Trade warriors
Economic Interests and Threat Assessment in the U.S. Congress, 1890–1914
Michael Flynn & Benjamin Fordham
International Interactions, forthcoming
Abstract:
Why do some domestic actors see the international environment as a threatening place populated by untrustworthy powers, when others find opportunities for peaceful cooperation in the same conditions? Because these actors confront the same international environment, the reasons for their divergent evaluations must rest on differences in their own beliefs and interests. In this article, we consider the impact of societal interests in trade and trade protection on elite assessments of the international environment. We examine evaluations of the international environment in speeches given in the U.S. Congress during naval appropriations debates between 1890 and 1914. The manufacturing sector’s interest in trade protection led political leaders who represented manufacturing regions to offer more negative assessments of the international environment, while those representing export-oriented agricultural areas of the country gave more positive evaluations. These effects were roughly comparable to those associated with party, as well as individual-level characteristics, such as having served as a military officer.
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Made in the U.S.A.? A Study of Firm Responses to Domestic Production Incentives
Rebecca Lester
Stanford Working Paper, August 2016
Abstract:
How do U.S. companies respond to incentives intended to encourage domestic production and manufacturing? I study this question in the context of the Domestic Production Activities Deduction (DPAD), which was enacted in the American Jobs Creation Act of 2004 and is currently the second largest U.S. corporate tax expenditure. Specifically, I examine 1) whether and to what extent firms shift income to maximize the domestic manufacturing benefit, and 2) the extent that firms actually increase domestic investment and employment, measured using confidential data from the U.S. Bureau of Economic Analysis. While I find a positive effect of DPAD on domestic investment, I also find that DPAD firms shift income across time and across borders to maximize the tax benefit. These results show that changes in firm reporting are an important and economically significant response that has not been studied previously in this context. Additionally, these findings inform the ongoing policy debate on the possible extension or repeal of this tax incentive.
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Better, Faster, Stronger: Global Innovation and Trade Liberalization
Federica Coelli et al.
NBER Working Paper, September 2016
Abstract:
This paper estimates the effect of trade policy during the Great Liberalization of the 1990s on innovation in over 60 countries using international firm-level patent data. The empirical strategy exploits ex-ante differences in firms' exposure to countries and industries, allowing us to construct firm-specific measures of tariffs. This provides a source of variation that enables us to establish the causal impact of trade policy on innovation. Our results suggest that trade liberalization has economically significant effects on innovation and, ultimately, on technical change and growth. According to our estimates, about 7 percent of the increase in knowledge creation during the 1990s can be explained by trade policy reforms. Furthermore, we find that the increase in patenting reflects innovation, rather than simply more protection of existing knowledge. Both improved market access and more import competition contribute to the positive innovation response to trade liberalization.
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Could tariffs be pro-cyclical?
James Lake & Maia Linask
Journal of International Economics, forthcoming
Abstract:
Conventional wisdom says that tariffs are counter-cyclical. We analyze the relationship between business cycles and applied MFN tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals that this pro-cyclicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.
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Psychological Costs of Currency Transition: Evidence from the Euro Adoption
Vladimir Otrachshenko, Olga Popova & José Tavares
European Journal of Political Economy, forthcoming
Abstract:
This paper assesses the perceived individual psychological costs of adhering to the Euro. We use the difference-in-differences approach (DD), comparing individual levels of satisfaction with the economy in Slovakia immediately before and after the introduction of the Euro, with similar individuals in neighboring Czech Republic, which did not adopt the Euro. Both countries were economically and politically integrated for decades, and display similar macroeconomic behavior before and after the currency change in Slovakia. What we assess is not the actual, economic, costs stemming from the Euro adoption, but the change in utility as perceived by the individuals. There is evidence of substantial psychological costs associated with currency transition, especially for the old, the unemployed, the poorly educated and households with children. Our results are robust to the use of alternative control groups and to estimation procedures using the DD matching approach. The significant perceived costs uncovered in this paper suggest policy-makers should not ignore them when considering a sweeping economic change such as the adoption of a new currency.
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The complexity of outsourced services and the role of international business travel
Runjuan Liu, Barry Scholnick & Adam Finn
Journal of Economic Geography, forthcoming
Abstract:
We hypothesize that face-to-face communication between international business partners is a valuable mechanism for reducing transaction costs, even in contexts where electronic communication is pervasive. Specifically, we examine whether face-to-face interactions (as measured by international business travel) have greater impacts where transaction costs are higher, e.g., where services with greater complexity are outsourced offshore. Matching data from the Survey of International Air Travelers with Bureau of Economic Analysis data on U.S. service outsourcing, we find that international business travel leads to more outsourcing of more complex services. We further provide evidence on the differential role of international business travel by showing that: (i) business travel by managers leads to relatively more outsourcing of more complex services and (ii) business travel by non-diaspora members leads to relatively more outsourcing of more complex services.
