Stuff From Abroad
The rise of superstar firms in the United States: The role of global sourcing
Yifan Li & Zhuang Miao
Journal of Comparative Economics, forthcoming
Abstract:
Recent trends of global sourcing, market concentration, and aggregate markup have garnered increased attention. This paper examines the impact of global sourcing of inputs on market structure and markup changes in the United States. We develop a theoretical model with heterogeneous firms that suggests only the most-productivity firms will self-select to source inputs overseas, resulting in an increase in the markups and market shares of these leading firms, while lower-productivity firms are crowded out. Based on the theoretical analysis, aggregate markup rises due to both the within-firm markup adjustments and market share concentration among leading firms. We then provide empirical evidence supporting our theoretical predictions, analyzing the effect of imported inputs on markup adjustments, market shares, and industrial markups in the United States over the past four decades. Our results highlight the importance of firms’ self-selection effect in the global sourcing market and its impact on market outcomes. Failing to account for this influencing channel could lead to an underestimation of the contribution of input globalization to the rise of markup and other market consequences.
The Dollar in an Era of International Retrenchment
Ryan Chahrour & Rosen Valchev
NBER Working Paper, June 2023
Abstract:
Recent trends suggest the world economy may be tending towards an equilibrium with two distinct trading blocs, each internally integrated, but with significant isolation between the blocs. This paper uses a quantitative theory to explore how far this bifurcation would need to go to pose a threat to the special role of the dollar in international exchange. The theory emphasizes the joint determination of countries' portfolio choices and trading currency. We find that unilateral protectionism on the part of the US could modestly reinforce the dollar's dominant role, but that policies directly supporting the Chinese yuan's use in trade could end the dollar's continued dominance if implemented over a long-enough period. Tit-for-tat responses between just the US and China would likely leave the dollar's role essentially unchanged. If both countries coordinate protectionist policies within their trading blocs, however, a transition away from global dollar dominance becomes far more likely.
Tax-Avoidance Networks and the Push for a “Historic” Global Tax Reform
Katarzyna Bilicka, Michael Devereux & Irem Güçeri
Tax Policy and the Economy, 2023, Pages 57–108
Abstract:
In this paper, we investigate the use of intellectual property (IP) in multinationals’ tax-avoidance strategies. Income arising from intangible property is generally taxed in the location in which such income is received. Many multinationals (MNCs) therefore use tax havens as a base for IP ownership. We leverage a universe of global patent applications and transactions, combined with financial and ownership information, to investigate whether firms locate their patents in tax havens. We find evidence of disproportionate use of havens for both new patent applications and purchase of existing patents. Tax havens such as the Cayman Islands and Liechtenstein have substantially more patents per inhabitant than the largest patenting nations, such as China and the United States. Some 5% of patents in the European markets are held in tax havens, and 30% of global cross-border patent transactions within MNCs have buyers located in tax havens. MNCs that meet the size threshold requirements for the proposed Global Minimum Tax are particularly active in developing patents: they constitute 2.6% of affiliates but are responsible for 42% of all patent applications and 45% of tax haven ones. The Global Minimum Tax could therefore have an important impact on incentives to locate patents in low-tax jurisdictions.
Estimating the unintended impact of the North American free trade agreement on U.S. public heath
Derick Adu, Wenying Li & Wendiam Sawadgo
Social Science & Medicine, forthcoming
Abstract:
The North American Free Trade Agreement (NAFTA) was introduced in 1994 between Canada, Mexico, and the United States to encourage trilateral trade. In 2008, an unrestricted reciprocal sugar trade agreement, was implemented between Mexico and the United States as part of NAFTA, which led to a significant decrease in the United States’ sugar price. However, critics argue that free trade agreements that reduce trade barriers on products such as sugar threaten public health. This study uses the synthetic control method to investigate the causal impact of the unrestricted sugar trade agreement on sugar consumption and diabetes prevalence in the United States. First, we show that sugar consumption in the United States increased by an average of 16% annually after the agreement was signed, corresponding to 5240g per capita. Second, we show that the crude prevalence of diabetes increased by an average of 1% annually in the United States after the agreement was signed, with an increase of 1% and 2% for men and women, respectively. This unintended consequence of NAFTA has had an estimated economic cost of $324.37 million annually.
Who Benefits From The Export-Import Bank Aid?
Efraim Benmelech & Joao Monteiro
NBER Working Paper, August 2023
Abstract:
We study the effectiveness of government aid to exporters by exploring an exogenous shock that affected the ability of the Export-Import Bank of the United States (EXIM) to provide aid to U.S. exporters through loan guarantees to importers. We focus on Boeing, the largest individual recipient of aid. We find that Boeing sales declined only modestly – despite Boeing’s significant reliance on EXIM for export credit. Moreover, we find that this decline is driven by financially constrained airlines or by airlines operating in countries with underdeveloped financial systems. We show that airlines in developed countries were easily able to substitute EXIM guaranteed loans for private credit and thus could still purchase Boeing aircraft despite the EXIM shock. Our results are consistent with the view that government-sponsored export credit is mostly relevant for importers in countries with underdeveloped financial systems, which represent a relatively small share of total EXIM aid.
The culture-promotion effect of multinationals on trade: The IKEA case
Dylan Bourny, Daniel Mirza & Camelia Turcu
Journal of Economic Geography, July 2023, Pages 771–800
Abstract:
In this article, we investigate how some MNEs which spread their home culture over time and space to the rest of the world are affecting, in turn, trade flows from home. By selling products embodying cultural information related to their country of origin, those MNEs embrace the role of ambassadors of their home country. We argue that IKEA offers an ideal case to identify a multinational’s culture-promotion effect on trade. We build a dataset on IKEA’s presence in foreign markets between 1995 and 2015 and merge it with disaggregated product level trade between pairs of countries. We find solid evidence of an externality linked to IKEA: a setting of an IKEA new store in a destination increases trade flows by around 2% from Sweden for products that resemble to what the multinational offers (despite being completely unrelated to that multinational). This result is driven primarily by the products identified to encompass a high-cultural content. Other robustness checks and tests seem to be very much consistent with the hypothesis of IKEA promoting the Swedish culture to the world.