Trade History
In-transit cold treatment: A case of institutional path dependence
Pasquale Lubello & Jean-Marie Codron
Journal of Institutional Economics, forthcoming
Abstract:
In-transit cold treatment consists of exposing food commodities – generally fresh agricultural products – to temperatures approaching 0 °C for a variable number of days during shipping in purpose-equipped containers in order to manage the risks of quarantine contamination. In this paper, we show that in-transit cold treatment is frequently required in the international trade of apples potentially affected by Mediterranean fruit fly (Ceratitis Capitata), despite the existence of potentially less costly and equally effective alternative means of applying the same treatment, in particular ‘cold storage’. We then try to understand why these alternative methods do not emerge spontaneously or become more widespread. We suggest that technical aspects and their respective costs are not always the most important factors. Transaction costs may also come into play. In accordance with ‘institutional path dependence’ literature, we suggest that the negotiation costs a country has to bear in order to encourage its trading partners to adopt an alternative treatment are high enough for it to be preferable to continue using the current solution, despite its higher adoption cost.
Measuring Trump: The Volfefe Index and its Impact on European Financial markets
Jürgen Klaus & Christoph Koser
Finance Research Letters, forthcoming
Abstract:
In this study, we examine the predictive power of the recently constructed Volfefe Index, the quantification of the tweeting activity of the U.S. president Donald J. Trump, on the dynamics of European stock markets. After controlling for a set of macroeconomic and financial factors, we show that the Trump Tweet factor contributes to the prediction of European stock market returns. The results obtained from a rolling-window regression approach indicate that the relationship between the Volfefe Index and European stock market returns is heterogeneous and time-varying. These dynamics coincide surprisingly well with a series of presidential tweets, identifying the directional effect of the Trump Twitter factor.
Offshore production's effect on Americans’ attitudes toward trade
Andrew Kerner, Jane Sumner & Brian Richter
Business and Politics, forthcoming
Abstract:
American discontent with offshore production features heavily in trade policy debates. But Americans more typically encounter offshore production in apolitical contexts as consumers. We argue that these ostensibly apolitical encounters with offshore production are, in fact, freighted with political consequences. This paper asks: When and for whom does consumer-based exposure to offshore production reduce support for free trade? This is an important in its own right, but also sheds light on the contexts in which more overtly political references to offshore production are likely to find the most fertile ground. We answer these questions using a survey experiment that embeds an offshoring “prime” into an advertisement for pet furniture, varying the location of production across different treatment groups. We find that our experimental exposure to offshore production depressed enthusiasm for free trade, but only when production occurred in China, and mainly among white men living near trade-related job loss. That heterogeneity resonates with work on the economic and social aspects of the decline in American manufacturing employment.
Commuting across the Irish border
Achim Ahrens, John FitzGerald & Seán Lyons
Economics Letters, forthcoming
Abstract:
The border between the Republic of Ireland and Northern Ireland is often characterised as ‘invisible’. Using data drawn from censuses in both jurisdictions, we show a substantial discontinuity in commuting behaviour at the Irish border. Residents on both sides of the border have a low propensity to work on the other side. Local areas in Northern Ireland with larger Catholic populations are more prone to commuting from North to South, hinting at a possible role for socio-cultural factors.
Global Effects of the Brexit Referendum: Evidence from US Corporations
Murillo Campello et al.
NBER Working Paper, January 2020
Abstract:
We show that the 2016 Brexit Referendum led American corporations to cut jobs and investment within US borders. Using establishment-level data, we document that these effects were modulated by the degree of reversibility of capital and labor. American job losses were particularly pronounced in industries with less skilled and more unionized workers. UK-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near-universe of US establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation.
Why Is the Euro Punching Below Its Weight?
Ethan Ilzetzki, Carmen Reinhart & Kenneth Rogoff
NBER Working Paper, February 2020
Abstract:
On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns.
Nowhere to Go: FDI, Terror, and Market-specific Assets
Iain Osgood & Corina Simonelli
Journal of Conflict Resolution, forthcoming
Abstract:
Under what circumstances does terrorism repel foreign investment? The negative effect of terrorism on foreign investment identified in current scholarship masks heterogeneity across host markets and industries. Foreign investment ought to react less to political violence when host markets match firms’ input requirements, when firms lack viable alternative hosts, and when assets are immobile across markets. We model the endogenous codetermination of terror and investment to derive these comparative statics, highlighting empirical challenges in identifying the effects of terror on foreign direct investment. To overcome these obstacles, we use an instrumental variable estimator which exploits differences in the networks along which terror and investment spread. Using industry-level data on the activities of US multinationals, we test our model and conclude that foreign investors that find it hard to leave particular host markets are doubly penalized: their lack of outside options makes them tempting targets for terror. Our findings have implications for other forms of violent and nonviolent political tactics which affect multinationals and for understanding how foreign investment reacts to heightened risk in host markets.
Are Foreigners Treated Equally under the Trade-Related Aspects of Intellectual Property Rights Agreement?
Gaétan de Rassenfosse et al.
Journal of Law and Economics, November 2019, Pages 663-685
Abstract:
The Trade-Related Aspects of Intellectual Property Rights Agreement, administered by the World Trade Organization, ensures the smooth functioning of the international patent system. It promises among other things that local and foreign firms are treated in the same, nondiscriminatory manner. We test for whether the national treatment principle has been upheld in the five largest patent offices and document the existence of a systematic bias against foreign firms in patent examination decisions. We find that filing international patent applications under the Patent Cooperation Treaty can reduce some of the bias.
Thinking outside the Box: Globalization, Labor Rights, and the Making of Preferential Trade Agreements
Zhiyuan Wang
International Studies Quarterly, forthcoming
Abstract:
States can seemingly defy the dictates of globalization. In practice, although being pressured by their competitors, states rarely engage in the race to the bottom by downgrading labor rights laws that are politically costly to pursue. I argue that states’ resistance is made possible by adopting more viable policy alternatives, i.e., concluding preferential trade agreements (PTAs). PTAs can generate considerable economic gains in a less politically costly way than does reducing legal labor protection. As a result, it is expected that a pair of states is more likely to form a PTA in the face of policy pressure to lower legal labor protection. I also argue that facing such pressure, these states are more likely to include strong labor provisions in PTAs. Finally, in the face of the policy pressure, states may feel that signing a PTA is a bit less urgent when they are able to diminish practical labor protection. Applying structural equivalence technique to a new global labor rights dataset to capture the policy pressure to lower legal labor protection, I find robust evidence in support of these conjectures.
Across-Country Wage Compression in Multinationals
Jonas Hjort, Xuan Li & Heather Sarsons
NBER Working Paper, February 2020
Abstract:
Many employers link wages at the firm’s establishments outside of the home region to the level at headquarters. Multinationals that anchor-to-the headquarters also transmit wage changes arising from shocks to minimum wages and exchange rates in the home country/state to their foreign establishments. Such multinationals fire more low-skill workers and hire fewer new workers abroad after a permanent (minimum wage-induced) foreign establishment wage increase originating in shocks to headquarter wages, but not after a temporary (exchange rate-induced) one. We show this using data on 1,060 multinationals’ establishments across the world and in employee-level data on the same employers’ establishments in Brazil.