My place or yours

Kevin Lewis

November 15, 2017

Do Unions Punish Democrats? Free-Trade Votes and Labor PAC Contributions, 1999–2012
Joshua Jansa & Michele Hoyman
Political Research Quarterly, forthcoming


This article examines whether labor unions punish incumbent Democrats who vote for free-trade bills in Congress. We theorize that punishment is a risky strategy for interest groups that prefer one party over the other. Therefore, interest groups must be substantially affected by decline in party support to punish. Consistent with our theory, we find important differences between public- and private-sector unions in their willingness to punish. Although public-sector unions articulate opposition to free trade, they do not follow through with either deterrence (withholding contributions to send a signal) or incapacitation (withholding contributions to replace the wayward candidate with a more supportive one). Private-sector unions, specifically unions that organize trade-vulnerable industrial workers, do attempt to punish Democrats via deterrence. The estimated deterrence effect is a 6 percent reduction in contributions. This study improves on previous studies by modeling punishment across several congressional sessions and multiple trade votes. The results reveal new insights into labor’s approach to declining protectionism among congressional Democrats.

Chinese import competition, crime, and government transfers in US
Yi Che, Xun Xu & Yan Zhang
Journal of Comparative Economics, forthcoming


This paper exploits the exogenous rise of Chinese imports in US to investigate the effect of import competition on crime at the county level. The results indicate that counties with high exposure to Chinese import competition have high crime rates. The exposure effect on property crime is much larger than that on violent crime. A one standard deviation increase in exposure causes 32 more violent crimes in the county, while such increase in exposure causes 256 more property crimes. Interestingly, we find that the crime impact of exposure to Chinese import competition becomes smaller in counties with high government transfers.

Exiting Congressional-Executive Agreements
Curtis Bradley
Duke University Working Paper, October 2017


Some commentators have argued that, even if the President has the unilateral authority to terminate Article II treaties concluded with the Senate’s advice and consent, the President lacks the unilateral authority to terminate “congressional-executive agreements” concluded with majority congressional approval, such as the North American Free Trade Agreement (NAFTA). This paper challenges that claim. If one accepts a presidential authority to terminate Article II treaties, this paper contends, there is no compelling reason to conclude differently with respect to congressional-executive agreements. Congressional-executive agreements have become largely interchangeable with Article II treaties as a matter of domestic law and practice, and, thus, for example, either instrument can be used to address matters relating to international commerce and trade. Moreover, while presidents do not have the authority to unilaterally terminate statutes, congressional-executive agreements are not mere statutes; they are, like Article II treaties, binding international instruments that can be concluded by the United States only through presidential action. These agreements also typically contain withdrawal clauses similar to the ones contained in Article II treaties that presidents have long claimed the authority to invoke unilaterally, and Congress has never indicated that it views presidents as having less withdrawal authority for such agreements. Indeed, in its trade legislation, Congress appears to have accepted that presidents may invoke such clauses unilaterally.

The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies
Brian Kovak, Lindsay Oldenski & Nicholas Sly
NBER Working Paper, October 2017


Estimating the causal effect of offshoring on domestic employment is difficult because of the inherent simultaneity of multinational firms' domestic and foreign affiliate employment decisions. In this paper, we resolve this identification problem using variation in Bilateral Tax Treaties (BTTs), which reduce the effective cost of offshore activity by mitigating double taxation. We derive a panel difference-in-differences research design from a standard model of multinational firms, demonstrating the simultaneity problem and showing how to resolve it using BTTs as an instrument for offshore employment. We confirm that new treaty implementation is uncorrelated with existing employment trends, and use Bureau of Economic Analysis data on U.S. multinational firms to measure the domestic employment effects of offshore activity. Overall, we find modest positive effects of offshore activity on domestic employment. A 10 percent BTT-induced increase in affiliate employment drives a 1.8 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. Underlying these results is substantial heterogeneity based on offshoring margin and firm organizational structure. For example, increased foreign affiliate activity in vertically oriented multinational firms drives declining employment among non-multinationals in the same industry, and multinational firms opening new affiliates exhibit much smaller domestic employment growth than those expanding existing affiliates. Throughout the analysis, OLS estimates are much larger than the IV estimates, consistent with upward simultaneity bias. Overall, our results indicate that greater offshore activity raises net employment by U.S. firms, albeit with underlying job loss and reallocation of workers.

