Global Footprint
The Global Financial Resource Curse
Gianluca Benigno, Luca Fornaro & Martin Wolf
American Economic Review, forthcoming
Abstract:
We provide a model connecting the global saving glut to productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods, inducing a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth.
Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector
Aaron Flaaen & Justin Pierce
Review of Economics and Statistics, forthcoming
Abstract:
This paper estimates the relationship between the U.S. tariff increases of 2018-2019 and outcomes in domestic manufacturing. Despite being intended to boost manufacturing activity, we find U.S. industries more exposed to tariff increases experience relative reductions in employment, as a small positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs. Higher tariffs are also associated with relative increases in producer prices due to rising input costs. Lastly, we document broader labor market impacts, as counties more exposed to rising tariffs exhibit relative increases in unemployment and declines in labor force participation.
Is US trade policy reshaping global supply chains?
Caroline Freund et al.
Journal of International Economics, November 2024
Abstract:
This paper examines the reshaping of supply chains using detailed US 10-digit import data between 2017 and 2022. The results show that while US-China decoupling in bilateral trade is real, supply chains remain intertwined with China. Over the period, China's share of US imports fell from 22% to 16% as a result of US tariffs. US imports from China are being replaced with imports from large, developing countries with revealed comparative advantage in a product. In strategic industries, countries replacing China tend to be deeply integrated in China's supply chains and are experiencing faster import growth from China. Put differently, to displace China on the export side, countries must embrace China's supply chains. There is no consistent evidence of reshoring but evidence of nearshoring to border nations. Despite the significant reshaping, China remained the top supplier of directly imported goods to the US in 2022.
The China Shock Revisited: Job Reallocation and Industry Switching in U.S. Labor Markets
Nicholas Bloom et al.
NBER Working Paper, November 2024
Abstract:
Using confidential administrative data from the U.S. Census Bureau, we revisit how the rise in Chinese import penetration has reshaped U.S. local labor markets. Local labor markets more exposed to the China shock experienced larger reallocation from manufacturing to services jobs. Most of this reallocation occurred within firms that simultaneously contracted manufacturing operations while expanding employment in services. Notably, about 40% of the manufacturing job loss effect is due to continuing establishments switching their primary activity from manufacturing to trade-related services such as research, management, and wholesale. The effects of Chinese import penetration vary by local labor market characteristics. In areas with high human capital, including much of the West Coast and large cities, job reallocation from manufacturing to services has been substantial. In areas with low human capital and a high initial manufacturing share, including much of the Midwest and the South, we find limited job reallocation. We estimate this differential response to the China shock accounts for half of the 1997-2007 job growth gap between these regions.
Domestic Political Unrest and Chinese Overseas Foreign Direct Investment
Glen Biglaiser, Kelan (Lilly) Lu & Hoon Lee
Studies in Comparative International Development, September 2024, Pages 582-609
Abstract:
Previous research shows that domestic unrest, and especially violent conflict, raises political risk and discourages foreign direct investment (FDI). However, prior work primarily has studied private Western multinational corporations, not authoritarian China, the second largest overseas investor, which has both state-owned enterprises (SOEs) and privately-owned enterprises (POEs). This paper investigates the effects of domestic conflict on overseas Chinese FDI. We first compare Chinese SOE and POE investments in host states facing political unrest. Next, we disaggregate political unrest, examining the effect of violent and non-violent campaigns on Chinese SOEs and POEs. We then disaggregate the sector of FDI inflows. Contrary to prior conflict studies, we find host states under political unrest, and specifically violent campaigns, attract Chinese SOEs no matter the economic sector, whereas POEs are more risk averse. Our findings show that Chinese SOEs favor higher risk investments, suggesting the need for theoretical nuance in the domestic conflict and FDI literature.
Biased bureaucrats and the policies of international organizations
Valentin Lang, Lukas Wellner & Alexandros Kentikelenis
American Journal of Political Science, forthcoming
Abstract:
This article advances a novel argument about the policy output of international organizations (IOs) by highlighting the role of individual staffers. We approach them as purposive actors carrying heterogeneous ideological biases that materially shape their policy choices on the job. Pursuing this argument with an empirical focus on the International Monetary Fund (IMF), we collected individual-level information on the careers of 835 IMF "mission chiefs" -- staffers with primary responsibility for a particular member state -- and matched them to newly coded data on more than 15,000 IMF-mandated policy conditions over the 1980-2016 period. Leveraging the appointment of the same mission chief to different countries throughout their career, we find that individual staffers influence the number, scope, and content of IMF conditions according to their personal ideological biases. These results contribute to our understanding of the microfoundations behind IO output and have implications for the accountability and legitimacy of IOs.
Foreign Corrupt Practices Act (FCPA) and market quality in emerging economies
Krishnendu Ghosh Dastidar & Makoto Yano
Managerial and Decision Economics, forthcoming
Abstract:
In many emerging economies with antiquated laws, bribes paid to government officials reduce economic impediments and serve as a device to improve market competition, thereby contributing to the modernization of an economy. In this context, this paper uses a simple two-stage game theoretic model to investigate the effects of the US Foreign Corrupt Practices Act (FCPA) on such economies. We demonstrate, among others, that while an increase in fines under FCPA reduces overall corruption, it leads to a deterioration in the market quality in an emerging economy. In the presence of FCPA, an increase in the US firm's technological advantage unambiguously leads to a decrease in the market quality in an emerging economy.
Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age
Alexander Klein & Christopher Meissner
NBER Working Paper, November 2024
Abstract:
We study the relationship between tariffs and labor productivity in US manufacturing between 1870 and 1909. Using highly dis-aggregated tariff data, state-industry data for the manufacturing sector, and an instrumental variable strategy, results show that tariffs reduced labor productivity. Tariffs also generally reduced the average size of establishments within an industry but raised output prices, value-added, gross output, employment, and the number of establishments. We also find evidence of heterogeneity in the association between tariffs and value added, gross output, employment, and establishments across groups of industries. We conclude that tariffs may have reduced labor productivity in manufacturing by weakening import competition and by inducing entry of smaller, less productive domestic firms. Our research also reveals that lobbying by powerful and productive industries may have been at play. The era's high tariffs are unlikely to have helped the US become a globally competitive manufacturer.
Blood Avocados? Trade Liberalization and Cartel Violence in Mexico
Megan Erickson & Lucas Owen
Comparative Political Studies, forthcoming
Abstract:
Several prominent studies predict that expanding markets in areas of low state capacity may decrease organized crime due to the opportunity cost mechanism, holding that booms in licit markets shift labor away from illicit markets. We posit an additional mechanism to explain the decrease in criminal violence -- an influx in capital allows market actors to invest in self-defense forces to combat criminal incursions. We test this logic using the case of the Mexican avocado industry with a staggered difference-in-differences design and find that trade liberalization throughout the 2010s had a significant negative effect on cartel-related homicides compared to other violence-prone areas. Robust qualitative evidence highlighting the emergence of self-defense groups to deter criminal actors in the avocado industry supports the vigilante mechanism. This article thus contributes to the literature on the consequences of trade liberalization on organized crime by using a unique empirical case to test a novel mechanism.