Import/export business

Kevin Lewis

January 30, 2013

The Political Economy of "Currency Manipulation" Bashing

Carlos Ramirez
China Economic Review, forthcoming

In recent years, one of the most frequently debated issues in Congress has been the value of the Chinese renminbi (RMB) relative to the U.S. dollar. Many members of Congress often accuse China of being a "currency manipulator." This paper has two objectives. First, it investigates the extent to which PAC contributions from key interest groups as well as constituent interests influence the frequency with which members of Congress criticize China's exchange rate policy, controlling for other factors. The results indicate that the odds that a congressman will call China a "currency manipulator" are 1.35 times higher for every $5,000 in PAC contributions from groups that favor legislation against China. In addition, the results show that a one percentage point increase in the share of the congressional district labor force in manufacturing is associated with a 19.6 percent increase in the likelihood that the district's legislator will label China a "currency manipulator." Second, this paper investigates the consequences that "currency manipulation" bashing may have on the rate at which the RMB appreciates against the U.S. dollar. The results for a VAR model indicate that an increase in the incidence of "currency manipulation" bashing appears to temporarily slow down, rather than accelerate, the rate at which the renmibi appreciates against the dollar. This result suggests that bashing China may actually be counterproductive.


The Surprisingly Swift Decline of U.S. Manufacturing Employment

Justin Pierce & Peter Schott
NBER Working Paper, December 2012

This paper finds a link between the sharp drop in U.S. manufacturing employment after 2001 and the elimination of trade policy uncertainty resulting from the U.S. granting of permanent normal trade relations to China in late 2000. We find that industries where the threat of tariff hikes declines the most experience greater employment loss due to suppressed job creation, exaggerated job destruction and a substitution away from low-skill workers. We show that these policy-related employment losses coincide with a relative acceleration of U.S. imports from China, the number of U.S. firms importing from China, the number of Chinese firms exporting to the U.S., and the number of U.S.-China importer-exporter pairs.


Within U.S. Trade and the Long Shadow of the American Secession

Gabriel Felbermayr & Jasmin Gröschl
Economic Inquiry, forthcoming

Using data from U.S. commodity flow survey, we show that the historical Union-Confederacy border lowers contemporaneous trade between U.S. states by about 13%. The finding is robust over econometric models, survey waves, or aggregation levels. Including contemporaneous controls, such as network or institutional variables, lowers the estimate only slightly. Historical variables, such as slavery, do not explain the effect. Adding U.S. states unaffected by the Civil War, we argue that the friction is not merely reflecting unmeasured North-South differences. Finally, the border effect is larger for differentiated than for homogeneous goods, stressing the potential role for cultural factors and trust.


Does Compensating the Losers Increase Support for Trade? An Experimental Test of the Embedded Liberalism Thesis

Sean Ehrlich & Eddie Hearn
Foreign Policy Analysis, forthcoming

"This article conducted the first experimental test of the individual-level causal mechanisms of the Embedded Liberalism Thesis and compensation hypothesis. Using a survey experiment, it investigated the following question: does compensation increase support for free trade? We find that in certain individuals, such as those with low incomes, knowledge of compensation does lead to higher support for free trade. The results indicate, however, that the effect of compensation may not be as large as supporters of embedded liberalism hoped as knowledge of compensation is also associated with lower support for trade among individuals with high incomes. This may result from a preference for efficiency: some high-income earners may not expect many gains from increased globalization and believe such redistribution policies are inefficient or costly."


Global land and water grabbing

Maria Cristina Rulli, Antonio Saviori & Paolo D'Odorico
Proceedings of the National Academy of Sciences, 15 January 2013, Pages 892-897

Societal pressure on the global land and freshwater resources is increasing as a result of the rising food demand by the growing human population, dietary changes, and the enhancement of biofuel production induced by the rising oil prices and recent changes in United States and European Union bioethanol policies. Many countries and corporations have started to acquire relatively inexpensive and productive agricultural land located in foreign countries, as evidenced by the dramatic increase in the number of transnational land deals between 2005 and 2009. Often known as "land grabbing," this phenomenon is associated with an appropriation of freshwater resources that has never been assessed before. Here we gather land-grabbing data from multiple sources and use a hydrological model to determine the associated rates of freshwater grabbing. We find that land and water grabbing are occurring at alarming rates in all continents except Antarctica. The per capita volume of grabbed water often exceeds the water requirements for a balanced diet and would be sufficient to improve food security and abate malnourishment in the grabbed countries. It is found that about 0.31 × 1012 m3⋅y-1 of green water (i.e., rainwater) and up to 0.14 × 1012 m3⋅y-1 of blue water (i.e., irrigation water) are appropriated globally for crop and livestock production in 47 × 106 ha of grabbed land worldwide (i.e., in 90% of the reported global grabbed land).


