Goods Without Borders
Fighting Communism Supporting Collusion
Sebastian Galiani, Jose Manuel Paz y Miño & Gustavo Torrens
NBER Working Paper, June 2022
We develop a simple model to explain why a powerful importer country like the United States may provide political support for international collusive agreements concerning certain commodities (e.g., coffee). This behavior raises questions due to the fact that an importer country should have strong economic incentives to avoid the cartelization of its suppliers. We show that an importer country sometimes helps producer countries organize and enforce collusion to advance important geopolitical goals, e.g., by reducing the chances that the producer countries will align with a rival global power (e.g., the Soviet Union). Moreover, using this practice, a powerful importer country can immediately share the cost of collusion with other importers (including allies). Thus, a powerful importer country may see collusion as a superior strategy to foreign aid (a priori a more direct and efficient instrument), which is riddled with free riding problems. The model sheds light on why the United States supported (or failed to support) international commodity agreements for coffee, sugar, and oil during and immediately after the Cold War period.
Pandemic Protectionism: COVID-19 and the Rise of Public Opposition to Trade
Edward Mansfield & Omer Solodoch
University of Pennsylvania Working Paper, June 2022
How did the COVID-19 pandemic affect public attitudes toward international trade? While the economic shock and perceived foreign threat associated with the pandemic might have increased protectionist sentiments, the rapidly evolving sense of isolation, rising prices, and shortages of various products might have led consumers to place added value on trade. Based on cross-sectional and panel data, we find a substantial increase in Americans' opposition to trade immediately following the outbreak of the pandemic. This heightened opposition was both long-lasting and pervasive, cutting across demographic, economic, and partisan lines. While our analysis reveals that the protectionist shift was not limited to any narrow segment of society, we also find that it was most pronounced among individuals who contracted the coronavirus and those who experienced adverse economic shocks stemming from COVID-19, as well as Republicans, women, and people with stronger ethnocentric predispositions.
Some benefit, some are left behind: NAFTA and educational attainment in the United States
Leopoldo Gómez-Ramírez & María Padilla-Romo
Economic Inquiry, forthcoming
This paper examines the persistent effects of eliminating tariffs on Mexican imports, following the implementation of the North American Free Trade Agreement (NAFTA), on Americans' human capital investment. We leverage quasi-experimental changes in tariffs on Mexican imports across birth cohorts and within states. We show that NAFTA increases the probability of ever attending college and earning a degree. These results, however, mask important heterogeneous effects within the sample. We find white Americans drive these positive effects. In contrast, the educational attainment of racial and ethnic minorities, especially men, shrank under NAFTA, decreasing their probability of graduating from high school.
The impact of protectionism on cultural industries: The effect of China’s film policies on imported films
Jimmyn Parc, Patrick Messerlin & Kyuchan Kim
Journal of Media Economics, June 2022, Pages 117-133
Hollywood studios have actively sought to export more films to China in order to benefit from its huge film market. Facing this expansion, the Chinese government has introduced quotas in order to restrict the market access of foreign films while protecting its domestic film industry and preserving Chinese values. Nonetheless, this protectionism has brought about an unexpected effect; a limited number of Hollywood films in China have been able to attract large audiences and even exert a strong influence upon society. This paper examines how this paradox has been possible. First, it compares the level of China’s overall protectionism with other countries. Second, China’s two main policy instruments in the domestic market are scrutinized: import quota (buy-out and revenue-sharing models) and screen quota. In revealing their true effects, this paper demonstrates that these instruments of protection have produced unexpected negative business practices that foster rather favorable conditions for US films in China which is contrary to what the Chinese government is seeking to achieve.
Jamie Bologna Pavlik & Desiree Desierto
Texas Tech University Working Paper, March 2022
The Foreign Corrupt Practices Act (FCPA) prohibits US firms from paying bribes to foreign public officials. We show that FCPA enforcement has no positive effect on the GDP per capita of the countries of these officials but, rather, increases their countries shadow economy. When public officials take bribes both from legal and illegal markets, corruption enforcement in legal markets induces them to make up for lost rents by taking more bribes from illegal markets. In equilibrium, they enforce less against illegal producers, thereby increasing the size of illegal markets. We find that one case of FCPA enforcement alone increases the shadow economy by as much as 0.25 percentage points (pp), homicide rates by 0.02 pp, and trade misinvoicing by 0.5 pp.
