Globalist winners and losers

Kevin Lewis

March 12, 2018

Ethnocentrism Reduces Foreign Direct Investment
Sarah Andrews, David Leblang & Sonal Pandya
Journal of Politics, forthcoming


The tension between global economic integration and ethnocentrism is a growing political force across industrialized countries. Whereas extant research emphasizes ethnocentrism’s influence on individual attitudes, we show that ethnocentrism has direct economic costs. We exploit strong public support for greenfield foreign direct investment (FDI) to isolate ethnocentrism’s costs. Our analysis of US state greenfield FDI flows during 2004–12 holds constant country-level factors that correlate with both ethnocentrism and propensity to receive FDI. A 1 standard deviation increase in state ethnocentrism, as manifest in anti-immigrant sentiment, corresponds to approximately $229 million less greenfield FDI and 180 fewer jobs per state-year on average. Findings are robust to controls for state economic conditions, transactions costs, existing FDI stock, demographics, and state partisanship. These findings clarify the economic cost of ethnocentrism-based political strategies and suggest that mass political sentiment constrains global economic integration.

From Tiananmen to Outsourcing: The Effect of Rising Import Competition on Congressional Voting Towards China
Jiakun (Jack) Zhang, Deborah Seligsohn & John Seungmin Kuk
University of California Working Paper, December 2017


Mounting import competition from China has increased unemployment in manufacturing and suppressed wages in local labor markets around the United States . This article investigates the political effects of this China trade shock, using a unique dataset of the district-level economic impact of Chinese imports to the United States. The liberalization of trade following China's accession to the World Trade Organization increased political polarization among American voters and encouraged legislators in economically hard-hit districts to take positions hostile to China. The result is that Congress is even more hostile towards China today than in the aftermath of the Tiananmen Massacre. After 2003, members of Congress representing districts more adversely impacted by import competition were more likely to vote against China, controlling for ideology and partisanship. By contrast, import competition was not a significant predictor of earlier congressional opposition to granting most-favored nation status to China (suggesting that voting on these crucial pieces of legislation was driven by non-economic concerns such as human rights). Far from being the political win-win its proponents envisioned, trade has eclipsed human rights and Taiwan as the main driver of hostility to China in Congress.

What Do Trade Agreements Really Do?
Dani Rodrik
NBER Working Paper, February 2018


As trade agreements have evolved and gone beyond import tariffs and quotas into regulatory rules and harmonization, they have become more difficult to fit into received economic theory. Nevertheless, most economists continue to regard trade agreements such as the Trans Pacific Partnership (TPP) favorably. The default view seems to be that these arrangements get us closer to free trade by reducing transaction costs associated with regulatory differences or explicit protectionism. An alternative perspective is that trade agreements are the result of rent-seeking, self-interested behavior on the part of politically well-connected firms – international banks, pharmaceutical companies, multinational firms. They may result in freer, mutually beneficial trade, through exchange of market access. But they are as likely to produce purely redistributive outcomes under the guise of “freer trade.”

“Big” Treaties, Small Effects: The RTAA Agreements
Joanne Gowa & Raymond Hicks
World Politics, forthcoming


It seems obvious that agreements to cut tariffs will raise trade between their signatories. But recent studies show that some agreements widely considered to be landmarks in economic history had either a remarkably small impact on trade or none at all. Among those agreements are the Cobden-Chevalier Treaties and the long series of tariff accords concluded under the auspices of the GATT/WTO. Both sets of agreements cut import duties on many goods that applied to all trading partners entitled to most-favored-nation treatment, but neither increased aggregate trade between their members. This article examines the agreements concluded by the United States under the 1934 Reciprocal Trade Agreements Act (RTAA). The authors use an original data set that records changes in tariffs and US imports at the product-line level for each of the twenty-seven bilateral agreements. No comparable data exist either for the nineteenth-century trade network or for the postwar trade regime. The results show that the RTAA treaties failed to raise aggregate US imports from its treaty partners. They also show that these agreements did lead to a large and significant rise in US imports of specific products from specific countries. Because the same bargaining protocol that produced the RTAA agreements also governed the European treaty network and the GATT/WTO, the argument advanced in this article can also help to explain why neither treaty exerted a significant impact on aggregate trade between their signatories.