Industrial Policy and Downstream Export Performance

Bruce Blonigen
NBER Working Paper, January 2013

Industrial policies (IPs) include such varying practices as production subsidies, export subsidies, and import protection, and are commonly used by countries to promote targeted sectors. However, such policies can have significant impacts on sectors other than those targeted by the IPs, particularly when the target sector produces goods that are key inputs to downstream sectors. Surprisingly, there has been little systematic analysis of how IPs in targeted sectors affect other sectors of the economy. Using a new hand-collected database of steel-sector IP use in major steel-producing countries from 1975 through 2000, this paper examines whether steel-sector IPs have a significant impact on the export competitiveness of the country's other manufacturing sectors, particularly those that are significant downstream users of steel. I find that a one-standard-deviation increase in IP presence leads to a 3.6% decline in export competitiveness for an average downstream manufacturing sector. But this effect can be as high as 50% decline for sectors that use steel as an input most intensively. These general negative effects of IPs are primarily due to export subsidies and non-tariff barriers, particularly in less-developed countries.


A Race to the Bottom in Labour Standards? An Empirical Investigation

Ronald Davies & Krishna Chaitanya Vadlamannati
Journal of Development Economics, forthcoming

Among the concerns over globalization is that as nations compete for investment, they relax labour standards to attract firms. Using spatial estimation on panel data for 135 countries over 17 years, we find that the labour standards in one country are positively correlated with those elsewhere (i.e. a cut in labour standards in other countries reduces labour standards in the country in question). This interdependence is more evident in labour practices (i.e. enforcement) than in labour laws. Further, while we find evidence of competition in both developed and developing countries, it is strongest among developing countries with weak standards.


A Non-Tariff Protectionist Bias in Majoritarian Politics: Government Subsidies and Electoral Institutions

Stephanie Rickard
International Studies Quarterly, December 2012, Pages 777-785

Governments elected by majoritarian rules are, according to conventional wisdom, more protectionist than governments elected by proportional rules. However, existing tests of this claim examine only one possible form of trade protection: tariffs. This leaves open the possibility that governments in majoritarian systems provide no more protection than governments in proportional systems but simply use tariffs more often than other forms of trade protection. Does the protectionist bias in majoritarian politics extend beyond tariffs? The current study addresses this question by examining an increasingly important form of trade protection: subsidies. In a sample of 68 countries from 1990 to 2006, spending on subsidies is found to be higher in majoritarian systems than in proportional systems, holding all else equal. The implication is that the protectionist bias in majoritarian systems does in fact extend beyond tariffs.


Policy Diffusion of Emission Standards: Is There a Race to the Top?

Eri Saikawa
World Politics, January 2013, Pages 1-33

In a dramatic example of policy diffusion, the past three decades have witnessed the spread of automobile emission standards throughout the world. Contrary to fears that global competition would produce a race to the bottom, there appears to be a race to the top, not only among rich countries but also among poor ones. Using econometric analysis of the adoption of automobile emission standards over the past twenty years for 129 countries, the author argues that this global diffusion results from countries' efforts to stay competitive in the international market. Due to the pressure from importing countries that have adopted stringent emission standards, even developing countries have rapidly moved to adopt rich country standards. The evidence shows that adoption of automobile emission standards correlates with an increase in the total value of automobile exports. Under some conditions, economic incentives in a global market can be a complement to environmental protection.


Water-controlled wealth of nations

Samir Suweis et al.
Proceedings of the National Academy of Sciences, forthcoming

Population growth is in general constrained by food production, which in turn depends on the access to water resources. At a country level, some populations use more water than they control because of their ability to import food and the virtual water required for its production. Here, we investigate the dependence of demographic growth on available water resources for exporting and importing nations. By quantifying the carrying capacity of nations on the basis of calculations of the virtual water available through the food trade network, we point to the existence of a global water unbalance. We suggest that current export rates will not be maintained and consequently we question the long-term sustainability of the food trade system as a whole. Water-rich regions are likely to soon reduce the amount of virtual water they export, thus leaving import-dependent regions without enough water to sustain their populations. We also investigate the potential impact of possible scenarios that might mitigate these effects through (i) cooperative interactions among nations whereby water-rich countries maintain a tiny fraction of their food production available for export, (ii) changes in consumption patterns, and (iii) a positive feedback between demographic growth and technological innovations. We find that these strategies may indeed reduce the vulnerability of water-controlled societies.


