War on customs
Trade-induced displacements and local labor market adjustments in the U.S.
Illenin Kondo
Journal of International Economics, September 2018, Pages 180-202
Abstract:
Administrative data from the U.S. Trade Adjustment Assistance (TAA) program reveal that, across locations, one extra TAA trade-displaced worker is associated with the overall employment falling by about two workers amidst muted geographic mobility. This correlation is robust to local import penetration proxies and is corroborated using differences in the exposure of commuting zones to the plausibly exogenous normalization of U.S. trade relations with China in 2000. A Ricardian trade model with endogenous variable markups arising from head-to-head foreign competition can rationalize such a correlation. Following a trade liberalization shock, employment and earnings collapse in the less productive locations since they endogenously exhibit both higher trade-induced job losses and lower job creation, as in the data. When migration is muted in response to the trade shock, inequality increases across locations and induces transitional transfers towards decaying locations, even as employment and welfare rise in the aggregate.
Trade Diversion and the Initiation Effect: A Case Study of U.S. Trade Remedies in Agriculture
Colin Carter & Sandro Steinbach
NBER Working Paper, June 2018
Abstract:
This paper estimates the impact of U.S. trade remedy (TR) actions on agricultural trade from 1990 to 2014. Most previous studies of the effects of TR actions have left out agricultural products. We use a four-country oligopolistic trade model to study the impact of TR duties on imports from non-named countries, and we improve on methodological issues present in earlier studies. Our empirical results show that TR investigations benefit non-named foreign exporters and U.S. imports from non-named countries increase even before the implementation of a TR duty. The extent of trade diversion is positively related to the size of the duty. Moreover, we find evidence of an initiation effect revealed by a significant increase in imports from non-named countries that did not previously trade the relevant product with the United States. The considerable extent of trade diversion in agriculture provides robust evidence for leakage effects of TR laws which has a detrimental impact on their protective effect.
On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?
Joseph Steinberg
Review of Economic Dynamics, forthcoming
Abstract:
Are U.S. trade deficits caused by high foreign saving — a global saving glut — or low domestic saving — a domestic saving drought? To answer this question, I conduct a wedge accounting analysis of U.S. trade balance dynamics during 1995–2011 using a dynamic general equilibrium model. I find that a global saving glut explains 96 percent of U.S. trade deficits in excess of those that would have occurred naturally as a result of productivity growth and demographic change. Contrary to widespread belief, however, investment distortions, not a global saving glut, account for much of the decline in real interest rates that has accompanied U.S. trade deficits.
Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports
Andrew Rose
NBER Working Paper, July 2018
Abstract:
I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-á-vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus, there is no evidence that countries have gained export markets through unconventional monetary policy; currency wars that have been launched have also been lost. UMP is also associated with a comparable drop in imports and exchange rates, suggesting that countries engage in UMP when they are experiencing adverse macroeconomic shocks concurrent with those that eviscerate international trade.
Media Bias against Foreign Firms as a Veiled Trade Barrier: Evidence from Chinese Newspapers
Sung Eun Kim
American Political Science Review, forthcoming
Abstract:
While the rules of international trade regimes prevent governments from employing protectionist instruments, governments continue to seek out veiled means of supporting their national industries. This article argues that the news media can serve as one channel for governments to favor domestic industries. Focusing on media coverage of auto recalls in China, I reveal a systematic bias against foreign automakers in those newspapers under strict government control. I further analyze subnational reporting patterns, exploiting variation in the level of regional government interest in the automobile industry. The analysis suggests that the media’s home bias is driven by the government’s protectionist interests but rules out the alternative hypothesis that home bias simply reflects the nationalist sentiment of readers. I show that this home bias in news coverage has meaningful impact on actual consumer behavior, combining automobile sales data and information on recall-related web searches.
The persistence of trade policy in China after WTO accession
Jason Garred
Journal of International Economics, September 2018, Pages 130-142
Abstract:
Import tariffs have fallen steeply worldwide over the last several decades, but has trade policy persisted through a rise in the use of other instruments? I study this question in the context of China's 2001 accession to the World Trade Organization, using panel data on Chinese export policies. I find that after its entry into WTO, the distribution of China's export restrictions across industries increasingly resembles the inverse of its pre-WTO import tariff schedule. The evidence suggests that increases in export restrictions are likely to have partly restored China's pre-WTO trade policy.
Global Market Power
Jan De Loecker & Jan Eeckhout
NBER Working Paper, June 2018
Abstract:
To date, little is known about the evolution of market power for the economies around the world. We extract data from the financial statements of over 70,000 firms in 134 countries, and we analyze and document the evolution of markups over the last four decades. We show that the average global markup has gone up from close to 1.1 in 1980 to around 1.6 in 2016. Markups have risen most in North America and Europe, and least in emerging economies in Latin America and Asia. We discuss the distributional implications of the rise in global market power for the labor share and for the profit share.
Bigger Than You Thought: China's Contribution to Scientific Publications
Qingnan Xie & Richard Freeman
NBER Working Paper, July 2018
Abstract:
From 2000 to 2016 China increased its scientific publications in the international journals indexed by Scopus to become the largest contributor to global science, accounting for about 23% of journal articles adjusted for the Chinese share of addresses or names on publications. Publications with all-China addresses contributed the most to the increase, followed by cross-country collaborations and papers by Chinese-named researchers outside the country. The same period also saw a huge increase in scientific publications in Chinese language journals not indexed in Scopus. We estimate that while Chinese language papers gain about 1/5th as many citations as non-Chinese (largely English) papers in Scopus they are so numerous that even valued as making 1/5th the contribution of a Scopus paper, China accounts for 36% of global scientific papers defined as Scopus papers and China language equivalent papers and for 37% of citations to those papers. China's move to the forefront of scientific inquiry makes it a key driver of the direction of scientific and technological progress and of the knowledge-based economies of the foreseeable future.
