Trading floor
Trade and Volatility at the Core and Periphery of the Global Economy
Julia Gray & Philip Potter
International Studies Quarterly, forthcoming
Abstract:
Researchers typically assume that economic openness increases volatility. But the conventional empirical shorthand for economic openness (trade as a share of overall income) fails to account for crucial distinctions in the way that states trade. States that are deeply incorporated into the core of the international trading network have very different experiences than states at the periphery with fewer, more marginalized trading partners. This article demonstrates that a position at the core of the international trading system rather than the periphery actually diminishes volatility. Thus, a country's position in the world economy can, independently of its overall volume of trade, moderate the risks of exposure to international markets. To demonstrate how this distinction might impact political outcomes and future scholarship, we show that this reduction in volatility allows governments to minimize compensation to their domestic publics.
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Global House Price Fluctuations: Synchronization and Determinants
Hideaki Hirata et al.
NBER Working Paper, September 2012
Abstract:
We examine the properties of house price fluctuations across eighteen advanced economies over the past forty years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.
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Movie Piracy and Sales Displacement in Two Samples of Chinese Consumers
Jie Bai & Joel Waldfogel
Information Economics and Policy, forthcoming
Abstract:
Intellectual property piracy is widely believed, by authorities in both U.S. industry and government, to be rampant in China. Because we lack evidence on the rate at which unpaid consumption displaces paid consumption, we know little about the size of the effect of pirate consumption on the volume of paid consumption. We provide direct evidence on both the volume of unpaid consumption and the rate of sales displacement for movies in China using two surveys administered in late 2008 and mid-2009. First, using a survey of Chinese college students' movie consumption and an empirical approach parallel to a similar recent study of U.S. college students, we find that three quarters of movie consumption is unpaid and that each instance of unpaid consumption displaces 0.14 paid consumption instances. Second, a survey of online Chinese consumers reveals similar patterns of paid and unpaid movie consumption but a displacement rate of roughly zero. We speculate on the small displacement rate finding relative to most of the piracy literature.
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What is the True Loss Due to Piracy? Evidence from Microsoft Office in Hong Kong
Tin Cheuk Leung
Review of Economics and Statistics, forthcoming
Abstract:
Using a unique conjoint data set drawn from 281 college students in Hong Kong, I estimate a random-coefficient discrete choice demand system for Microsoft Office from legal and various illegal sources. Counterfactual results show two things. First, most student would switch to Internet piracy even if the government eradicated street piracy. This explains why software piracy in Hong Kong remains well above 40% despite the government's successful measures to bring down street piracy. Second, the true gain from shutting off all sources of piracy is HK$48.6 (US$6) per person, only 15% of the Business Software Alliance's estimated cost of piracy.
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Patent examination at the State Intellectual Property Office in China
Johannes Liegsalz & Stefan Wagner
Research Policy, forthcoming
Abstract:
This paper provides an overview of the institutional background of patent examination and its duration in China. The number of patent applications filed at the Chinese State Intellectual Property Office (SIPO) has grown tremendously in recent decades; by 2009, SIPO had become the world's third largest patent office. We find that the average grant lag in 1990-2002 was 4.71 years, with considerable variation across 30 different technology areas. We also empirically analyze the determinants of the grant lags at the SIPO. Using a multivariate duration analysis of the population of 443,533 SIPO patent applications from 1990 to 2002, we find that, even after controlling for other important determinants of grant lags, Chinese applicants achieved faster patent grants than their non-Chinese counterparts.
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Paul Sharp & Jacob Weisdorf
Explorations in Economic History, forthcoming
Abstract:
We take up again the famous case of the trade in wheat between the United States and the United Kingdom. This is often used to illustrate the so-called first era of globalization at the end of the nineteenth century. This study, however, finds evidence of transatlantic commodity market integration already during the eighteenth century. Using price data for wheat in America and Britain, our findings support both that price differentials were quite small for many years, and that prices adjusted to the law-of-one-price equilibrium. This process was, however, continuously being interrupted by ‘exogenous' events, such as trade policy, war and politics. In particular, the French and Napoleonic wars and the subsequent high levels of protection in the UK meant that markets were almost always disintegrated until the repeal of the British Corn Laws in 1846.
