Trading Winners and Losers

Kevin Lewis

December 29, 2020

The Economic Consequences of Sir Robert Peel: A Quantitative Assessment of the Repeal of the Corn Laws
Douglas Irwin & Maksym Chepeliev
NBER Working Paper, November 2020


Britain’s repeal of the Corn Laws in 1846 was the signature trade policy event of the nineteenth century. This paper provides a quantitative general equilibrium evaluation of the repeal on sectoral output and employment, factor prices and income distribution, international trade and the terms of trade, and economic welfare based on a detailed input-output matrix of the British economy in 1841. We find that the repeal left Britain’s overall welfare roughly unchanged, or perhaps negligibly (0.1 percent) lower, as the static efficiency gains are offset by the adverse terms-of-trade effects of the tariff reduction. Labor and capital gained a slight amount of income at the expense of landowners (whose income fell about 3-5 percent). Combining the changes in factor payments with different consumption patterns across income groups, we find that the top 10 percent of income earners lose while the bottom 90 percent of income earners, who spent a disproportionate amount of their income on food, gain. To assess whether the model yields reasonable results, we compare the model’s output, price, and trade predictions with the actual ex post outcomes.

The Impact of NAFTA on U.S. Local Labor Market Employment
Felipe Benguria
University of Kentucky Working Paper, October 2020


This paper studies the impact of the North American Free Trade Agreement on U.S. local labor markets, based on cross-regional variation in exposure to the U.S. and Mexico's tariff liberalization. Lower U.S. tariffs led to a relative decline in the share of the working-age population employed in manufacturing (especially among low-skilled workers) in more exposed regions, and increases in unemployment and in the share of the population employed in certain low-pay non-manufacturing industries. Employment losses due to U.S. tariff liberalization were much larger among female and nonwhite workers. U.S. tariff cuts also induced changes in the task composition of employment, leading to a decline in employment in production-related routine occupations and an increase in abstract occupations. The contraction in manufacturing employment and in production-related routine employment and the rise in unemployment as a result of U.S. tariff liberalization were concentrated in parts of the South and Midwest with relatively lower human capital. Mexico's tariff cuts, in contrast, did not have a discernible impact on most U.S. local labor market employment outcomes.

Did U.S. Politicians Expect the China Shock?
Matilde Bombardini, Bingjing Li & Francesco Trebbi
NBER Working Paper, November 2020


In the two decades straddling China's WTO accession, the China Shock, i.e. the rapid trade integration of China in the early 2000's, has had a profound economic impact across U.S. regions. It is now both an internationally litigated issue and the casus belli for a global trade war. Were its consequences unexpected? Did U.S. politicians have imperfect information about the extent of China Shock's repercussions in their district at the time when they voted on China's Normal Trade Relations status? Or did they have accurate expectations, yet placed a relatively low weight on the subconstituencies that ended up being adversely affected? Information sets, expectations, and preferences of politicians are fundamental, but unobserved determinants of their policy choices. We apply a moment inequality approach designed to deliver unbiased estimates under weak informational assumptions on the information sets of members of Congress. This methodology offers a robust way to test hypotheses about the expectations of politicians at the time of their vote. Employing repeated roll call votes in the U.S. House of Representatives on China's Normal Trade Relations status, we formally test what information politicians had at the time of their decision and consistently estimate the weights that constituent interests, ideology, and other factors had in congressional votes. We show how assuming perfect foresight of the shocks biases the role of constituent interests and how standard proxies to modeling politician's expectations bias the estimation. We cannot reject that politicians could predict the initial China Shock in the early 1990's, but not around 2000, when China started entering new sectors, and find a moderate role of constituent interests, compared to ideology. Overall, U.S. legislators appear to have had accurate information on the China Shock, but did not place substantial weight on its adverse consequences.

Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development
Hans Christensen, Mark Maffett & Thomas Rauter
University of Chicago Working Paper, December 2020


We examine whether foreign corruption regulation reduces corruption and increases the local economic benefits of resource extraction. After a mid-2000s increase in enforcement of the US Foreign Corrupt Practices Act (FCPA), economic activity (measured by nighttime luminosity) increases by 14% (3%) in African communities within a 10- (25-) kilometer radius of resource extraction facilities whose owners are subject to the FCPA. Local perceptions of corruption decline by 8%. Consistent with changes in existing extraction firms’ business practices contributing to the increase in development, the association between resource production, instrumented by world commodity prices, and local economic activity increases by 40%.

Does the WTO exacerbate international conflict?
Tyson Chatagnier & Haeyong Lim
Journal of Peace Research, forthcoming


As one component of its mission to reduce trade barriers and encourage the liberalization of international commerce, the World Trade Organization provides states with a forum in which they can raise and resolve complaints about partners’ unfair trading practices. This mechanism streamlines the process of identifying non-compliant behavior, and provides real incentives for the removal of such policies. By furnishing a form of dispute resolution, the institution should be both trade-inducing and peace-enhancing for member states. However, this very mechanism also has the potential to aggravate existing dispute for two reasons. First, it removes the opportunity for states to use economic policies as instruments of structural linkage in resolving disputes. Second, it deprives its members of powerful economic tools that could be used in lieu of militarized responses. Using the implementation of the WTO Dispute Settlement mechanism, as well as the subsequent expiration of Article 13 of the WTO Agreement on Agriculture (the so-called ‘peace clause’), we examine whether the opportunity to resolve trade disputes through the organization affects the likelihood that member states engage in militarized conflict with one another. We find that membership in a trade institution facilitates peaceful interaction, but that judicialization erases these benefits. We conclude that institution building requires caution and attention to the possibility of unintended consequences.

Internet Access and U.S.-China Innovation Competition
Gerard Hoberg, Yuan Li & Gordon Phillips
NBER Working Paper, December 2020


Using new measures of expanded Internet access in China and internet-based search, we examine how competitive shocks from China impact U.S. innovation through the markets for innovation and existing products. We identify shocks to innovation competition using the geography of Chinese internet penetration and Chinese import data. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in U.S. R&D investment and subsequent patents, and increased patenting by Chinese firms. The new Chinese patents also cite the U.S. firms patents at a high rate, consistent with increased intellectual property competition.

Rethinking Authoritarian Power: The Logistics Space and Authoritarian Practices in and between Secondary Port Cities of the Global South
Alke Jenss & Benjamin Schuetze
International Studies Quarterly, forthcoming


How to rethink authoritarian power in ways that better account for authoritarian connections beyond nation-state boundaries? By reconceptualizing the context in which to analyze authoritarian power, we bring to light transregional authoritarian connections between the secondary port cities Aqaba/Jordan and Buenaventura/Colombia. We demonstrate that processes of privatization and a continuum of pre-emptive, technocratizing, and repressive authoritarian practices with the overall purpose of enabling capital accumulation occur in a remarkably entangled manner in both locales, even if located at seemingly unconnected geographical sites. By thinking of Aqaba and Buenaventura as occupying the same “transregional authoritarian logistics space” (TALS), we understand Buenaventura through Aqaba, and vice versa. This crisscrossing of established notions of context has important implications for our understanding of authoritarianism and future transregional research designs. As a unit of analysis, the TALS allows us to highlight the role of global logistics players and “developmental aid” agencies — actors rarely discussed in literature on authoritarianism — in rearticulating boundaries within and beyond the nation-state based on class and race. Our contribution calls for an understanding of authoritarian power as transregionally entangled, rather than separate and limited to the nation-state and builds on literatures on authoritarian practices, authoritarian neoliberalism, critical logistics, and transregional connections.

Natural Barriers and Policy Barriers
Yang Jiao & Shang-Jin Wei
NBER Working Paper, December 2020


This paper investigates whether "natural" trade barriers of a country due to geography and other factors outside the country's control stimulate more or less policy barriers such as tariffs. Our theory predicts that the politician's relative weight on private benefits over social welfare in a "protection-for-sale" setup depends on these "natural" features. The key mechanism is that a society's willingness to invest in improving institutions that constrain rent-seeking behavior is influenced by the natural barriers. Two types of empirical evidence support the theoretical predictions. First, "natural" barriers beget policy barriers -- countries with more "natural" barriers tend to have higher tariffs and more NTBs. Second, liberalization begets liberalization -- in response to unilateral trade reforms in China in the early 2000s, those other countries that benefit more from the Chinese liberalization also undertake more liberalization of their own.