Import Competition and the Decline in U.S. Entrepreneurship
Hadiye Aslan & Praveen Kumar
University of Houston Working Paper, October 2017


We examine the effects of import penetration from low-cost countries on entrepreneurial activity. Theoretically, increasing competition from low price imports ceteris paribus reduces expected profits and entry by domestic entrepreneurs in the tradable sector, and reallocates entrepreneurial activity towards the non-tradable sector. Using a unique micro-level U.S. panel dataset from 1993-2006, and focusing on the explosive growth of Chinese imports during this period, we find strong support for the theoretical predictions: Business creation and profits during 1993-2006 are significantly lower, and exit rates are significantly higher, across time in regions with large increases in Chinese import penetration; these effects economically sizeable and concentrated in the tradable sectors. There is also evidence of positive spillover effects of import penetration on entrepreneurial activity in the non-tradable sector. Our results are robust to a variety of alternative hypotheses, including latent shocks to U.S. industries and local regions; collateralization effects of the housing boom during our study period; and dynamic feedback effects between import penetration and the business entry/exit decision.

Enter the Dragon: Import Penetration and Innovation
Erik Lie & Keyang Daniel Yang
University of Iowa Working Paper, September 2017


We examine the effect of Chinese import penetration on the innovation activities of US manufacturers. We find that firms boost innovation in response to greater import penetration. The boost in innovation builds on narrow focus and familiar technology and results in greater product differentiation. However, in the years after the import penetration, the firms gradually and significantly reduce innovation. As an ancillary finding, we document that import competition prompts firms to scale back capital expenditures. Combined, our evidence suggests that Chinese import penetration spurs US firms to rapidly, but temporarily, increase innovation to dodge price competition.

Industrial Espionage and Productivity
Albrecht Glitz & Erik Meyersson
Stockholm School of Economics Working Paper, June 2017


In this paper, we investigate the economic returns to industrial espionage by linking information from East Germany’s foreign intelligence service to sector-specific gaps in total factor productivity (TFP) between West and East Germany. Based on a dataset that comprises the entire flow of information provided by East German informants over the period 1970–1989, we document a significant narrowing of sectoral West-to-East TFP gaps as a result of East Germany’s industrial espionage. This central finding holds across a wide range of specifications and is robust to the inclusion of several alternative proxies for technology transfer. We further demonstrate that the economic returns to industrial espionage are primarily driven by relatively few high quality pieces of information and particularly strong in sectors that were closer to the West German technological frontier. Based on our findings, we estimate that the average TFP gap between West and East Germany at the end of the Cold War would have been 6.3 percentage points larger had the East not engaged in industrial espionage.

Corporate Influence in World Bank Lending
Rabia Malik & Randall Stone
Journal of Politics, forthcoming


The World Bank withholds loan disbursements in order to build a reputation for enforcing conditionality, and multinational firms lobby for these funds to be released. Using data drawn from World Bank reports, we find evidence that (1) participation by Fortune 500 multinational corporations as project contractors and (2) investments by these firms are associated with disbursements that are unjustified by project performance. In addition, these measures of corporate interest are associated with inflated project evaluations. These effects are limited to multinational corporations headquartered in the United States or Japan, suggesting that the influence of private actors depends on access to particular national policy networks. In contrast to the evidence of corporate influence, we find no consistent evidence of geopolitical influences.

Value-Added Exports and U.S. Local Labor Markets: Does China Really Matter?
Leilei Shen & Peri Silva
European Economic Review, forthcoming


In this paper, our main focus is the direct contribution of the Chinese economy to changes in U.S. labor market outcomes. Our results indicate that the effects of continuously rising value-added exports from China to the U.S. depend on the position of the Chinese exporting industry in the global value chain. In particular, we find that an increase in U.S. exposure to value-added exports from China in industries with high degree of downstreamness leads to negative effects on the share of manufacturing employment, while the same is not present in the case of industries with low degree of downstreamness. Moreover, our results also suggest that the effects of an increase in U.S. exposure to value-added exports from China on average wages and on unemployment levels depends on the position of the Chinese industry in the global value chain.

Global Trade and the Dollar
Emine Boz, Gita Gopinath & Mikkel Plagborg-Møller
NBER Working Paper, November 2017


We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1% U.S. dollar appreciation against all other currencies in the world predicts a 0.6-0.8% decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. 4) Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the importing country's share of imports invoiced in dollars explains 15% of the variance of dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.

Large and small firms in a global market: David vs. Goliath
Mathieu Parenti
Journal of International Economics, forthcoming


This paper studies the impact of trade liberalization when large and small firms coexist in the same market. I develop a model of imperfect competition where a few oligopolistic firms coexist with a monopolistically competitive fringe. The former have a direct impact on the industry average price level, which depends on the breadth of their product scope. Oligopolists produce higher output per worker, charge higher markups, but also sell at higher prices than monopolistic single-product firms. Under linear demand, trade liberalization triggers the exit of small firms and the entry of foreign large firms, leading to more product variety but also to a higher average price. For a broad class of demand functions, the entry of an oligopolist induced by trade liberalization has a negative impact on consumer surplus. Producer surplus rises, but the total effect on welfare is ambiguous.

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