Protection racket
America and Trade Liberalization: The Limits of Institutional Reform
Judith Goldstein & Robert Gulotty
International Organization, May 2014, Pages 263-295
Abstract:
Among scholars, delegation of power to the US president in 1934 is widely believed to have been a necessary requisite for tariff reductions in ensuing years. According to conventional wisdom, delegation to the president sheltered Congress from constituent pressure thereby facilitating the opening of the US economy and the emergence of the United States as a world power. This article suggests a revision to our understanding of just how that occurred. Through a close study of the US tariff schedule between 1928 and 1964, focusing on highly protected products, we examine which products were subject to liberalization and at what time. After 1934, delegation led to a change in trade policy, not because Congress gave up their constitutional prerogative in this domain but because presidents were able to target the potential economic dislocation that derives from import competition to avoid the creation of a congressional majority willing to halt the trade agreements program.
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David Greenstein
Comparative Studies in Society and History, April 2014, Pages 259-289
Abstract:
The expansion of the Ford Motor Company into Soviet Russia has been understood as part of a unidirectional spread of American economic power and cultural forms abroad following the First World War. This essay looks beyond the automobiles and manufacturing methods sent from Ford facilities in Detroit to the emerging Soviet automobile industry to examine multidirectional migrations of workers between Russia and the United States that underlay but sometimes collided with Ford's system. Workers, managers, engineers, and cultural, technical, and disciplinary knowledge moved back and forth between factories in Soviet Russia and the United States. Efforts to define, track, and shape workers in both countries as Americans, Russians, or Bolsheviks were integral to the construction of the products and methods that Ford sold. But many workers fell in between and contested these classifications and they often defied company attempts to create an efficient and homogeneous American workforce. In Russia, too, more than Soviet and American automobiles were produced: people and ideas were created that crossed and blurred boundaries between “American” and “Soviet.” There, “Fordizm” became a popular watchword among Soviet commentators and workers as a near-synonym for industrialization, mass production, and efficiency. Many saw it as a potentially valuable component of a new socialist world. These multidirectional movements, recorded in Ford Motor Company archives and related documents, suggest that rather than separate and alternative projects, Ford's burgeoning system to transform manufacturing and workers' lives in Detroit was linked to the Soviet revolutionary project to recreate life and work.
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An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade
James Lake & Daniel Millimet
Southern Methodist University Working Paper, March 2014
Abstract:
Even if free trade creates net welfare gains for a country as a whole, the associated distributional implications can undermine the political viability of free trade. We show that trade-related redistribution increases the political viability of free trade in the US. We do so by assessing the causal effect of expected redistribution associated with the US Trade Adjustment Assistance program on US Congressional voting behavior on eleven Free Trade Agreements (FTAs) between 2003 and 2011. We find that a one standard deviation increase in redistribution leads to more than a 3% point increase in the probability of voting in favor of an FTA for the median representative. In addition, a one standard deviation decrease in redistribution across the entire US would have precluded passage of two of the eleven FTAs in our sample.
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Brian Rathbun
Foreign Policy Analysis, forthcoming
Abstract:
What are the ideological sources of free trade attitudes? Free trade plays a crucial role in classical liberal theory as a way of increasing the prospects of peace between states. Are liberal individuals more supportive of free trade? The literature on foreign policy beliefs largely neglects the question of trade, and those exceptions that find support for the liberal hypothesis generally rely on faulty conceptualization. Using surveys of the American mass public and American elites, this article finds that the combination of views that marks classical liberalism does not in fact predict support for free trade at either the mass or the elite level. Support for free trade at the mass level has libertarian, not liberal, foundations, predicted by a combination of social and economic libertarianism. At the mass level, the combination of cosmopolitanism and dovishness that constitutes foreign policy liberalism has no effect on trade attitudes. At the elite level, cosmopolitanism is actually generally negatively associated with support for free trade. Free trade is a wedge issue that creates strange alliances at the elite level between cosmopolitans and isolationists generally hostile to one another on foreign policy and at the mass level between social and economic libertarians typically antagonistic to each other's domestic agenda.
