Fairly Free Trade
Men, Women, and Machines: How Trade Impacts Gender Inequality
Chinhui Juhn, Gergely Ujhelyi & Carolina Villegas-Sanchez
NBER Working Paper, May 2012
Abstract:
This paper studies the effect of trade liberalization on an under-explored aspect of wage inequality - gender inequality. We consider a model where firms differ in their productivity and workers are differentiated by skill as well as gender. A reduction in tariffs induces more productive firms to modernize their technology and enter the export market. New technologies involve computerized production processes and lower the need for physically demanding skills. As a result, the relative wage and employment of women improves in blue-collar tasks, but not in white-collar tasks. We test our model using a panel of establishment level data from Mexico exploiting tariff reductions associated with the North American Free Trade Agreement (NAFTA). Consistent with our theory we find that tariff reductions caused new firms to enter the export market, update their technology and replace male blue-collar workers with female blue-collar workers.
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Sales Taxes and Internet Commerce
Liran Einav et al.
NBER Working Paper, April 2012
Abstract:
We estimate the sensitivity of Internet retail purchasing to sales taxes using data from the eBay marketplace. Our first approach exploits the fact that seller locations are revealed only after buyers have expressed interest in an item by clicking on its listing. We use millions of location "surprises" to estimate price elasticities with respect to the effective sales tax. We then use aggregated data to estimate cross-state substitution parameters, and substitution between offline and online purchases, relying on the variation in state and local sales taxes, and on changes in these rates over time. We find substantial sensitivity to sales taxes. Using our item-level approach, we find a price elasticity of around -2 for interested buyers. Using our aggregate approach, we find that a one percentage point increase in a state's sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.
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Protectionism Isn't Counter‐Cyclic (anymore)
Andrew Rose
NBER Working Paper, May 2012
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 Second World War, it is now inaccurate. In the post-war era, protectionism has not actually moved counter-cyclically. Tariffs and non-tariff barriers simply do not rise systematically during cyclic downturns. I document this new stylized fact with a panel of data covering over 60 countries and 30 years, using eighteen measures of protectionism and seven of business cycles. I also provide some hints as to why protectionism is no longer counter-cyclic.
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Trade, variety, and immigration
Bo Chen & David Jacks
Economics Letters, October 2012, Pages 243-246
Abstract:
What are the gains from international trade? And how do immigrants influence this process? We consider the case of Canada, document its experience with import variety growth in the period from 1988 to 2007, and relate this variety growth to the process of immigration. We find that import varieties grew 76%, that this growth is associated with a welfare gain to Canadian consumers as large as 28%, and that enhanced immigration flows may be responsible for 25% of this variety growth and its attendant welfare gains for native-born Canadians.
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The Impact of Tax Regimes on International Trade Patterns
Michael Nicholson
Contemporary Economic Policy, forthcoming
Abstract:
This paper discusses the trade implications of value-added taxes (VATs) that refund domestic taxes paid by exporters of domestic production while imposing taxes on imports of foreign production. VATs are used by over 140 countries of the world, including every member of the Organisation for Economic Co-operation and Development except the United States. An investigation of the implications of border-adjustable taxes on the U.S. trade balance suggests that VATs positively affect trade competitiveness but with differing impacts by sector. These results do not necessarily extend to the conclusion that a U.S. VAT would increase U.S. exports; such a prediction requires economic forecasting and appropriate simulations. The present results do imply that the adoption of VATs by other countries appears to have benefited U.S. trade. Panel data over 20 years, 29 industries, and 145 countries is used to conduct the analysis.
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International emissions trading: Good or bad?
Bjart Holtsmark & Dag Einar Sommervoll
Economics Letters, forthcoming
Abstract:
Using a non-cooperative climate policy game applied in the literature, we find that an agreement with international emissions trading leads to increased emissions and reduced efficiency.
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Inshoring: The geographic fragmentation of production and inequality
Wen-Chi Liao
Journal of Urban Economics, July 2012, Pages 1-16
Abstract:
The advent of information technology facilitates the geographic separation of production tasks, which is referred to as offshoring in international contexts and inshoring in domestic contexts. Although the literature on offshoring has flourished, the research regarding inshoring is limited. This paper examines inshoring on both empirical and theoretical fronts. Empirically, it shows that business support services have been increasingly sent to small localities for cost savings while being separated from their downstream industries, which have been consistently concentrated in large cities. Guided by empirical findings, a system of cities model is formulated to analyze inshoring and its welfare impact. The analysis shows that support workers are made better off, primarily because inshoring allows support workers to benefit from higher urban productivity without bearing urban costs.
