Autarky
Trump and Trade: Protectionist Politics and Redistributive Policy
Melinda Ritchie & Hye Young You
Journal of Politics, forthcoming
Abstract:
Do redistributive policies intended to mitigate the costs of trade reduce protectionist backlash? To understand the link between policymaking and the electoral consequences of policy outcomes, we address this question using data on redistributive assistance to workers harmed by trade liberalization. By analyzing the 2016 US presidential primary and general election results, we show these redistributive policy benefits are associated with reduced support for then-presidential candidate, Donald Trump, who ran on an anti-globalization platform. These findings suggest redistributive trade assistance may have a political impact by mitigating support for protectionist platforms and anti-globalization rhetoric of presidential candidates. Our results suggest that the redistributive program we examine in this paper may accomplish one of its objectives: to make trade liberalization more politically palatable. This paper extends findings in the extant literature on anti-incumbency effects to suggest that policy outcomes affect electoral support for candidates with anti-globalization platforms.
Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-wing Populism
Dani Rodrik
NBER Working Paper, July 2020
Abstract:
There is compelling evidence that globalization shocks, often working through culture and identity, have played an important role in driving up support for populist movements, particularly of the right-wing kind. I start with an empirical analysis of the 2016 presidential election in the U.S. to show globalization-related attitudinal variables were important correlates of the switch to Trump. I then provide a conceptual framework that identifies four distinct channels through which globalization can stimulate populism, two each on the demand and supply sides of politics, respectively. I evaluate the empirical literature with the help of this framework, discussing trade, financial globalization, and immigration separately. I conclude the paper by discussing some apparently anomalous cases where populists have been against, rather than in favor of trade protection.
Global Capital and Local Assets: House Prices, Quantities, and Elasticities
Caitlin Gorback & Benjamin Keys
NBER Working Paper, June 2020
Abstract:
Interconnected capital markets allow mobile global capital to flow into immobile local assets. This paper examines how foreign demand affects U.S. housing markets, and uses this demand shock to estimate local price elasticities of supply. Other countries introduced foreign-buyer taxes meant to deter Chinese housing investment beginning in 2011. We first show house prices grew 8 percentage points more in U.S. zipcodes with high foreign-born Chinese populations after 2011, subsequently reversing with the onset of the U.S.-China trade war. Second, we use international tax policy changes as a U.S. housing demand shock and estimate local house price and quantity elasticities with respect to international capital. We find that a 1% increase in instrumented foreign capital raises house prices at the zip code level by 0.27%, and housing supply by 0.004%. Finally, we use the two elasticities to construct new local house price elasticities of supply for the largest 100 CBSAs. These supply elasticities average 0.1 and vary between 0.02 and 0.7, suggesting that local housing markets are inelastic in the short run and exhibit substantial spatial heterogeneity.
International Friends and Enemies
Benny Kleinman, Ernest Liu & Stephen Redding
NBER Working Paper, July 2020
Abstract:
We develop sufficient statistics of countries' bilateral income and welfare exposure to foreign productivity shocks that are exact for small shocks in the class of models with a constant trade elasticity. For large shocks, we characterize the quality of the approximation, and show it to be almost exact. We compute these sufficient statistics for over 140 countries from 1970-2012. We show that our exposure measures depend on market-size, cross-substitution and cost of living effects. As countries become greater economic friends in terms of welfare exposure, they become greater political friends in terms of United Nations voting and strategic rivalries.
Explaining Foreign Support for China's Global Economic Leadership
Lawrence Broz, Zhiwen Zhang & Gaoyang Wang
International Organization, Summer 2020, Pages 417-452
Abstract:
We analyze the factors that increase the likelihood that other nations will follow China's global economic leadership. While our theoretical framework incorporates the conventional argument that China pulls in followers with economic benefits, we focus on grievances with the current global order that have the effect of pushing countries toward the rising new leader. We find that grievances about global financial instability are particularly important push factors. Our results show that countries that have experienced more financial crises, more variable capital account policies, more volatile portfolio capital outflows, and more social unrest during IMF programs are more likely to support China's global leadership than leaders of nations that have been less exposed to these problems. We find no evidence that grievances about global governance, or grievances about discriminatory US trade policies, are related to foreign support for China's global economic leadership. Overall, our evidence is consistent with the interpretation that leaders want to reform and preserve the WTO and the IMF, which have worked reasonably well for them under US leadership. At the same time, they have incentives to follow China's economic leadership on global capital flows, emphasizing long-term infrastructure and development finance over short-term flows which, under the current order, have imposed large costs on many economies.
Free trade agreements and world obesity
Michele Baggio & Alberto Chong
Southern Economic Journal, July 2020, Pages 30-49
Abstract:
We study the causal link between trade openness via free trade agreements (FTAs) and obesity rates. When applying a difference‐in‐differences approach by exploiting the year a country entered a free trade agreement with the United States during the period 1990-2016. We find a positive and causal impact of FTAs on obesity rates, which are statistically and economically significant. We show that our findings are robust to placebo tests, the use of synthetic control methods, and a maximized sample. Furthermore, we show that when using an event studies approach the equal trends assumption holds.
Accounting for the new gains from trade liberalization
Chang-Tai Hsieh et al.
Journal of International Economics, forthcoming
Abstract:
We challenge the conventional wisdom on the variety and productivity gains from trade liberalization which are commonly referred to as “new” gains from trade. In particular, we show that the import variety gains measured in studies such as Broda and Weinstein (2006) are counteracted by exactly analogous domestic variety losses. Similarly, we show that the domestic productivity gains measured in studies such as Trefler (2004) are counteracted by exactly analogous import productivity losses. We then account for all these gains and losses in an application to the Canada-US Free Trade Agreement and show that Canada actually experienced net “new” losses from trade.
To What Extent Are Tariffs Offset By Exchange Rates?
Olivier Jeanne & Jeongwon Son
NBER Working Paper, August 2020
Abstract:
In theory, we should expect tariffs to be partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. We find, based on a calibrated model, that the tariffs imposed by the US in 2018-19 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. We find that tariffs explained at most one fifth of the dollar effective appreciation but around two thirds of the renminbi effective depreciation observed in 2018-19.
Do Foreign Institutional Investors Improve Price Efficiency?
Marcin Kacperczyk, Savitar Sundaresan & Tianyu Wang
Review of Financial Studies, forthcoming
Abstract:
We study the impact of foreign institutional investors on price efficiency with firm-level international data. Using additions to the MSCI index and the U.S. Jobs and Growth Tax Relief Reconciliation Act as exogenous shocks to foreign ownership, we show that greater foreign ownership increases stock price informativeness, especially in developed economies. This increase arises from new information that foreign investors bring in and displacement of less-informed domestic retail investors. Finally, we show that foreign ownership, particularly from active investors, increases market liquidity, reduces firms’ cost of equity, and increases firms’ real investment growth.