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Strategic Sourcing and Wage Bargaining
Nicholas Sly & Anson Soderbery
Journal of Development Economics, forthcoming
Abstract:
We examine how multinational firms strategically source production to mitigate the consequences of wage bargaining with workers. When wage bargaining pressure differs across countries, firms allocate production of goods with high markups toward countries with relatively competitive labor markets, limiting the rents available to workers with strong bargaining power. We use product-level data from the universe of automotive production facilities in North America at a monthly frequency between 1988 and 2009 to structurally estimate variable price elasticities of demand for different vehicles. From the theory we derive an empirical strategy that allows us to distinguish the impact of wage bargaining pressure from other sourcing motives. We find robust evidence that multinational firms strategically source their products across countries in response to differences in wage bargaining pressure.
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Slicing Up Global Value Chains
Marcel Timmer et al.
Journal of Economic Perspectives, Spring 2014, Pages 99-118
Abstract:
In this paper, we "slice up the global value chain" using a decomposition technique that has recently become feasible due to the development of the World Input-Output Database. We trace the value added by all labor and capital that is directly and indirectly needed for the production of final manufacturing goods. The production systems of these goods are highly prone to international fragmentation as many stages can be undertaken in any country with little variation in quality. We seek to establish a series of facts concerning the global fragmentation of production that can serve as a starting point for future analysis. We describe four major trends. First, international fragmentation, as measured by the foreign value-added content of production, has rapidly increased since the early 1990s. Second, in most global value chains there is a strong shift towards value being added by capital and high-skilled labor, and away from less-skilled labor. Third, within global value chains, advanced nations increasingly specialize in activities carried out by high-skilled workers. Fourth, emerging economies surprisingly specialize in capital-intensive activities.
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Nathan Jensen & Mi Jeong Shin
International Interactions, forthcoming
Abstract:
Reforming agriculture trade policy is key to breaking the deadlock in multilateral trade negotiations. While existing studies have focused on institution and interest group barriers to agriculture trade reform in developed countries, most have failed to recognize the broad support for agriculture protection amongst developed countries. In this paper we examine one of the drivers of this support: the ability of politicians to frame their own agriculture policies as less generous relative to those of other countries. Drawing on existing literature on heuristics we argue that voters are malleable to politicians’ comparative framing of agriculture policies. Using an original survey experiment in the United States, we find that framing US agriculture as less generous than other countries generates an additional 12% of respondents supporting increased farm payments to US farmers. These results speak to the difficulty in reforming agriculture, and more broadly about the lack of public support for unilateral trade liberalization.
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Preferences for International Redistribution: The Divide over the Eurozone Bailouts
Michael Bechtel, Jens Hainmueller & Yotam Margalit
American Journal of Political Science, forthcoming
Abstract:
Why do voters agree to bear the costs of bailing out other countries? Despite the prominence of public opinion in the ongoing debate over the eurozone bailouts, voters' preferences on the topic are poorly understood. We conduct the first systematic analysis of this issue using observational and experimental survey data from Germany, the country shouldering the largest share of the EU's financial rescue fund. Testing a range of theoretical explanations, we find that individuals' own economic standing has limited explanatory power in accounting for their position on the bailouts. In contrast, social dispositions such as altruism and cosmopolitanism robustly correlate with support for the bailouts. The results indicate that the divide in public opinion over the bailouts does not reflect distributive lines separating domestic winners and losers. Instead, the bailout debate is better understood as a foreign policy issue that pits economic nationalist sentiments versus greater cosmopolitan affinity and other-regarding concerns.