Retail Globalization and Household Welfare: Evidence from Mexico
David Atkin, Benjamin Faber & Marco Gonzalez-Navarro
Journal of Political Economy, February 2018, Pages 1-73


The arrival of global retail chains in developing countries is causing a radical transformation in the way households source their consumption. This paper draws on a rich collection of Mexican microdata to estimate the effect of foreign supermarket entry on household welfare and decomposes this effect into six channels. We find that foreign entry causes large welfare gains for the average household predominantly driven by a reduction in the cost of living — both through price reductions at domestic stores and through the direct consumer gains from foreign stores. These gains are, on average, positive for all income groups but are regressive.

Manufacturing matters…but it’s the jobs that count
Jesus Felipe, Aashish Mehta & Changyong Rhee
Cambridge Journal of Economics, forthcoming


We assemble a large database of countries’ manufacturing employment and output shares for 1970–2010. We ask whether increased global competition and labor-displacing technological change have made it more difficult for countries to industrialize in employment, and whether there are alternative routes to prosperity. We find that: (1) All of today’s rich non-oil economies enjoyed at least 18% manufacturing employment shares in the past; (2) They often did so before becoming rich; (3) Manufacturing peaks at lower employment shares today (typically below 18%), than in the past (often over 30%); (4) Compared with employment, output shares are weak predictors of prosperity, and are under less pressure; and (5) Late developers’ manufacturing employment shares peak at much lower per capita incomes than previous studies have shown. We demonstrate that final result through analysis and simulation of the dynamics implied by our regression model. Becoming rich through industrialization has therefore become much more difficult. We argue that this is in large part because of rapid growth in the manufacturing capabilities of some very populous countries.

Import Penetration and Executive Compensation
Erik Lie & Keyang Yang
University of Iowa Working Paper, January 2018


We examine the effects of Chinese import penetration on executive compensation of US firms. We find that import penetration reduces executives’ total compensation, stock grants, wealth-performance sensitivity, and opportunistic grant timing, suggesting that competition mitigates agency problems and the need for conventional alignment mechanisms. Furthermore, we find that import penetration increases option grants and option duration, thus incentivizing more innovation and risk-taking.

Do democracies have higher current account deficits?
Antonis Adam & Sofia Tsarsitalidou
Constitutional Political Economy, March 2018, Pages 40–68


In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.

Can Emerging Markets Tilt Global Product Design? Impacts of Chinese Colorism on Hollywood Castings
Manuel Hermosilla, Fernanda Gutierrez-Navratil & Juan Prieto-Rodriguez
Johns Hopkins University Working Paper, October 2017


In various cultural and behavioral respects, emerging market consumers differ significantly from their counterparts of developed markets. They may thus derive consumption utility from different aspects of product meaning and functionality. Based on this premise, we investigate whether the economic rise of emerging markets may have begun to impact the typical “one-size-fits-all” design of many international product categories. Focusing on Hollywood films, and exploiting a recent relaxation of China’s foreign film importation policy, we provide evidence suggesting that these impacts may exist and be non-negligible. In particular, we show that the Chinese society’s aesthetic preference for lighter skin can be linked to the more frequent casting of pale-skinned stars in films targeting the Chinese market. Implications for the design of international products are drawn.

US Political Shocks, Global Banks, and International Financial Markets: Evidence from the 2016 Presidential Election
Raphael Cunha & Andreas Kern
Princeton Working Paper, January 2018


What are the global financial spillovers from major political shocks in the United States? We analyze the response of international financial markets to the 2016 US presidential election. The surprise election outcome represents an exogenous shock that affords us a unique opportunity to estimate the effect of a partisan shift in the White House on third countries. Given Donald Trump’s unanticipated victory and his promises of financial deregulation, investors revised their return expectations for third countries according to countries’ exposure to the election shock. We argue that countries with dense financial ties to the US benefited from expectations of regulatory reform in Wall Street. We estimate the election effect on foreign equity markets using data on 134 single-country exchange-traded funds (ETFs) covering 48 developed and developing economies. Results show that the election had an overall negative effect on international markets, but countries with close ties to the US banking system fared better. We further test the mechanism with data on US global banks and find support for our hypothesis.

