Worldwide web
Sean Starrs
International Studies Quarterly, December 2013, Pages 817-830
Abstract:
This paper argues that a fundamental failing in the debate on the decline of American economic power is not taking globalization seriously. With the rise of transnational corporations (TNCs), transnational modular production networks, and the globalization of corporate ownership, we can no longer give the same relevance to national accounts such as balance of trade and GDP in the twenty-first century as we did in the mid-twentieth. Rather, we must summon data on the TNCs themselves to encompass their transnational operations. This will reveal, for example, that despite the declining global share of United States GDP from 40% in 1960 to below a quarter from 2008 onward, American corporations continue to dominate sector after sector. In fact, in certain advanced sectors such as aerospace and software - even in financial services - American dominance has increased since 2008. There are no serious contenders, including China. By looking at the wrong data, many have failed to see that American economic power has not declined - it has globalized.
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John Marshall & Stephen Fisher
British Journal of Political Science, forthcoming
Abstract:
This article extends theoretical arguments regarding the impact of economic globalization on policy making to electoral turnout and considers how distinct dimensions of globalization may produce different effects. It theorizes that constraints on government policy that reduce incentives to vote are more likely to be induced by foreign ownership of capital, while compensation through increased government spending is more likely (if at all) to be the product of structural shifts in production associated with international trade. Using data from twenty-three OECD countries from 1970-2007, the study finds strong support for the ownership-constraint hypothesis in which foreign ownership reduces turnout, both directly and - in strict opposition to the compensation hypothesis - indirectly by reducing government spending (and thus the importance of politics). The results suggest that increased foreign ownership, especially the most mobile capital flows, can explain up to two-thirds of the large declines in turnout over recent decades.
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International Trade and Labour Income Risk in the U.S.
Pravin Krishna & Mine Zeynep Senses
Review of Economic Studies, January 2014, Pages 186-218
Abstract:
This article studies empirically the links between international trade and labour income risk faced by manufacturing sector workers in the U.S. We use longitudinal data on workers to estimate time-varying individual income risk at the industry level. We then combine our estimates of persistent labour income risk with measures of exposure to international trade to analyse the relationship between trade and labour income risk. We also study risk estimates from various subsamples of workers, such as those who switched to a different manufacturing industry (or out of the manufacturing sector altogether). Finally, we use these estimates to conduct a welfare analysis evaluating the benefits or costs of trade through the income risk channel. We find import penetration to have a statistically significant association with labour income risk in the U.S. Our welfare calculations suggest that these effects are economically significant.
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The march of an economic idea? Protectionism isn't counter-cyclic (anymore)
Andrew Rose
Economic Policy, October 2013, Pages 569-612
Abstract:
Conventional wisdom holds that protectionism is counter-cyclic; tariffs, quotas and the like grow during recessions. While that may have been a valid description of the data before the First World War, it is now inaccurate. Since the Second World War, protectionism has not been counter-cyclic; tariffs and non-tariff barriers simply do not rise systematically during downturns. I document this new stylised fact with a panel of data covering over 180 countries and 40 years, using over a dozen measures of protectionism and six of business cycles. I test and reject a number of potential reasons why protectionism is no longer counter-cyclic. A 'diagnosis of exclusion' leads me to believe that modern economics may well be responsible for the decline in protectionism's cyclic behaviour; economists are more united in their disdain for protectionism than virtually any other concept. This in turn leaves one optimistic that the level of protectionism will continue to decline along with its cyclicality.
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Jenny Aker et al.
Journal of Development Economics, March 2014, Pages 1-16
Abstract:
This paper uses unique high-frequency data on prices of two agricultural goods to examine the additional costs incurred in cross-border trade between Niger and Nigeria, as well as trade between ethnically distinct markets within Niger. We find a sharp and significant conditional price change of about 20 to 25 percent between markets immediately across the national border. This price change is significantly lower when markets on either side of the border share a common ethnicity. Within Niger, trade between ethnically distinct regions exhibits an ethnic border effect that is comparable, in its magnitude, to the national border effect between Niger and Nigeria. Our results suggest that having a common ethnicity may reduce the transaction costs associated with agricultural trade, especially the costs associated with communicating and providing credit.