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Outward Foreign Direct Investment, Interindustry Networks, and U.S. Trade Politics
Hak-Seon Lee
International Trade Journal, Spring 2014, Pages 140-168
Abstract:
This article investigates how outward foreign direct investment by U.S. multinational corporations influences industry lobbying for trade protection in the United States, focusing on interindustry structure of goods sales networks between upstream and downstream sectors and also on the multinationals’ input procurement patterns. If foreign affiliates of U.S. multinationals switch input sources from U.S. to host-country suppliers, U.S. suppliers should receive a negative demand shock, ceteris paribus. An empirical test finds that those U.S. upstream sectors that are highly dependent upon U.S. multinationals for goods sales tend to lobby more as the multinationals’ overseas production and sales increase.
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Tariffs, Social Status, and Gender in India
S. Anukriti & Todd Kumler
Boston College Working Paper, February 2014
Abstract:
This paper shows that trade policy can have significant intergenerational distributional effects across gender and social strata. We compare women and births in rural Indian districts more or less exposed to tariff cuts. For low socioeconomic status women, tariff cuts increase the likelihood of a female birth and these daughters are less likely to die during infancy and childhood. On the contrary, high-status women are less likely to give birth to girls and their daughters have higher mortality rates when more exposed to tariff declines. Consistent with the fertility-sex ratio trade-off in high son preference societies, fertility increases for low-status women and decreases for high-status women. An exploration of the mechanisms suggests that the labor market returns for low-status women (relative to men) and high-status men (relative to women) have increased in response to trade liberalization. Thus, altered expectations about future returns from daughters relative to sons seem to have caused families to change the sex-composition of and health investments in their children.
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Does foreign aid really attract foreign investors? New evidence from panel cointegration
Julian Donaubauer
Applied Economics Letters, forthcoming
Abstract:
This article examines whether foreign aid contributes to attracting foreign direct investment (FDI) in aid receiving countries. Using both homogeneous and heterogeneous panel cointegration techniques, I find that the effect of foreign aid on FDI is negative. This is in contrast to previous studies that usually found a positive association between aid and FDI.
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Bradford Jensen, Dennis Quinn & Stephen Weymouth
U.S. Census Bureau Working Paper, January 2014
Abstract:
We use the case of a puzzling decline in U.S. firm antidumping (AD) filings to explore how firm-level economic heterogeneity within U.S. industries influences political and regulatory responses to changes in the global economy. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment. We propose that firms making vertical, or resource-seeking, investments abroad will be less likely to file AD petitions. Hence, we argue, the increasing vertical FDI of U.S. firms (particularly in countries with undervalued currencies) makes trade disputes far less likely. We use firm level data to examine the universe of U.S. manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. Among U.S. MNCs, the number of AD filings is negatively associated with increases in the level of intrafirm trade for large firms. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of related-party imports from countries with undervalued currencies significantly decrease the numbers of AD filings. Our study highlights the centrality of global production networks in understanding political mobilization over international economic policy.
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Detection and Impact of Industrial Subsidies: The Case of World Shipbuilding
Myrto Kalouptsidi
NBER Working Paper, May 2014
Abstract:
This paper provides a model-based empirical strategy to, (i) detect the presence and magnitude of government subsidies and (ii) quantify their impact on production reallocation across countries, industry prices, costs and consumer surplus. I construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding, a classic target of industrial policy. I find strong evidence consistent with China having intervened and reducing shipyard costs by 15-20%, corresponding to 5 billion US dollars between 2006 and 2012. Standard detection methods employed in subsidy disputes yield less than a third of this magnitude. The subsidies led to substantial reallocation of ship production across the world, with Japan in particular losing significant market share. They also misaligned costs and production, while leading to minor surplus gains for shippers. Finally, I find that production subsidies had a stronger impact than capital subsidies.
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Barriers to Labor Mobility and International Trade: The Case of China
Kai Xu
China Economic Review, June 2014, Pages 107–125
Abstract:
This paper quantitatively evaluates the potential impacts of removing China’s Hukou system on the world economy. By denying migrant workers the right to health benefits and housing, China’s Household Registration (Hukou) system presents a significant distortion to the Chinese labor market that discourages the reallocation of its labor from agriculture to non-agriculture. I find that the elimination of Hukou could increase China’s real income per capita by about 4.7%. Moreover, although for most countries the impact of removing Hukou is modest (less than 1% changes in real income per capita), substantial changes in real income could take place for China’s small neighboring economies. For example, the decreases in real GDP per capita are 2.7%, 3.2%, and 4.1% for Bangladesh, Sri Lanka, and Vietnam, while Thailand stands to enjoy a 3.8% increase in its income.