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Do Political Parties Foster Business Cycles? - An Examination of Developed Economies
Koyin Chang et al.
Journal of Comparative Economics, forthcoming
Abstract:
This paper explores different possible factors that have impacted business cycle synchronization across industrialized countries in the past quarter century. We employ a comprehensive model that includes as the main determinants of output co-movements not only trade and financial integration, but also similarities of economic policies and political preferences across countries. Focusing on fourteen developed countries from 1980 to 2010, our main finding is that economic policies and the political environment have strong influences on business cycles in each country and their correlations across countries. In particular, we find that having differing political parties between two countries lowers business cycles correlations, but only when we allow for partisan effects to dissipate several quarters after political elections. Our results hold while also controlling for economic determinants of business cycle correlations, including trade, finance, geography and measures of policy convergence. Our findings therefore demonstrate a more comprehensive link between these factors and business cycle synchronization than prior studies.
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Ricardo's Theory of Comparative Advantage: Old Idea, New Evidence
Arnaud Costinot & Dave Donaldson
NBER Working Paper, April 2012
Abstract:
When asked to name one proposition in the social sciences that is both true and non-trivial, Paul Samuelson famously replied: 'Ricardo's theory of comparative advantage'. Truth, however, in Samuelson's reply refers to the fact that Ricardo's theory of comparative advantage is mathematically correct, not that it is empirically valid. The goal of this paper is to assess the empirical performance of Ricardo's ideas. We use novel agricultural data that describe the productivity in 17 crops of 1.6 million parcels of land in 55 countries around the world. Crucially, this dataset contains information about the productivity of each parcel of land in all crops, not just those that are currently being grown. This direct information about relative productivity differences across economic activities allows us to compute, for the first time, the output predicted by Ricardo's theory of comparative advantage. Despite all of the real-world considerations from which this theory abstracts, we find that Ricardo's theory of comparative advantage has significant explanatory power in the data, at least within the scope of our analysis.
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Does social capital increase public support for economic globalisation?
Gabriele Spilker, Lena Maria Schaffer & Thomas Bernauer
European Journal of Political Research, forthcoming
Abstract:
The dominant explanation of public attitudes vis-à-vis economic globalisation focuses on re-distributional implications, with an emphasis on factor endowments and government-sponsored safety nets (the compensation hypothesis). The empirical implication of these theoretical arguments is that in advanced economies, on which this article focuses, individuals endowed with less human and financial capital will be more likely to experience income losses. Hence they will oppose economic openness unless they are compensated by the government. It is argued here that including social capital in the analysis can fill two gaps in explanations relying on factor endowments and the compensation hypothesis. First, generalised trust - one key aspect of social capital - constitutes a personal endowment alongside human and financial capital. Second, structural social capital - another key aspect of social capital - can be regarded as a nongovernmental social safety net that can compensate for endowment-related disadvantages of individuals. Both aspects of social capital are expected to contribute, for distinct reasons, to more positive views on economic openness. The empirical testing relies on survey data for two countries: Switzerland and the United States. For both countries, the results indicate that generalised trust has a strong, positive effect on public opinion of economic globalisation, whereas structural social capital has no effect.
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Todd Allee & Jamie Scalera
International Organization, April 2012, Pages 243-276
Abstract:
Governments have joined the World Trade Organization (WTO) in vastly different ways: some have taken mere days to join without undertaking any trade liberalization, while others have taken more than a decade and been forced to undergo significant liberalization. We argue that the more rigorous a state's accession to an international organization (IO), and thus the greater policy change required to join, the greater the benefits it will receive from membership in the organization. In the trade context, states facing greater scrutiny from the WTO and thus engaging in greater trade liberalization as part of the WTO accession process should experience greater trade on joining compared to those who face little scrutiny and engage in little if any liberalization. We develop a three-part classification of WTO members based on type of accession-early, automatic, and rigorous-and then compile detailed original data on the accession experiences of each relevant state, including length of time, number of veto players, rounds of questions, and tariff and nontariff commitments. Results of exhaustive quantitative tests on all countries from 1950 to 2006, which are robust to estimator, sample period, and model specification choices, consistently demonstrate that those who engage in the greatest amount of accession-driven liberalization experience the greatest trade increases from WTO membership, particularly in the years right after joining. In contrast, those who do little or nothing to join do not see any trade gains from being a WTO member. These findings reconcile previous findings on the effects of WTO membership on trade, highlight the causal importance of IO accession, and illuminate the conditions under which IOs will have beneficial effects for member states.