What Kinds of Trade Liberalization Agreements Do People in Developing Countries Want?
Gabriele Spilker, Thomas Bernauer & Víctor Umaña
International Interactions, forthcoming


One of the most striking developments in the global economy in the past decades is the rapid proliferation of preferential trade agreements (PTAs), with many of them concluded among or with participation of developing countries. On the presumption that current popular debates on trade policy are not so much about whether citizens want free trade but rather what kinds of trade liberalization they want, we examine individual trade policy preferences with regard to PTAs that can vary in content along several dimensions. To that end we carried out conjoint choice experiments embedded in representative surveys in three developing countries that differ strongly in income levels, political system, and trade liberalization history: Costa Rica, Nicaragua, and Vietnam. We conceptualize trade policy preferences as preferences over the scale and scope of trade liberalization, environmental and labor standards, and labor market access (migration). Two main findings emerge. First, non-economic considerations, such as sympathy/antipathy toward particular countries and environmental and labor rights concerns influence citizens’ preferences at least as much as factors based on standard economic logic. Second, preferences over particular facets (attributes) of trade liberalization, that is PTA content, are surprisingly consistent across countries, despite strong differences in macro-economic and political context.

Property Rights Regimes, Technological Innovation, and Foreign Direct Investment
Mark David Nieman & Cameron Thies
Political Science Research and Methods, forthcoming


We argue that democratic institutions influence property rights in attracting foreign direct investment (FDI) by providing: (1) a coherent logic to the property rights regime that is created in a state and (2) a legitimate way to manage conflicts that arise in dynamic economies. We expect that the marginal effect of property rights in attracting FDI has increased over time with the rate of technological dynamism. We test this using a non-nested multilevel modeling strategy with random coefficients on data from 1970 to 2009. Our results demonstrate that the effect of property rights on attracting FDI is contingent on democratic institutions and that this effect becomes more pronounced over time. This effect holds for both developing and developed countries across all regions.

The Effects of Fair Trade Certification: Evidence from Coffee Producers in Costa Rica
Raluca Dragusanu & Nathan Nunn
NBER Working Paper, January 2018


We examine the effects of Fair Trade (FT) certification of coffee on producers and households in Costa Rica. Examining the production dynamics of the universe of Costa Rican coffee mills from 1999–2014, we find that FT certification is associated with a higher sales price, greater sales, and more revenues. As expected, these effects are greater when global coffee prices are lower and the FT guaranteed minimum price is binding. Looking at households, we find evidence that FT is associated with higher incomes for all families, but especially for those working in the coffee sector. However, we also find that, within this sector, the benefits are not evenly distributed. Skilled coffee growers benefit from FT, intermediaries are hurt, and unskilled workers are unaffected. Thus, although FT creates sizable benefits (on average), it also results in a redistribution from intermediaries to farmers. Lastly, we also find evidence of positive effects of FT certification on the education of high-school-aged children, which is most likely due to the presence of scholarship programs that are funded by FT premiums.

Speed under sail during the early industrial revolution (c. 1750–1830)
Morgan Kelly & Cormac Ó Gráda
Economic History Review, forthcoming


This article measures technological progress in oceanic shipping directly by using a large database of daily log entries from British, Dutch, and Spanish ships to estimate daily sailing speed in different wind conditions from 1750 to 1850. Against the consensus among economic (but not maritime) historians that the technology of sailing ships was fairly static during this time, we find that average sailing speeds of British East India Company and Navy ships in moderate to strong winds rose considerably after the 1770s. Driving this progress was the introduction of coppering in the 1780s, but subsequent rises are probably due to a continuous evolution of sails and rigging, and improved hulls that allowed a greater area of sail to be set safely in a given wind. By contrast, the speeds of Dutch and Spanish vessels were stagnant. Using separate data on the crossing times of Atlantic mail packets, we find gradual progress from the 1750s, followed by marked improvements when American packets appeared in the 1820s.

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