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Free Trade Agreements and the Consolidation of Democracy
Xuepeng Liu & Emanuel Ornelas
American Economic Journal: Macroeconomics, forthcoming
Abstract:
We study the relationship between participation in free trade agreements (FTAs) and the sustainability of democracy. Our model shows that FTAs can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus making democracies last longer. This gives governments in unstable democracies an extra motive to form FTAs. Hence, greater democratic instability induces governments to boost their FTA commitments. In a dataset with 116 countries over 1960-2007, we find robust support for these predictions. They help to rationalize the rapid simultaneous growth of regionalism and of worldwide democratization since the late 1980s.
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Personal income tax mimicry: Evidence from international panel data
Denvil Duncan & Ed Gerrish
International Tax and Public Finance, February 2014, Pages 119-152
Abstract:
This paper investigates personal income tax (PIT) mimicry at the international level. It is the first to empirically investigate the extent to which PIT mimicry varies along the tax schedule and the first to include nations which are not part of the OECD. We use data on international personal income tax schedules from the world tax indicators to estimate marginal and average tax rates at various multiples of per capita gross domestic product (GDP). These tax rates are then used to estimate the extent to which countries respond to their neighbors' PIT policy. We find evidence of PIT mimicry using a balanced panel of 53 countries over 24 years. This finding is strongest for tax rates at lower multiples of per capita GDP and survives several robustness checks.
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Out of Sight, Not Out of Mind. Education Networks and International Trade
Marina Murat
World Development, June 2014, Pages 53-66
Abstract:
University students typically develop between them long-lasting ties of friendship and trust, as well as an attachment to their university. If they are foreign students, they also form a bond to their country of study. This paper investigates the impact of university ties on the UK's trade with 167 countries during 1999-2009. I find robust evidence that education network ties boost the UK's bilateral trade flows. Specifically, the impact of networks is stronger on trade between the United Kingdom and countries with dissimilar institutions and culture, and particularly with post-communist economies. Results are robust to different econometric specifications and regressors.
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Home Away from Home? Safe Haven Effects and London House Prices
Cristian Badarinza & Tarun Ramadorai
University of Oxford Working Paper, November 2013
Abstract:
Historical time-series data is short relative to the frequency of crises. This makes it difficult to use pure time-series methods to identify the impacts of safe haven demand on asset prices, in the face of confounding effects from a wide range of alternative drivers. We present a new method to identify safe-haven effects which relies on combining the cross-section of asset prices with time-series measures of economic and political risk. We employ this strategy on large databases of historical housing transactions in London, and show that economic and political risk in Southern Europe, China, the Middle East, Russia, and South Asia is an important factor in explaining the dynamics of London house prices over the past two decades.
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The Demand for Protectionism: Democracy, Import Elasticity, and Trade Barriers
Timothy Peterson & Cameron Thies
International Interactions, Winter 2014, Pages 103-126
Abstract:
Numerous studies suggest that democracies employ lower trade barriers than non-democracies. In this paper, we examine the conditioning role that the elasticity of import demand at the commodity level plays on the relationship between democracy and import barriers. Beginning with the assumption that democracies are more responsive than non-democracies to the preferences of mass publics, we demonstrate that the value of free trade as a public good depends on the elasticity of import demand. When import demand for a given commodity is inelastic, trade barriers are more harmful to consumers; as such, democracies will employ lower trade barriers than non-democracies. However, as import demand becomes more elastic, publics find it easier to adjust to higher prices; as a result, the difference in imposed trade barriers by regime type decreases. We find support for this argument in statistical analyses of cross-sectional data covering 4,656 commodities imported by 73 countries Furthermore, we find that democracies raise higher trade barriers than non-democracies on commodities for which import demand is very elastic.
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Antidumping and the Death of Trade
Tibor Besedeš & Thomas Prusa
NBER Working Paper, October 2013
Abstract:
We investigate the extent to which antidumping actions eliminate trade altogether. Using quarterly export data for products involved in U.S. antidumping cases we find that antidumping actions increase the hazard rate by more than fifty percent. We find strong evidence of investigation effects with the impact during the initiation and preliminary duty phases considerably larger than during the final duty phase. There are also important differences with respect to the size of duties. Cases with higher duties face a much higher hazard in the preliminary phase but there is little additional effect when the final duty is actually levied. By contrast, cases with lower duties have a smaller but more persistent effect on the hazard, which proves to be highly detrimental in the long run as many trade relationship cease during the duration of the order. Given the literature on heterogeneous firms and trade, our results imply antidumping protection imposes greater costs than previously recognized.