Trade Liberalization, Energy‐Saving Technological Change and Energy Intensity: Some Empirical Evidence from China
Jun Wang, Chengbo Wang & Xuan Wan
Contemporary Economic Policy, forthcoming


This paper discusses the transmission mechanism and effects that trade liberalization influences energy intensity through energy‐saving technological change (ESTC). We construct panel data from manufacturing industries in China over the period of 1994–2017, thereby conducting empirical tests through mediation models and discontinuity regression models. The results find that trade liberalization significantly promotes the lowering of energy intensity through ESTC. Heterogeneity test results show that the trade liberalization effect is higher in industries with low barriers to entry and industries with high pollution. Fuzzy regression discontinuity (FRD) results show that energy intensity decreasing as China's accession to the World Trade Organization (WTO).

Satellites can reveal global extent of forced labor in the world’s fishing fleet
Gavin McDonald et al.
Proceedings of the National Academy of Sciences, forthcoming


While forced labor in the world’s fishing fleet has been widely documented, its extent remains unknown. No methods previously existed for remotely identifying individual fishing vessels potentially engaged in these abuses on a global scale. By combining expertise from human rights practitioners and satellite vessel monitoring data, we show that vessels reported to use forced labor behave in systematically different ways from other vessels. We exploit this insight by using machine learning to identify high-risk vessels from among 16,000 industrial longliner, squid jigger, and trawler fishing vessels. Our model reveals that between 14% and 26% of vessels were high-risk, and also reveals patterns of where these vessels fished and which ports they visited. Between 57,000 and 100,000 individuals worked on these vessels, many of whom may have been forced labor victims. This information provides unprecedented opportunities for novel interventions to combat this humanitarian tragedy. More broadly, this research demonstrates a proof of concept for using remote sensing to detect forced labor abuses.

Intellectual Property Protection and Financial Markets: Patenting versus Secrecy
Nishant Dass et al.
Review of Finance, forthcoming


Firms rely on patenting and trade secrecy to protect their intellectual property. We study how changes in the trade-off between patenting and secrecy affect firms’ stock liquidity and financing outcomes. We show that an international trade agreement (TRIPS) that strengthened patent protection led to a 10.2% increase in patenting, accompanied by a 14.0%–27.1% improvement in stock liquidity for firms in patent–reliant industries. This in turn allows the affected firms to increase equity financing by 1.9% and reduce leverage by 5.9%. Our results suggest that policies that promote use of patenting over secrecy can reduce informational frictions in equity markets.

All Aboard: The Effects of Port Development
César Ducruet et al.
NBER Working Paper, November 2020


This paper examines the effects of port development on the economy. By using scarce local land intensively, ports put pressure on local land prices and crowd out other forms of economic activity. We use the introduction of containerized shipping -- a technology that substantially increased land requirements at the port -- to estimate the effects of port development. We find an important role for the crowding-out effect both at the local and at the aggregate level. First, we show that the causal effect of the shipping boom caused by containerization on local population is zero -- port development increases city population by making a location more attractive for firms and consumers, but this well-known market access effect is fully offset by the crowding-out mechanism. Second, to measure the aggregate implications, we add endogenous port development to a standard quantitative model of cross-city trade. Through the lens of this model, we estimate that containerization increased aggregate world welfare by 3.95%. However, relative to the positive welfare effects of a trade-cost reduction in standard models, our model implies a sizeable welfare cost associated with the increased land-usage of ports, partly offset by welfare gains from endogenous specialization based on comparative advantage across port- and non-port activities. In terms of the distributional effects, we find that initially poorer countries gained more from containerization as they had a comparative advantage in port development.


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