Should Countries Engage in a Race to the Bottom? The Effect of Social Spending on FDI

Douglas Hecock & Eric Jepsen
World Development, forthcoming

This paper examines the effect of social spending in developing countries on Foreign Direct Investment (FDI). Existing studies on the race to the bottom in social services attempt to discern the extent to which FDI affects social expenditure. However, it remains an open question whether FDI is actually attracted to lower spending levels. We find no indication that FDI is repelled by social spending; indeed there is strong evidence that investment is associated with greater programmatic emphases on health and education. These findings have important implications for leaders seeking to attract investment and for those attempting to expand social programs.


Chinese Economic Dominance in Southeast Asia: A Longue Duree Perspective

Kwee Hui Kian
Comparative Studies in Society and History, January 2013, Pages 5-34

As the industrialization process in Western European countries took off in the late nineteenth and early twentieth centuries, they largely turned to Asia and Africa for raw materials and other resources, as well as for markets of their manufactures. Various entrepreneurial diasporas, including the Indians, Lebanese and Chinese, were at the forefront to exploit these burgeoning economic possibilities, particularly in gathering local mineral and agricultural commodities and marketing European goods in the Afro-Asian regions. The Chinese activities in Southeast Asia stood out: they not only presided over the commercial realm but also organized mining production and cash crop agriculture in ways largely autonomous of the colonial regimes and Western entrepreneurs. How can we explain the dominance of the Chinese migrants and sojourners in the Southeast Asian economy from the 1850s to the 1930s? This paper repudiates the existing literature, which largely credits their economic presence to conscious immigration policies of the colonial authorities, and instead highlights the effects of a confluence of developments in the early modern period (ca. 1450-1800), including the sidelining of South Asians, West Asians, and regional trading communities in favor of the Chinese. A particular focus is the roles played by symbolic capital and mechanisms of advanced credit and spiral marketing, and how these gave the Chinese a comparative advantage over other trading groups.


Beliefs of Chinese buyers of pirated goods

Nancy Stephens & Teresa Swartz
Journal of Consumer Behaviour, January/February 2013, Pages 42-48

This study fills a void in the piracy literature by describing the results of a qualitative investigation of buyers conducted in mainland China, one of the largest piracy markets in the world. Chinese college students, invited to write essays expressing their views, revealed themselves to be active buyers of fake music and movies, untroubled by any legal or ethical issues. Theories of cognitive dissonance and neoclassical economics are used to explain the behavior of buyers. A surprising result is the feeling of young Chinese that their government is unwilling and/or able to control piracy. Another insight not previously revealed in the literature is the Chinese essayists' condemnation of foreigners as hypocrites who preach against piracy while avidly buying fake goods themselves.


Are U.S. exports influenced by stronger IPR protection measures in recipient markets?

Tani Fukui, Alexander Hammer & Lin Jones
Business Horizons, forthcoming

U.S. exporters have choices when it comes to determining in which markets to sell their firms' products and services. These choices depend on several factors, including market size, income levels, price sensitivity, competition, consumer preferences, and other demand conditions in the recipient markets. Cost considerations also play an important role in determining to which markets firms export, especially those associated with transportation, tariff and non-tariff barriers to trade, legal and translations services, and logistics support for vertically integrated supply and distribution channels. However, the inclusion of intellectual property rights (IPR) considerations has not been integral to the well-established literature on firms' export determinants. Using a comparative indicator of IPR protection measures in various countries, this article isolates the effects of IPR protection as a determinant to U.S. export activity. The results show that growth in U.S. exports has been correlated with improvements in IPR protection in foreign markets over the considered period and that the magnitude of this correlation has varied markedly by sector and country. High-technology sectors, such as semiconductors as well as synthetic rubbers and fibers, exhibited the greatest sensitivity to improvements in IPR protection mechanisms in the considered period while improvements in IPR protection in markets like Mexico, China, and Japan were correlated with disproportionately high positive effects on U.S. export performance.