From Generals to Diplomats: Post-Second World War Demilitarization as an Alternative Explanation of Accelerated Globalization
University of Oklahoma Working Paper, March 2022
Beyond major advances in information technology, were there alternative factors shaping late-20th century globalization? Motivated by recent studies documenting the relation between demilitarization and expanded international trade, I assemble a panel dataset from the last 140 years of bilateral international trade flows, formal military alliances, and military capacity in a large set of countries. I uncover three stylized facts: (1) entry into formal defense agreements corresponds with reduced military capacity, (2) dyadic country pairs trade more when they are engaged in a formal military alliance, and (3) gains in trade from formal alliances are larger when country pairs reduce military capacity (i.e., demilitarization). These patterns hold when I exploit external military threats as an alternative source of variation.
US Sanctions and Foreign Lobbying of the US Government
Dursun Peksen & Timothy Peterson
Political Research Quarterly, forthcoming
Previous research has explored how US sanctions affect subsequent behavior by sanctioned states as well as third parties, with particular attention to whether states change the policies that led to US sanctions. In this paper, we argue that US sanctions also affect lobbying of the US government. States experiencing US sanctions over security and political issues will lobby the US government less than other states because this scenario suggests that lobbying is unlikely to influence US policies. States experiencing sanctions over economic issues, on the other hand, will lobby the US more as these targets would see a negotiated settlement as more feasible. We also maintain that third-party states that are similar to US sanction targets will lobby the US government more than dissimilar third parties, as lobbying in this scenario could be aimed at preempting future episodes of US sanctions — regardless of the issue that led to sanctions. We find support for our expectations in auto-regressive models spanning 1975-2005. Our findings suggest that sanctions in some cases lead states to find means other than policy concessions by which to satisfy US policy-makers.
Economic Integration and the Transmission of Democracy
Giacomo Magistretti & Marco Tabellini
NBER Working Paper, May 2022
In this paper, we study if exposure to the institutions of trade partners changes individuals' attitudes towards democracy and favors the process of democratization. We combine survey data with country-level measures of democracy from 1960 to 2015, and exploit the improvement in air, relative to sea, transportation to derive a time-varying instrument for trade. Relying on within-country variation across cohorts, we find that individuals who grew up when their country was more integrated with democracies are, at the time of the survey, more supportive of democracy. In line with the change in citizens' preferences, economic integration with democratic partners has a large, positive effect on a country's democracy score. Instead, economic integration with non-democratic partners has no impact on either individuals' attitudes or countries' institutions. We provide evidence consistent with the transmission of democratic capital from more to less democratic countries.
IMF conditionality, export structure and economic complexity: The ineffectiveness of structural adjustment programs
Journal of Comparative Economics, forthcoming
The conditionality requirements of the International Monetary Fund (IMF) have been a source of intense debate since the early 1980s. These conditions, which are attached to IMF lending programs, cover a variety of issues from fiscal and monetary reform to economic liberalization and institutional change. In this paper we empirically examined the effects of IMF programs and conditionality requirements on structural transformation through changes in the technology-and-skill intensity and overall economic complexity of exports. Our empirical methodology accounted for policy and conditionality heterogeneity across country and time and accounts for the endogeneity of IMF programs and conditions. The empirical results suggest that IMF programs and conditionality requirements along a spectrum of policy areas had no robust or significant effect on export structure, economic complexity or export diversification. Overall, we found no evidence of any positive effects of IMF programs or IMF conditionality requirements on the technology-and-skill intensity of exports.
Bargain Down or Shop Around? Outside Options and IMF Conditionality
Journal of Politics, forthcoming
When do overlapping international organizations (IOs) become credible outside options for states seeking forum shopping opportunities? Utilizing an original data set on cooperation among emergency lending IOs, I find that exit options boost states’ bargaining leverage only when IOs compete as opposed to cooperate with one another. While the literature frames the International Monetary Fund (IMF) as a monopoly organization, I show that it increasingly competes with regional financing arrangements (RFAs). When RFAs compete with the IMF, they become credible exit options that member states can leverage in negotiations over conditional lending at the Fund. I first offer original descriptive analysis of patterns of cooperation among these IOs. I then hypothesize that members of IOs that compete with the IMF, but not members of cooperative institutions, ought to receive less intrusive conditionality from the Fund. A series of regressions lend support for my theory, as do supplemental interviews and text analysis.
Political ties and raising capital in global markets: Evidence from Yankee bonds
Gene Ambrocio, Xian Gu & Iftekhar Hasan
Journal of Corporate Finance, June 2022
This paper examines whether state-to-state political ties help firms obtain better terms when raising funds in global capital markets. Focusing on the Yankee bonds market, we find that issuances by firms from countries with close political ties with the US feature lower yield spreads, higher issuance amounts, and longer maturities. Such an association is more pronounced for firms located in low income and highly indebted countries as well as firms in government-related industries, first-time issuers, and relatively smaller firms. Our study provides evidence supporting the notion that country-level political relationship is an important factor when raising capital in international markets.