Kevin Lewis

November 09, 2021

Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts
Jørgen Juel Andersen, Niels Johannesen & Bob Rijkers
Journal of Political Economy, forthcoming

Do elites capture foreign aid? This paper documents that aid disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers. The estimates are not confounded by contemporaneous shocks such as civil conflicts, natural disasters, and financial crises, and are robust to instrumenting using predetermined aid commitments. The implied leakage rate is around 7.5% at the sample mean and tends to increase with the ratio of aid to GDP. The findings are consistent with aid capture in the most aid-dependent countries. 

On the Persistence of the China Shock
David Autor, David Dorn & Gordon Hanson
NBER Working Paper, October 2021

We evaluate the duration of the China trade shock and its impact on a wide range of outcomes over the period 2000 to 2019. The shock plateaued in 2010, enabling analysis of its effects for nearly a decade past its culmination. Adverse impacts of import competition on manufacturing employment, overall employment-population ratios, and income per capita in more trade-exposed U.S. commuting zones are present out to 2019. Over the full study period, greater import competition implies a reduction in the manufacturing employment-population ratio of 1.54 percentage points, which is 55% of the observed change in the value, and the absorption of 86% of this net job loss via a corresponding decrease in the overall employment rate. Reductions in population headcounts, which indicate net out-migration, register only for foreign-born workers and the native-born 25-39 years old, implying that exit from work is a primary means of adjustment to trade-induced contractions in labor demand. More negatively affected regions see modest increases in the uptake of government transfers, but these transfers primarily take the form of Social Security and Medicare benefits. Adverse outcomes are more acute in regions that initially had fewer college-educated workers and were more industrially specialized. Impacts are qualitatively — but not quantitatively — similar to those caused by the decline of employment in coal production since the 1980s, indicating that the China trade shock holds lessons for other episodes of localized job loss. Import competition from China induced changes in income per capita across local labor markets that are much larger than the spatial heterogeneity of income effects predicted by standard quantitative trade models. Even using higher-end estimates of the consumer benefits of rising trade with China, a substantial fraction of commuting zones appears to have suffered absolute declines in average real incomes. 

Trade Competition and the Decline in Union Organizing: Evidence from Certification Elections
Kerwin Kofi Charles, Matthew Johnson & Nagisa Tadjfar
NBER Working Paper, November 2021

We assess whether and why trade competition partly explains the sharp decline in U.S. workers’ attempts to organize labor unions in recent decades. We find that between 1990-2007, import competition due to the “China Shock” lowered union certification elections by 4.5% among workers in manufacturing industries directly exposed to it, and by 8.8% among workers indirectly exposed through its effect on their local labor market. Consistent with a simple model of workers’ decision to seek union representation, we show that direct exposure lowered the expected wage gain from unionization, whereas indirect exposure increased the cost of job loss, both of which discourage worker organizing. 

Did Western CEO Incentives Contribute to China’s Technological Rise?
Bo Bian & Jean-Marie Meier
University of Texas Working Paper, June 2021

We study the role of Western CEO incentives in fostering the technological rise of China. Due to China’s quid pro quo policy, foreign multinationals face a trade-off between the short-term benefits of accessing China’s vast market and the long-term costs of transferring technology to China. Leveraging microdata on the global patent network, we construct novel measures to describe technological interactions between US firms and over 70 countries. We find that firms managed by myopic CEOs form more partnerships with China and transfer more technology to China. These firms subsequently lose R&D human capital to China and face more patenting competition from China, suggesting negative long-term consequences in innovation. The results reveal an important real effect of CEO incentives and highlight a novel channel behind China’s technological catch-up. 

FDI, Unmet Expectations, and the Prospects of Political Leaders:  Evidence from Chinese Investment in Africa
Xiaonan Wang, Margaret Pearson & John McCauley
Journal of Politics, forthcoming

Leaders in the developing world typically value inflows of foreign direct investment, on the logic that FDI bolsters economic development and signals competence to voters. Yet the promise of new jobs and other benefits may outstrip the supply, leaving many disappointed. We present a theory of unmet expectations and political blame, which we test by connecting 223 georeferenced Chinese FDI projects to the political-economic perceptions of 179,278 respondents in Africa. We show that the announcement of Chinese FDI projects inspires economic optimism and bolsters perceptions of political leaders’ competence for about one year. Once projects are operational, however, individuals living near those projects view the economy as worse than it would have been in the absence of FDI, and perceptions of political leaders similarly decline. This pattern of unmet expectations and political blame does not appear in the context of Chinese foreign aid.

China's overseas lending
Sebastian Horn, Carmen Reinhart & Christoph Trebesch
Journal of International Economics, November 2021

Compared with China's pre-eminent status in world trade, its role in global finance is poorly understood. This paper studies the size, terms and destination of Chinese official international lending on the basis of a new “consensus” database of 4900 loans and grants to 146 countries, 1949–2017. Using the loan-level lending data we estimate outstanding debt stocks owed to China for more than 100 developing and emerging economies since 2000. As of 2017, China had become the world's largest official creditor, surpassing the World Bank and the IMF. The terms of China's state-driven international loans typically resemble commercial rather than official lending. We also find that 50% of China's official lending to developing countries is not reported in the most widely used official debt statistics. These “hidden” debts have important implications for debt sustainability. 