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Accession Rules for International Institutions: A Legitimacy-Efficacy Trade-off?
Christina Schneider & Johannes Urpelainen
Journal of Conflict Resolution, April 2012, Pages 290-312
Abstract:
Powerful states often accept unanimity voting on accession to international institutions, even though this enables weak states to blackmail powerful states into providing costly side payments. Whereas the literature attributes this choice mainly to efforts to bolster the legitimacy of international institutions, the authors demonstrate that the choice of unanimity also has a strategic component. The authors formally show that unanimous accession rules can profit powerful states by creating uncertainty as to the minimal level of reform that enables accession. If accession is valuable enough and the membership candidate is uncertain about the resolve of weak states, it plays safe by implementing ambitious reforms that improve the efficacy of the international institution. In this case, a legitimacy-efficacy trade-off does not exist: the unanimity rule enhances legitimacy while allowing powerful states to induce significant reforms by applicants to the benefit of current members.
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China and the TPP: A Numerical Simulation Assessment of the Effects Involved
Chunding Li & John Whalley
NBER Working Paper, May 2012
Abstract:
The Trans-Pacific Partnership (TPP) is a new negotiation on cross border liberalization of goods and service flows going beyond WTO disciplines and focused on issues such as regulation and border controls. Though the US, Australia and other pacific countries are included, China is notable for its exclusion from the process thus far. This paper uses numerical simulation methods to assess the potential effects of a TPP agreement on China and the other participating countries. We use a numerical five-country global general equilibrium model with trade costs and monetary structure incorporating inside money to allow for impacts on trade imbalances. Trade costs are calculated using a method based on gravity equations. Simulation results reveal that China will be hurt by TPP initiatives, but the negative effects are relatively small given the geographical and commodity composition of China's trade. Other non-TPP countries will be hurt but member countries will all gain. Japan's joining TPP would be beneficial to both herself and all other TPP countries, but negative effects on China and other non-TPP countries will increase further. If China takes part in TPP, it will increase China's and other TPP countries' gain, but non-TPP countries will be hurt more. As a regional free trade arrangement, TPP effects are different from global free trade effects which will benefit all countries (not just member countries) in the world, and the positive effects of global free trade are stronger than TPP effects.
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Employment by Foreign Firms in the U.S.: Do State Incentives Matter?
Cynthia Rogers & Chen Wu
Regional Science and Urban Economics, forthcoming
Abstract:
This study investigates the relationship between state-level attributes and employment of workers in the US by foreign owned firms (FDI-related employment, hereafter). In particular, we investigate the role of state-level business incentives in influencing the employment outcomes of foreign-owned manufacturing firms operating in the US. Using data from 50 states between 1999 and 2008, we employ a two-way fixed effects panel data framework and a dynamic system GMM approach to account for the dynamic features of employment outcomes. We also correct for potential measurement errors and potential endogeneity of policy variables. Our results suggest that state business incentives such as providing more foreign-trade zones (both general-purpose and subzones), the provision of better public services and establishing overseas offices in particular countries, have statistically significant effects on employment by foreign-owned firms in the US. The implications have direct bearing regarding the strategic use of investment-promotion policies in terms of employment effects.
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To what extent are EU steel companies susceptible to competitive loss due to climate policy?
Chukwumerije Okereke & Devin McDaniels
Energy Policy, July 2012, Pages 203-215
Abstract:
In recognition of their competitive vulnerability, a set of special rules have been devised for managing sectors such as iron and steel within the EU ETS. Under these rules, the EU steel sector has received free allocations in excess of their compliance needs to now, and will continue to receive some free allowances up to 2020. However, perceptions of the sector's competitive vulnerability have been largely based on inherently hypothetical analyses which rely heavily on counterfactual scenarios and abatement cost estimates often provided by firms themselves. This paper explores how the three largest steel firms in the EU (AcerlorMittal, Corus, and ThyssenKrupp) have sought to strategically exaggerate their vulnerability to carbon pricing to the effect of an inefficient policy outcome. We conduct a qualitative assessment of two of the key narratives underpinning the competitive vulnerability argument of EU steel companies - lack of abatement opportunities and inability to pass through cost increases - based on interviews, case studies, and publicly available data. We find that these arguments provide only partial and weak justifications for competitive loss and preferential treatment under the EU ETS. The strategy however remains successful due to information asymmetry and the peculiar political economy of EU climate regulation.