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Comparative Advantage, Service Trade, and Global Imbalances
Alessandro Barattieri
Journal of International Economics, January 2014, Pages 1-13
Abstract:
The large current account deficit of the U.S. is the result of a large deficit in the goods balance and a modest surplus in the service balance. The opposite is true for Japan, Germany, and China. Moreover, I document the emergence from the mid-nineties of a strong negative relation between specialization in the export of services and the current account balances of a large sample of OECD and developing countries. Starting from these new stylized facts, I propose in this paper a service hypothesis for global imbalances, a new explanation based on the interplay between the U.S. comparative advantage in services and the asymmetric trade liberalization process in goods trade versus service trade that took place starting in the mid-nineties. First, I use a structural gravity model to show that service trade liberalization lagged behind goods trade liberalization, and I quantify the extent of this asymmetry. Second, I show that a simple two-period model can rationalize the emergence of current account deficits in the presence of such asymmetric liberalization. The key inter-temporal mechanism is the asymmetric timing of trade policies, which affects savings decisions. Finally, I explore the quantitative relevance of this explanation for global imbalances. I introduce trade costs in an otherwise standard 2-sector 2-country international real business cycle model. When fed with the asymmetric trade liberalization path found in the data, the model generates a trade deficit of about 5% of GDP. I conclude that the service hypothesis for global imbalances is quantitatively relevant.
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China's dominance hypothesis and The emergence of a tri-polar global currency system
Marcel Fratzscher & Arnaud Mehl
Economic Journal, forthcoming
Abstract:
This paper assesses whether the international monetary system is already tri-polar by testing what we call China's "dominance hypothesis", i.e. whether the renminbi already influences exchange rate and monetary policies strongly in Asia, a direct reference to the old "German dominance hypothesis" which ascribed to the German mark a dominant role in Europe in the 1980s. Using a global factor model of exchange rates and a complementary event study, we find evidence that the renminbi has become a key driver of currency movements in Asia since the mid-2000s, especially since the global financial crisis, in line with China's dominance hypothesis.
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Are Commodity Futures Prices Barometers of the Global Economy?
Conghui Hu & Wei Xiong
NBER Working Paper, December 2013
Abstract:
This paper analyzes whether commodity futures prices traded in the United States reveal information relevant to stock prices of East Asian economies including China, Japan, Hong Kong, South Korea, and Taiwan. We find significant and positive predictive powers of overnight futures returns of copper and soybeans, albeit not crude oil, for stock prices of all these East Asian economies and across a broad range of industries after mid-2000s. Our analysis establishes commodity futures prices as barometers of global economic strength in recent years, but leaves open a deeper issue regarding whether through this informational channel noise from futures market trading can feed back to the real economy.
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Green Dreams: Myth and Reality in China's Agricultural Investment in Africa
Deborah Bräutigam & Haisen Zhang
Third World Quarterly, Fall 2013, Pages 1676-1696
Abstract:
What role does China play in the recent rush for land acquisition in Africa? Conventional wisdom suggests a large role for the Chinese government and its firms. Our research suggests the opposite. Land acquisitions by Chinese companies have so far been quite limited, and focused on production for African consumption. We trace the evolution of strategy and incentives for Chinese agricultural engagement in Africa, and examine more closely several of the more well known cases, sorting out the myths and the realities.
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Idea Flows, Economic Growth, and Trade
Fernando Alvarez, Francisco Buera & Robert Lucas
NBER Working Paper, November 2013
Abstract:
We provide a theoretical description of a process that is capable of generating growth and income convergence among economies, and where freer trade has persistent, positive effects on productivity, beyond the standard efficiency gains due to reallocation effects. We add to a standard Ricardian model a theory of endogenous growth where the engine of growth is the flow of ideas. Ideas are assumed to diffuse by random meetings where people get new ideas by learning from the people they do business with or compete with. Trade then has a selection effect of putting domestic producers in contact with the most efficient foreign and domestic producers. We analyze the way that trade in goods, and impediments to it, affect this diffusion. We find that exclusion of a country from trade reduces productivity growth, with large long-term effects. Smaller trade costs have moderate effects on productivity.
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Dany Bahar, Ricardo Hausmann & Cesar Hidalgo
Journal of International Economics, January 2014, Pages 111-123
Abstract:
The literature on knowledge diffusion shows that knowledge decays strongly with distance. In this paper we document that the probability a product is added to a country's export basket is, on average, 65% larger if a neighboring country is a successful exporter of that same product. For existing products, growth of exports in a country is 1.5 percent higher per annum if it has a neighbor with comparative advantage in these products. While these results could be driven by a common third factor that escapes our controls, they align with our expectations of the localized character of knowledge diffusion.