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The Global Extent of the Great Moderation
Bruno Ćorić
Oxford Bulletin of Economics and Statistics, August 2012, Pages 493-509
Abstract:
In 2008 the US financial crisis spilled over into a number of other economies causing declines in GDP across the world. Yet the decades preceding the current downturn had been a period of unprecedented stability for the US economy. This article examines annual data for 98 countries over the period 1961-2007 and finds that lower GDP growth volatility in the period preceding the current crisis was not confined to the US. It is detected in a number of developed and developing countries, suggesting that a reduction in volatility in this period was a more general phenomenon.
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Exports and Olympic Games: Is There a Signal Effect?
Wolfgang Maennig & Felix Richter
Journal of Sports Economics, forthcoming
Abstract:
A recent study finds that Olympic Games host countries experience significant positive, lasting effects on exports. They interpret their results as an indication that countries use the hosting of such events to signal openness and competitiveness. The authors challenge these empirical findings on the grounds that a comparison of structurally different and nonmatching groups of countries might suffer from a selection bias. The authors demonstrate that with an appropriate matching and treatment methodology, the significant Olympic effect disappears.
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Market Size, Division of Labor, and Firm Productivity
Thomas Chaney & Ralph Ossa
NBER Working Paper, July 2012
Abstract:
We generalize Krugman's (1979) 'new trade' model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.
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Do Majoritarian Electoral Systems Favor Consumers: Identifying Cross-National Consumer Bias
Joe Weinberg
International Studies Quarterly, forthcoming
Abstract:
This article builds off of previous work by Rogowski and Kayser (2002) and Chang, Kayser, and Rogowski (2008) in order to determine the effects of democracy styles on trade policy preferences. This work uses the common Stigler-Peltzman Framework of regulation and finds a bias that favors consumers in majoritarian systems and favors producers in proportional representation systems. Their measurement of bias leaves many gaps in the interpretation of their results, a problem that is remedied by using a more direct measurement of bias. This article uses a single policy, agriculture, in order to determine whether this evidence of consumer bias holds. While the results are largely in line with the previous work, the modeling style and the dependent variable of choice strengthens the results and the connection to the theoretical framework of Stigler and Peltzman.
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Trade as an Engine of Creative Destruction: Mexican experience with Chinese competition
Leonardo Iacovone, Ferdinand Rauch & Alan Winters
Journal of International Economics, forthcoming
Abstract:
This paper exploits the surge in Chinese exports from 1994 to 2004 to evaluate the effects of a competition shock from a low wage competitor for producers in an important middle-income country, Mexico. We find that this shock causes selection and reallocation at both firm and product levels and that its impact is highly heterogeneous at the intensive and extensive margins. Sales of smaller plants and more marginal products are compressed and are more likely to cease, whereas those of larger plants and core products seem relatively impervious to the shock. This implies a reallocation in terms of market shares within firms and between firms. We also show that the impact of expanded access to cheaper Chinese intermediate inputs has a similar effect, with larger plants benefiting more from the availability of cheaper imported inputs.
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Sovereign Debt in Latin America, 1820-1913
Gerardo della Paolera & Alan Taylor
NBER Working Paper, September 2012
Abstract:
This paper examines sovereign lending to Latin America and the Caribbean from 1820 to 1913. We examine four waves of capital flows where defaults were followed by a return to market access. In spite of extended default, countries kept promising high returns that attracted international investors again and again: financial autarky thus gave way to eras of high integration to global markets as measured by sovereign risk pricing. We discuss imperfections of the sovereign debt institutional context in the region and discuss a menu of options that some countries used to seek funds in the global financial markets after defaults. The parallel with the modern Latin American and Caribbean sovereign bond market experience is striking.