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Offshoring and job loss fears: An econometric analysis of individual perceptions
Ingo Geishecker, Maximilian Riedl & Paul Frijters
Labour Economics, forthcoming
Abstract:
We quantify the impact of offshoring and other globalisation measures on individual perceptions of job security. For the analysis we combine industry-level offshoring measures with micro-level data from a large German household panel survey and estimate ordinal fixed effects models. Our results indicate that offshoring to low-wage countries significantly raises job loss fears whilst offshoring to high-wage countries somewhat lowers them. Over our sample period from 1995 to 2006, offshoring to low and high-wage countries together can account for about 13 percent of the total increase in job loss fears. High-skilled workers are more sensitive to offshoring althoughtheir objective job loss risk is lower relative to low-skilled workers, which we argue reflects the fact that they have more to lose from unemployment.
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Even Small Trade Costs Restore Efficiency in Tax Competition
Johannes Becker & Marco Runkel
Journal of Urban Economics, September-November 2012, Pages 191-195
Abstract:
We introduce transport cost of trade in products into the classical Zodrow and Mieszkowski (1986) model of capital tax competition. It turns out that even small levels of transport cost lead to a complete breakdown of the seminal result, the underprovision of public goods. Instead, there is a symmetric equilibrium with efficient public goods provision in all jurisdictions.
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Ralph Ossa
NBER Working Paper, May 2012
Abstract:
I show that accounting for cross-industry variation in trade elasticities greatly magnifies the estimated gains from trade. The main idea is as simple as it is general: While imports in the average industry do not matter too much, imports in some industries are critical to the functioning of the economy, so that a complete shutdown of international trade is very costly overall.
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Enabling global principle-based regulation: The case of risk analysis in the Codex Alimentarius
David Demortain
Regulation & Governance, June 2012, Pages 207-224
Abstract:
This paper deals with the creation of global principle-based standards. For such standards to be accepted and effective, particular conditions must be fulfilled. One such condition, little explored, is that standard-makers and -takers share knowledge about the meaning of the principles, as well as the practices through which they are likely to be applied. The paper shows that this condition is fulfilled when transnational cultural systems exist, by means of which both types of actors engage in the explication and representation of their practices so that a common, standard understanding emerges of how principles may be interpreted on the ground and informs the negotiations. A transnational cultural system is a crucial governance infrastructure to set global standards, as shown by the long history of creating a risk analysis guideline by the Codex Alimentarius, the inter-governmental body for food standards.
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Trade Liberalization and Investment: Firm-level Evidence from Mexico
Ivan Kandilov & Aslı Leblebicioğlu
World Bank Economic Review, Summer 2012, Pages 320-349
Abstract:
Plant-level panel data from Mexico's Annual Industrial Survey is employed to evaluate the impact of reductions in tariffs and import license coverage on final goods, as well as intermediates, on firms'investment decisions. Using data from 1984 to 1990, a period during which a large scale trade liberalization occurred, a dynamic investment equation is estimated using the system-GMM estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998). Consistent with theory, the empirical analyses show that a reduction in import protection on final goods leads to lower plant-level investment, whereas reductions in tariffs and import license coverage on intermediate inputs result in higher investment. Also, firms with larger import costs experience a larger increase in investment following a reduction in import protection. On the other hand, higher markup firms lower investment more aggressively following reductions in tariffs and import license coverage on final goods.
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Mihir Desai, Fritz Foley & James Hines
NBER Working Paper, May 2012
Abstract:
This paper analyzes the extent to which firms use trade credit to reallocate capital in response to tax incentives. Tax-induced differences in pretax returns encourage the use of trade credit to reallocate capital from firms facing low tax rates to those facing high tax rates. Evidence from the worldwide operations of U.S. multinational firms indicates that affiliates in low-tax jurisdictions use trade credit to lend, whereas those in high-tax jurisdictions use trade credit to borrow: ten percent lower local tax rates are associated with net trade credit positions that are 1.4 percent higher as a fraction of sales. The use of trade credit to get capital out of low-tax, low-return environments is also illustrated by reactions of U.S. firms to the temporary repatriation tax holiday in 2005, when affiliates with positive net trade credit positions were significantly more likely than others to repatriate dividends to parent companies in the United States.