change in trade distances among countries. Before this invention, trade routes depended on wind patterns. The steamship reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and novel data on shipping, trade, and development, I find that 1) the adoption of the steamship had a major impact on patterns of trade worldwide, 2) only a small number of countries, characterized by more inclusive institutions, benefited from trade integration, and 3) globalization was the major driver of the economic divergence between the rich and the poor portions of the world in the years 1850-1905.


Clash of Civilizations and the Impact of Cultural Differences on Trade

Gunes Gokmen

Journal of Development Economics, forthcoming

This paper studies the Clash of Civilizations hypothesis from an economic perspective. Using data on bilateral trade and measures of culture, we evaluate how the impact of cultural differences on trade evolves over time during and after the Cold War. Evidence suggests that the negative influence of cultural differences on trade is more prominent in the post-Cold War era than during the Cold War. For instance, ethnic differences reduce trade by 24% during the Cold War, whereas this reduction is 52% in the post-Cold War period. We also suggest a channel for the differential impact of cultural differences over time. By studying the evolution of the effects of cultural difference and cold-war blocs on trade, we provide evidence consistent with the hypothesis that cold-war blocs have trumped cultural differences during the Cold War. Thus, cultural determinants of trade replace cold-war blocs as a major impediment to international trade only after the end of the Cold War.


Trade Policy Uncertainty and Exports: Evidence from China's WTO Accession

Ling Feng, Zhiyuan Li & Deborah Swenson

Journal of International Economics, forthcoming

This paper studies how reduction in trade policy uncertainty affects firm export decisions. Using a firm-product level dataset on Chinese exports to the United States and the European Union in the years surrounding China's WTO accession, we provide strong evidence that reduction in trade policy uncertainty simultaneously induced firm entries to and firm exits from export activity within fine product-level markets. In addition, we uncover accompanying changes in export product prices and quality that coincided with this reallocation: firms that provided higher quality products at lower prices entered the export market, while firms that had higher prices and provided lower quality products prior to the changes, exited. To explain the simultaneous export entries and exits, as well as the fact that new entrants are more productive than exiters, we provide a model of heterogeneous firms which incorporates trade policy uncertainty, tracing the effects of the changes in policy uncertainty on firm-level payoffs and the resulting selection effects.


Market Practice and the Evolution of Foreign Sovereign Immunity

Mark Weidemaier & Mitu Gulati

Law & Social Inquiry, forthcoming

The twentieth century witnessed a "tectonic" shift in international law, from absolute to restrictive theories of sovereign immunity. As conventionally understood, however, this transformation represented only a change in default rule. Under absolute immunity, courts could not hear lawsuits and enforce judgments against a foreign sovereign without its consent. Under restrictive immunity, foreign sovereigns were not immune to their commercial acts, regardless of consent. Using a two-century dataset of loan contracts, we show that market practice undermines this conventional understanding. For centuries, loan contracts were structured as if the rules of sovereign immunity could not be changed by contract. In the 1970s, however, market practice changed, seemingly in response to the codification of sovereign immunity law in the United States and United Kingdom. We explore why market practice conflicts with the conventional understanding of sovereign immunity, and we examine the association between codification and the structure of sovereign loan contracts.


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