Regional origins of employment volatility: Evidence from German states

Claudia Buch & Martin Schlotter
Empirica, February 2013, Pages 1-19

Greater openness for trade can have positive welfare effects in terms of higher growth. But increased openness may also increase uncertainty through a higher volatility of employment. We use regional data from Germany to test whether openness for trade has an impact on volatility. We find a downward trend in the unconditional volatility of employment, paralleling patterns for output volatility. The conditional volatility of employment, measuring idiosyncratic developments across states, in contrast, has remained fairly unchanged. In contrast to evidence for the US, we do not find a significant link between employment volatility and trade openness.


The Role of Foreign Direct Investments in the Development of Brazil and India: A Comparative Analysis

Werner Baer & Rahul Sirohi
Kyklos, February 2013, Pages 46-62

In this paper we concentrate on FDI and argue that the contrasting FDI policies in Brazil and India can be traced back to differences in the respective colonial (or semi-colonial) experiences of the two nations during the 19th century. Our comparative analysis of FDI in Brazil and India shows the importance of historical and institutional awareness in gaining an understanding of the manner in which each society perceived the role of foreign investments in their societies. By doing this, we gain an understanding of the reasons these countries adopted different attitudes and policies towards foreign capital.


Fear of Appreciation

Eduardo Levy-Yeyati, Federico Sturzenegger & Pablo Alfredo Gluzmann
Journal of Development Economics, March 2013, Pages 233-247

In recent years the term "fear of floating" has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neo-mercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, we examine whether this "fear of appreciation" has a positive impact on growth performance in developing economies. We show that depreciated exchange rates indeed lead to higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.


Assessing the Effects of Trade Liberalization on Wage Inequalities in Egypt: A Microsimulation Analysis

Rana Hendy & Chahir Zaki
International Trade Journal, Winter 2013, Pages 63-104

This article aims at evaluating the liberalization policies' effects on wage inequality in Egypt. Gender, geographical, and skill dimensions are used to break down labor into eight segments. This article simulates the effect of a reduction of tariffs imposed on imports by 50%. Results show that the effect of trade liberalization policies depends on the characteristics of the individual and the working sector. Thanks to the expansion of textiles, garments, chemicals, and services, inequality decreases for urban and rural skilled men as well as skilled and unskilled women working in urban areas. By contrast, inequality increases among unskilled men and skilled women in rural areas.


The New Normal? A Tighter Global Agricultural Supply and Demand Relation and Its Implications for Food Security

Mark Rosegrant, Simla Tokgoz & Prapti Bhandary
American Journal of Agricultural Economics, January 2013, Pages 303-309

"This paper uses IFPRI's International Model for Policy Analysis of Agricultural Commodity and Trade (IMPACT) to assess long-term agricultural supply and demand relations...The baseline scenario shows that a new normal is likely in world food markets. Real world prices of most cereals and meat are projected to increase in the coming decades, reversing trends from the past several decades. Rising prices will slow food demand growth for poor consumers and will adversely impact food security and human well-being. The new normal is created by both demand and supply factors. Rapid growth in meat and milk demand in most of the developing world will put strong demand pressure on maize and other coarse grains as feed. Population growth and recovery and strengthening of economic growth in Sub-Saharan Africa will drive relatively fast growth in demand for food. In developing Asia, rising incomes and rapid urbanization will change the composition of cereal demand. On the supply side, water scarcity and climate change will reduce yield growth in many regions and globally. With declining availability of water and land that can be profitably brought under cultivation, expansion in area will contribute little to future production growth. The intensified linkage between energy and agricultural markets, through growth in biofuels production and higher input costs to agricultural production, together with the potential for higher energy prices, could drive food prices still higher."


Airfreight Transport and Economic Development: An Examination of Causality

Kenneth Button et al.
Urban Studies, February 2013, Pages 329-340

The paper examines the potential role that airfreight transport in the US can play in stimulating local and regional economic development. The analysis examines trends in employment and income for metropolitan statistical areas that make use of airfreight services. The focus is on causality, and not on simple correlation, and uses econometric analysis rather than simpler economic multiplier approaches. Granger causality testing based on panel data covering 35 airport and 32 metropolitan statistical areas in the US from 1990 to 2009 indicates that airfreight transport was a positive driver for local economic development. The conclusions focus on the strengths but also the weaknesses of the methodology for assessing causality.

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