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Nationalism and Economic Exchange: Evidence from Shocks to Sino-Japanese Relations
Raymond Fisman, Yasushi Hamao & Yongxiang Wang
Review of Financial Studies, forthcoming
Abstract:
We study the impact of nationalism and interstate frictions on international economic relations by analyzing market reaction to adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure suffer relative declines during each event window; a symmetric effect is observed for Chinese companies with high Japanese exposure. The effect on Japanese companies is more pronounced for those operating in industries dominated by Chinese state-owned enterprises, whereas firms with high Chinese employment experience lower declines. These results emphasize the role of countries' economic and political institutions in mediating the impact of interstate frictions on firm-level outcomes.
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Patent examination outcomes and the national treatment principle
Elizabeth Webster, Paul Jensen & Alfons Palangkaraya
RAND Journal of Economics, Summer 2014, Pages 449–469
Abstract:
One of the principles enshrined in all international patent treaties is that equal treatment should be provided to inventors regardless of their nationality. Little is known about whether this “national treatment” principle is upheld in practice. We analyze whether patent examination outcomes at the European and Japanese patent offices vary systematically by inventor nationality and technology area, using a matched sample of 47,947 patent applications. We find that domestic inventors have a higher likelihood of obtaining a patent grant than foreign inventors and that the positive domestic inventor effect is stronger in areas of technological specialization in the domestic economy.
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Economic development and the impact of the EU–US Transatlantic Open Skies Air Transport Agreement
Kenneth Button, Rui Neiva & Junyang Yuan
Applied Economics Letters, Summer 2014, Pages 767-770
Abstract:
This article examines the economic impacts on the United States east coast regions of the EU–US Open Skies Agreement that liberalized air service over the North Atlantic. It considers the link between air travel volumes before and after the Agreement and the economies of the main metropolitan areas. It finds, using a number of model specifications, that the economic impacts of air traffic increased after the enactment of the Agreement.
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Geography and intra-national home bias: U.S. domestic trade in 1949 and 2007
Nicholas Crafts & Alexander Klein
Journal of Economic Geography, forthcoming
Abstract:
This article examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years.
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The Growing Dependence of Britain on Trade during the Industrial Revolution
Gregory Clark, Kevin Hjortshøj O'Rourke & Alan Taylor
NBER Working Paper, February 2014
Abstract:
Many previous studies of the role of trade during the British Industrial Revolution have found little or no role for trade in explaining British living standards or growth rates. We construct a three-region model of the world in which Britain trades with North America and the rest of the world, and calibrate the model to data from the 1760s and 1850s. We find that while trade had only a small impact on British welfare in the 1760s, it had a very large impact in the 1850s. This contrast is robust to a large range of parameter perturbations. Biased technological change and population growth were key in explaining Britain’s growing dependence on trade during the Industrial Revolution.
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Trade Liberalization and Culture
Steven Suranovic & Robert Winthrop
Global Economy Journal, forthcoming
Abstract:
This paper addresses the effect of international trade on cultural outcomes from both economic and anthropological perspectives. Definitions of culture are informed by anthropology and then incorporated into a standard economic trade models in two distinct ways. In the “cultural affinity from work” model, workers receive a non-pecuniary cultural benefit from work in a particular industry. In the “cultural externality” model, consumers of a product receive utility from other consumer’s consumption of a domestic good. We show that resistance to change due to cultural concerns can reduce the national benefits from trade liberalization. Complete movements to free trade will have a positive national welfare impact in the cultural affinity case, whereas it may lower national welfare in the cultural externality case. We also show that a loss of cultural benefits is more likely to occur when culture is an externality.