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The Rise of Leftist-Populist Governance in Latin America: The Roots of Electoral Change
Karen Remmer
Comparative Political Studies, August 2012, Pages 947-972
Abstract:
Over the past decade the contours of political party competition in Latin America have been dramatically altered by an upsurge of support for leftist-populist parties and the related weakening of established parties on the center and right end of the political spectrum. Drawing on both aggregate and individual-level evidence, this article explores the roots of this swing of the political pendulum. Contrary to the conventional wisdom, which attributes the rising "pink tide" to citizen dissatisfaction with market-oriented policies, economic performance, and/or social inequality, the analysis focuses on the role played by improving external economic conditions during the early 2000s, which relaxed the preexisting constraints on policy choice, enhanced the credibility of anti-status quo political actors, and created new opportunities for the pursuit of statist, nationalist, and redistributive political projects and associated challenges to U.S. hegemony. Consistent with this line of theoretical argument, the macro-level evidence indicates that the odds of electing a leftist-populist president in the region rose with improvements in the terms of trade. At the micro level, survey data also show that support for leftist-populist presidents in the region has been positively associated with citizen satisfaction with democracy and the state of the economy as well as with anti-Americanism. The results underline the potential significance of economic fluctuations for understanding electoral dynamics and party system change, particularly under conditions in which government policy choice is constrained by the operation of international markets.
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Europe's Many Integrations: Geography and Grain Markets, 1620-1913
David Chilosi et al.
Explorations in Economic History, forthcoming
Abstract:
This article documents and examines the integration of markets across the early modern/late modern divide, exploiting the largest dataset compiled to date on grain prices, spanning one hundred European cities evenly spread across land-locked and low-land areas. Using those series, it studies various measures of integration across distances and regions, and relies on principal component analysis to identify market structures. The analysis finds that European market integration was a gradual and step-wise rather than sudden process, and that early modern market structures were shaped by geography more directly than by political borders.
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Lost in Globalization: International Economic Integration and the Sources of Popular Discontent
Yotam Margalit
International Studies Quarterly, September 2012, Pages 484-500
Abstract:
What are the sources of popular opposition to economic globalization? A common answer in the literature is the adverse impact of trade liberalization on some people's labor market standing and earning prospects. Recent studies also note a correlation between nationalist and ethnocentric sentiments and support for trade protectionism, yet do not test whether these non-economic sentiments are actually a cause of the opposition to freer trade. I argue that many individuals fear not only the oft-cited material consequences of trade openness, but also what they perceive to be its social and cultural consequences. I use cross-national survey data and a survey experiment to test this causal claim. The argument also helps explain why less-educated individuals are consistently more apprehensive about international economic integration than more educated individuals, even in the countries in which economic theory predicts otherwise. The findings have implications for the debate over the policy tools for compensating globalization's losers and sustaining popular support for further economic integration.
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The Impact of International Trade on Institutions and Infrastructure
Gal Hochman, Chrysostomos Tabakis & David Zilberman
Journal of Comparative Economics, forthcoming
Abstract:
We develop a theoretical model that explores the impact of international trade on both institutions and infrastructure, while explicitly addressing the correlation between institutional quality and infrastructure investment. We show that trade leads to higher infrastructure investment so that domestic firms become more productive and can, thus, better compete internationally. However, infrastructure investment also has a detrimental effect on firms, as it is financed through firm taxation. As a result, when some firms have stronger political ties than others, trade leads to weaker institutions and more cronyism as the government attempts to lower the tax burden on the politically connected firms. Moreover, we show that trade with a partner characterized by high aggregate firm productivity or low firm fixed costs induces a country to invest more heavily in both its infrastructure and its institutional framework.
