Exchange program
On the Heterogeneous Welfare Gains and Losses from Trade
Daniel Carroll & Sewon Hur
Journal of Monetary Economics, forthcoming
Abstract:
How are the gains and losses from trade distributed across households? We document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Using a trade model with nonhomothetic preferences and uninsurable earnings risk, we measure the differential welfare gains from trade along the income and wealth distribution. A permanent reduction in trade costs that generates the rise in import share of GDP seen in the data from 2001 to 2014 leads to 57 percent larger welfare gains for households in the lowest wealth decile relative to those in the highest wealth decile.
Shocked into Service: Free Trade and the American South’s Military Burden
Adam Dean & Jonathan Obert
International Interactions, forthcoming
Abstract:
Free trade has gradually shifted the burden of military service onto the American South. While trade shocks generally lead to local increases in US Army enlistment, there are two different regional dynamics that concentrate this effect in the South. First, trade-related job losses are disproportionately concentrated in this region, where manufacturing jobs gradually migrated during the second half of the twentieth century. Second, the South’s “military tradition,” a relatively youthful population, and weak labor unions, combine to translate trade shocks into larger spikes in Army enlistment than the rest of the country. This paper uses county-level data from 1996–2010 to demonstrate the importance of meso-level, regional factors for understanding the location of trade shocks, as well as how communities adjust to such economic dislocations. We find that trade-related job losses account for roughly 7% of the South’s over-representation in the Army during our period of study.
Employment Consequences of U.S. Trade Wars
Sanjana Goswami
University of California Working Paper, November 2019
Abstract:
This paper provides evidence on the short-run and long-run distributional effects of tariff shocks on employment in the United States. Using monthly data on tariffs and employment, I find that in the period of January 2017 to March 2019, commuting zones more exposed to Chinese retaliatory tariffs experienced a decline in employment growth, whereas U.S. import tariffs had no immediate effect on employment growth. I also study the employment effects of a hypothetical trade war between the United States and China by calculating counterfactual employment changes under three different retaliation scenarios and find that had the U.S. imposed tariffs in the 1991-2007 period on all products, the large job-destroying effect of the ‘China shock’ would not have occurred, irrespective of the retaliation strategy pursued by China. However in the post-recession period of 2010-2016, the ‘China shock’ no longer exists and therefore U.S. import tariffs would not have had a job-creating effect. This result corroborates the findings of the short-run analysis.
The Consumption Response to Trade Shocks: Evidence from the US-China Trade War
Michael Waugh
NBER Working Paper, October 2019
Abstract:
This paper provides evidence on the consumption effects of trade shocks by exploiting changes in US and Chinese trade policy between 2017 and 2018. The analysis uses a unique data set with the universe of new auto sales at the US county level, at a monthly frequency, and a simple difference-in-difference approach to measure the effect of changes in trade policy on county-level consumption. As a lower bound, I estimate the elasticity of consumption growth to Chinese retaliatory tariffs to be around –1. This implies that counties in the upper quartile of the retaliatory-tariff distribution experienced a 3.8 percentage point decline in consumption growth. I further show that the consumption response corresponds with a decline in employment growth. These results suggest that Chinese retaliation is leading to concentrated welfare losses in the US.
Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy
Alberto Cavallo et al.
NBER Working Paper, October 2019
Abstract:
We use micro data collected at the border and at retailers to characterize the effects of recent changes in US trade policy -- particularly the tariffs placed on imports from China -- on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to total prices paid by importers, suggesting that incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of China’s renminbi is unlikely to alter this conclusion. Next, using product-level data from several large retailers, we demonstrate that the tariffs’ impact on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers' imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods.
Making Only America Great? Non-U.S. Market Reactions to U.S. Tax Reform
Fabio Gaertner, Jeffrey Hoopes & Braden Williams
Management Science, forthcoming
Abstract:
We study the foreign externalities of the recent U.S. tax reform, commonly known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine foreign firms’ stock returns around key tax reform events. We find significant heterogeneity in market responses by country, industry, and firm. Chinese firms experience large negative returns, especially in steel, business equipment, and chemical manufacturers, whereas the rest of the world experiences positive returns. Firms operating in more differentiated product markets experience positive returns, whereas firms in financial distress experience negative returns, consistent with the TCJA having competitive repercussions. We also find that firms experiencing decreases in effective tax rates following tax reform experience positive returns. Overall, our results suggest that the TCJA had varied, yet systematic effects on foreign firms’ shareholders’ wealth and the global competitive landscape.
Does the Closing of Sweatshops in Bangladesh Save Child Workers? An Empirical Study of a U.S. Child Labor Prohibition Bill
Siyu Quan
Tulane University Working Paper, November 2019
Abstract:
In early 1993, Senator Tom Harkin proposed the first bill in the US Congress to explicitly prohibit the importation into the U.S. of ready-made garments made by child labor. In this paper, I use the Bangladeshi Household Expenditure Survey (Waves 1991, 1995, and 2000) to identify the effects of the bill on the employment status and rate of school enrollment on urban Bangladeshi girls under 15 years of age, the age group that was directly targeted and therefore more likely to be affected by the bill. Using a difference-in-difference (DiD) model, I find that, due to Harkin’s bill, the employment rate of urban Bangladeshi girls under 15 increased, and their probability of being enrolled in school decreased. I also use a regression discontinuity design (RDD) to estimate policy impact. Using 15 as the cutoff age and comparing results for before and after the policy was implemented, I find that there is a jump in the industry/factory sector employment rate. The results obtained using both methodologies imply that a direct ban on child labor itself does not have the intended effects of reducing the rate of child employment or improving children’s educational outcomes.
The role of oil in the allocation of foreign aid: The case of the G7 donors
Cécile Couharde et al.
Journal of Comparative Economics, forthcoming
Abstract:
While it is often alleged that oil endowment might influence the destination of foreign aid, there is a lack of empirical evidence of how and why such an effect may come into play, and even less so of the channels through which it works. This paper aims to bring evidence that contributes to addressing those points. Specifically, we investigate the role of oil in aid allocation of the G7 donors. Results show that, unsurprisingly, aid allocated by these donors increases significantly with oil endowment of recipient countries. Looking more deeply, we interestingly show that their strategic interests in terms of oil security play a role in their provision of aid. More importantly, we provide evidence on the existence of competition for access to oil supplies among this group of donors.
The Chilling Effect of International Investment Disputes: Limited Challenges to State Sovereignty
Carolina Moehlecke
International Studies Quarterly, forthcoming
Abstract:
Despite suggestions that international investment disputes impose a chilling effect on governments’ autonomy to set regulatory policies, we lack empirical confirmation of the phenomenon and what explains its heterogeneity across countries. Using a novel dataset of nine anti-smoking regulations in ninety-two countries from 1973 to 2016, I confirm the presence of the chilling effect, but also its boundaries. I show that countries have been significantly slower in implementing two anti-smoking policies formally challenged under investment law, while the adoption of seven undisputed regulations in this issue area continued unimpeded. Qualitative evidence from respondent and third-party governments confirm the policy-specificity of the chilling effect and show that both developed and developing countries were affected by the chill, albeit differently. By providing the first empirical confirmation of a regulatory chill and by defining its limited scope in one of the most high-profiled international investment disputes to date, my findings indicate that, even though multinational corporations can constrain state sovereignty, their effects are not necessarily expansive or indefinite.