Grexit vs. Brexit: International Integration Under Endogenous Social Identities
Boaz Abramson & Moses Shayo
Stanford Working Paper, June 2018
Abstract:
This paper seeks to introduce social identity into international economics. We develop a simple framework to study the interplay between identity politics and international integration, allowing identities themselves to be endogenous. Contrary to widespread intuitions, we find that a robust union does not require that all members share a common identity. Nor is a common identity likely to emerge as a result of integration. The general result is that a union is more fragile when periphery countries have high ex-ante status. Low-status countries are less likely to secede, even when between-country economic differences are large and although equilibrium union policies impose significant hardship. We trace the implications of the model for the stability and challenges to the current composition of the EU and the Eurozone.
Quality and the Great Trade Collapse
Natalie Chen & Luciana Juvenal
Journal of Development Economics, November 2018, Pages 59-76
Abstract:
We investigate theoretically and empirically the heterogeneous effects of the global financial crisis on international trade flows differentiated by quality. Our model, which identifies the effect of quality on trade that arises on the demand side, through the relationship between income and quality choice, predicts that a negative income shock disproportionately reduces the demand for higher relative to lower quality traded goods (a “flight from quality”). Using a unique dataset of firm-level wine exports for an emerging market economy, Argentina, combined with experts wine ratings as a measure of quality, we find strong evidence of a flight from quality as we show that the values, volumes, unit values, and markups of higher quality exports contracted more sharply during the crisis. Our results imply that the exports of countries producing higher quality goods are likely to collapse more severely during recessions.
Managing Trade: Evidence from China and the US
Nicholas Bloom et al.
NBER Working Paper, June 2018
Abstract:
We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. Finally, they also use a wider range of inputs, higher quality and more expensive inputs, and imported inputs from more advanced countries. The structural estimates indicate that management is important for improving production efficiency and product quality in both countries, but it matters more in China than in the US, especially for product quality. Panel analysis for the US and a randomized control trial in India suggest that management exerts causal effects on product quality, production efficiency, and exports. Poor management practices may thus hinder trade and growth, especially in developing countries.
Investor Rights versus Human Rights: Do Bilateral Investment Treaties Tilt the Scale?
Cristina Bodea & Fangjin Ye
British Journal of Political Science, forthcoming
Abstract:
This article argues that the broad and legally enforceable protection that bilateral investment treaties (BITs) offer to foreign investors worsens the human rights practices of developing countries. BITs lock in initial conditions attractive to investors that are linked to vertical investment flows and investment and trade competition. They also constrain the provision of welfare benefits or basic infrastructure. The lock-in and constraining effects are sources of popular grievance and dissent in states that host foreign investment. BIT-protected investor rights, however, limit the ability of governments to back-down vis-à-vis investors, lowering the relative cost of human rights violations. Finally, this study suggests that democratic regimes mitigate the negative effect of BITs. Evidence from 113 developing countries from 1981 to 2009 supports the hypotheses.
Transparency, Risk, and FDI
Colin Barry & Matthew DiGiuseppe
Political Research Quarterly, forthcoming
Abstract:
A central theme in the foreign direct investment (FDI) literature is that political risk deters investment. The empirical record, however, is mixed. multinational corporations (MNCs) continue to invest in high-risk countries. We argue it is not merely about the level of risk, but rather firms’ ability to quantify risk. When MNCs can confidently assess both the nature and the degree of the threats present, they can take appropriate measures to hedge against them. This should increase their willingness to invest, even in higher risk environments. We contend that the ability to accurately quantify risk is a function of political transparency. Among opaque countries, we expect risk to exert a deterring effect on FDI, as commonly theorized. Among more transparent countries, however, we expect that risk is a less salient concern for MNCs. We test this argument using firm-level data on the foreign operations of some of the world’s largest multinationals between 1995 and 2008. The evidence supports the argument. Risk has a strong negative effect on the likelihood of investment at lower levels of transparency, but the magnitude of this effect weakens at higher levels of transparency. This pattern is consistent across multiple types of political risk, and is most pronounced in nonextractive (relative to extractive) industries.
The World Cup, Nationalism, and International Trade
Andrew Bertoli & George Yin
Dartmouth College Working Paper, June 2018
Abstract:
Can surges of nationalism undermine trade between countries? Past studies have identified several notable cases where nationalism from political disputes seemingly disrupted international trade. However, research on this topic has remained very limited when in comes to both theory and empirics. We provide a theoretical explanation for how nationalism could cause countries to experience a drop in trade. We then take advantage of a natural experiment to test this theory. Building off recent research that uses international sports as an exogenous source of nationalism, we examine whether pairs of countries become more likely to experience drops in trade when they compete at the World Cup. Specifically, we take advantage of the random assignment of countries to compete against each other in the group stage of the World Cup from 1930-2014 (n=486 pairs). Using randomization inference, we find that World Cup competition undermines trade between countries. Overall, the estimates suggest that competing at the World Cup increases the likelihood that two countries will experience a drop in trade by 12%, and 17% if soccer is the most popular sport for both sides. These results should heighten concerns about the potential for rising levels of nationalism to disrupt global markets.