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Inequality and the import demand function
Antonis Adam, Margarita Katsimi & Thomas Moutos
Oxford Economic Papers, October 2012, Pages 675-701
Abstract:
In this paper we assess the empirical importance of changes in inequality on the demand for imports by examining panel data for 59 developing and developed countries for the 1970-1997 period. We find significant evidence supporting that inequality has a large influence on the demand for imports. Moreover we find that this influence is positive for high-income countries (countries that mainly produce and export high quality varieties of vertically differentiated products) and negative for low-income countries (countries that produce and export low-quality varieties of vertically differentiated products). These findings are explained by developing a model of trade in vertically differentiated products.
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Commodity Prices over Two Centuries: Trends, Volatility, and Impact
Jeffrey Williamson
Annual Review of Resource Economics, 2012, Pages 185-206
Abstract:
Does trade raise growth rates of commodity exporters less than those of industrial goods exporters? Do industrial countries gain more from trade? Do world trade booms over the past two centuries help account for the widening gap between rich and poor countries because of some asymmetric growth impact? These old questions can now be answered with hard evidence, and the answer is yes to all three. World trade booms have always been associated with commodity price booms and thus with terms-of-trade improvements favoring the commodity exporter. But whereas commodity exporters' GDP levels increased - that is, they gained from trade - their growth rates either did not increase or increased by much less than did rates of their industrial trading partners. This survey reports these results for the period 1800-1939, but it also shows how this so-called resource curse history has changed in recent decades.
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Would global patent protection be too weak without international coordination?
Edwin Lai & Isabel Yan
Journal of International Economics, forthcoming
Abstract:
In the standard model with free trade and social-welfare-maximizing governments à la Grossman and Lai (2004), cross-border positive policy externalities result in countries choosing a combination of patent strengths that is weaker than optimal from a global perspective. This paper introduces three new features to the analysis: trade and FDI barriers, firm heterogeneity and political economy considerations in setting patent policies. Based on calibration, we find that there would be global under-protection of patent rights when there is no international policy coordination. The empirical fact that firm revenues follow a fat-tailed distribution implies that the barriers to exploit inventions internationally are quite low, despite the fact that only a small fraction of firms sell overseas and an even smaller fraction of firms carry out FDI as a result of trade barriers. Furthermore, requiring all countries to harmonize their patent standards with the equilibrium standard of the most innovative country (the US) does not lead to global over-protection of patent rights.
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Democratization and trade policy: An empirical analysis of developing countries
Leonardo Baccini
European Journal of International Relations, September 2012, Pages 455-479
Abstract:
I show that the process of democratization in developing countries constitutes an important factor in the formation of preferential trade agreements. Specifically, democratizing developing countries are more likely to form a preferential trade agreement with richer countries, whereas there is little evidence that democratic transition affects the probability of a developing country joining a preferential trade agreement with other developing countries. This result follows naturally from median voter preferences and the Heckscher-Ohlin and Stolper-Samuelson theorems. Put simply, the median voter gains from trading with the richer states and loses from trading with the other poor states. Since preferential trade agreements allow countries to waive the most-favored nation principle, the need for both trade openness and protectionism against competitors might explain why preferential trade agreements constitute one of the main features of the current wave of globalization. I quantitatively test this hypothesis using a newly compiled dataset that covers 135 developing countries from 1990 to 2007. An important implication of this article is that it could be more challenging than expected to combine domestic political equality with international economic equality.
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Olivier Lamotte
Comparative Economic Studies, September 2012, Pages 553-579
Abstract:
Wars and sanctions tend to reduce the trade of the countries involved. However, these events often occur concurrently, which complicates the assessment of their effects. This article studies the case of the former Yugoslavia to disentangle the respective effects of these events. We show that the wars and sanctions caused a reduction in trade not only between the countries involved but also with other countries. Moreover, the impact of the sanctions on trade volume is more pronounced than the impact of war. Finally, we show that the effects of both war and sanctions persisted for several years after they ended.