Creative Destruction, Distance to Frontier, and Economic Development
Michael Peters & Fabrizio Zilibotti
NBER Working Paper, October 2021

We construct a model of creative destruction with endogenous firm dynamics. We integrate the theory into a general equilibrium multi-country model of technological convergence where countries interact via international spillovers. We derive implications for both firm dynamics and aggregate productivity dynamics. In richer economies, firms are on average larger and the best firms grow larger over time. In poorer economies, there is little creative destruction, low selection, and firms remain small. We estimate the parameters of the model using firm-level data for India and the United States. We study the effect of counterfactual policy reforms. Industrial policy that selectively targets the more productive firms can be beneficial in poor countries while being harmful in countries close to the economic frontier. The findings echo Acemoglu et al. (2006). 

The International Price of Remote Work
Agostina Brinatti et al.
NBER Working Paper, October 2021

We use data from a large web-based job platform to study how the price of remote work is determined in a globalized labor market. In the platform, workers from around the world compete for jobs that can be done remotely. We document that, despite the global nature of the marketplace, the location of the worker accounts for over a third of the variance in wages. The observed wage differences are strongly correlated to the GDP per-capita of the worker’s country. This correlation is not accounted for by differences in workers’ characteristics, occupations, nor for differences in the employers’ locations. We also document that remote wages in local currency move almost one-for-one with the dollar exchange rate of the worker’s country, and are highly sensitive to changes in the wages of foreign competitors. Finally, we provide a new measure on which jobs are easier to offshore that is based on the prevalence of cross-border contracts rather than on subjective job characteristics, and show that there is substantial heterogeneity in the offshorability of remote occupations. 

Anticipation effects of protectionist U.S. trade policies
Norbert Metiu
Journal of International Economics, November 2021

This paper investigates the international effects of U.S. trade protection. Using micro-level data on anti-dumping, countervailing duties, and safeguards, I develop a new measure of U.S. trade policy announcement shocks for the period 1988-2015 that is free of confounding factors. Estimates using the new measure indicate that announced, but not yet imposed, U.S. trade restrictions give rise to contractions in major trading partners’ output and investment. Counterfactual results indicate that a decline in business confidence accounts for the lion's share of these anticipation effects. A narrative analysis that quantifies the extent of newspaper coverage of U.S. trade protection shows that media attention facilitates the propagation of protectionist shocks. The results are consistent with an expectations channel of trade policy. 

Illuminating the Effects of the US-China Tariff War on China's Economy
Davin Chor & Bingjing Li
NBER Working Paper, October 2021

How much has the US-China tariff war impacted economic outcomes in China? We address this question using high-frequency night lights data, together with measures of the trade exposure of fine grid locations constructed from Chinese firms' geo-coordinates. Exploiting within-grid variation over time and controlling extensively for grid-specific contemporaneous trends, we find that each 1 percentage point increase in exposure to the US tariffs was associated with a 0.59% reduction in night-time luminosity. We combine these with structural elasticities that relate night lights to economic outcomes, motivated by the statistical framework of Henderson et al. (2012). The negative impact of the tariff war was highly skewed across locations: While grids with negligible direct exposure to the US tariffs accounted for up to 70% of China's population, we infer that the 2.5% of the population in grids with the largest US tariff shocks saw a 2.52% (1.62%) decrease in income per capita (manufacturing employment) relative to unaffected grids. By contrast, we do not find significant effects from China's retaliatory tariffs. 

Does Political Partisanship Cross Borders? Evidence from International Capital Flows
Elisabeth Kempf et al.
NBER Working Paper, September 2021

Does partisan perception shape the flow of international capital? We provide evidence from two settings, syndicated corporate loans and equity mutual funds, to show that ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Moreover, we find that ideological alignment with foreign countries also affects investments of non-U.S. investors and can explain patterns in bilateral FDI flows. Our empirical strategy ensures that direct economic effects of foreign elections or bilateral ties between countries are not driving the result. Combined, our findings imply that partisan perception is a global phenomenon and its economic effects transcend national borders. 

Democracy and Aid Donorship
Angelika Budjan & Andreas Fuchs
American Economic Journal: Economic Policy, November 2021, Pages 217-238

Almost half of the world's states provide bilateral development assistance. While previous research takes the set of donor countries as exogenous, this article introduces a new dataset on aid giving that covers all countries in the world, both rich and poor, and explores the determinants of aid donorship. It argues and shows empirically that democratic institutions support the setup of an aid program in richer countries but undermine its establishment in poorer countries. The findings hold in instrumental-variable regressions and the pattern is similar for the amount of aid.


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