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Plant Exit and U.S. Imports from Low-Wage Countries
David Rigby, Thomas Kemeny & Abigail Cooke
International Economics, forthcoming
Abstract:
Over the past twenty years, imports to the U.S. from low-wage countries have increased dramatically. In this paper we examine how low-wage country import competition in the U.S. influences the probability of manufacturing establishment closure. Confidential data from the U.S. Bureau of the Census are used to track all manufacturing establishments between 1992 and 2007. These data are linked to measures of import competition built from individual trade transactions. Controlling for a variety of plant and firm covariates, we show that low-wage import competition has played a significant role in manufacturing plant exit. Analysis employs fixed effects panel models running across three periods: the first plant-level panels examining trade and exit for the U.S. economy. Our results appear robust to concerns regarding endogeneity.
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Misreporting Trade: Tariff Evasion, Corruption, and Auditing Standards
Derek Kellenberg & Arik Levinson
NBER Working Paper, September 2016
Abstract:
In official international trade statistics, annual commerce between every pair of countries is reported twice: once by the importing country and once by the exporter. These double reports provide an opportunity for audit. In principle, the two reported trade values should differ systematically only by transport costs, because the values reported by importers include freight and insurance. But in practice, after controlling for distance and other standard trade costs, the remaining gaps between importer- and exporter-reported trade vary systematically with GDP, tariffs and taxes, auditing standards, corruption, and trade agreements, suggesting that firms intentionally misreport trade data. These misreports have implications for trade agreements and domestic fiscal policy, and for empirical assessments of the efficacy of those policies.
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Does Global Market Integration Weaken Opinion-Policy Congruence in the American States?
Bret Anderson, Brian Krueger & Ping Xu
Politics & Policy, August 2016, Pages 677–711
Abstract:
Theories of economic globalization suggest that public opinion-public policy congruence should be affected by a state's degree of integration with international markets. With as much attention researchers have given to the opinion-policy linkage in the American states, it is surprising that this literature has neglected these well-known globalization frameworks. We take advantage of the wide variation in U.S. states’ integration in global markets, public policies, and political orientations of citizens, to assess whether global market integration depresses the association between citizen opinion and public policies. Using three decades of state-level data, our results suggest that high global market integration does not attenuate the relationship between state opinion and state public spending. Not only does this finding run counter to the well-known policy convergence thesis, but our results also suggest that the association between opinion and policy in the American states may be strongest under conditions of high global market integration.
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Why Is China Investing in Africa? Evidence from the Firm Level
Wenjie Chen, David Dollar & Heiwai Tang
World Bank Economic Review, forthcoming
Abstract:
China’s increased trade with, and investment in, Africa have boosted the continent’s economic growth but have also generated considerable controversy. The aggregate data on China’s overseas direct investment (ODI) in African countries reveal that China’s share of the stock of foreign investment is small, though growing rapidly. China’s attraction to resource-rich countries is no different from Western investment. China’s overall ODI is uncorrelated with a measure of rule of law, whereas Western investment favors the better governance environments. As a result, Chinese investment in strong and weak governance environments is about the same, but its share of foreign investment is higher in the weak governance states. Micro data from MOFCOM’s database on registered Chinese firms investing in Africa between 1998 and 2012 provide a different perspective. Key words in project descriptions are used to code the investments into 25 sectors. This database captures the small and medium private firms investing in Africa. Contrary to common perceptions, there are few projects in natural resource sectors. Most projects are in services, with a significant number in manufacturing as well. Country-sector-level regressions based on firms’ transaction-level data find that Chinese ODI, both horizontal and vertical, is profit-driven, like investment from other countries. In particular, regressions show that Chinese ODI is relatively more concentrated in skill-intensive sectors in skill-abundant countries but in capital-intensive sectors in capital-scarce countries. These patterns are mostly observed in politically unstable countries, suggesting stronger incentives to seek profits in tougher environments.
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Xiqian Cai et al.
Journal of Development Economics, November 2016, Pages 73–85
Abstract:
This paper investigates whether environmental regulation affects inbound foreign direct investment. The identification uses the Two Control Zones (TCZ) policy implemented by the Chinese government in 1998, in which tougher environmental regulations were imposed in TCZ cities but not others. Our difference-in-difference-in-differences estimation explores three-dimension variations; specifically, city (i.e., TCZ versus non-TCZ cities), industry (i.e.,more polluting industries relative to less polluting ones), and year (i.e., before and after the TCZ policy). We find that tougher environmental regulation leads to less foreign direct investment. Meanwhile, we find that foreign multinationals from countries with better environmental protections than China are insensitive to the toughening environmental regulation, while those from countries with worse environmental protections than China show strong negative responses.
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Coordination and the fight against tax havens
Kai Konrad & Tim Stolper
Journal of International Economics, forthcoming
Abstract:
The success or failure of the fight against tax havens is the outcome of a many player coordination game between a tax haven and its potential investors. Key determinants are the costly international pressure and the size of the haven country’s revenue pool. The latter is determined endogenously by the decisions of many individual investors. Our analysis suggests a non-standard market model that explains why haven countries would ever comply with international standards of transparency despite the large empirically observable returns in the tax haven business. It also alludes to why service fees in tax havens can be positive despite a competitive financial market with multiple tax havens. Furthermore, we identify a trade-off between the fight against tax havens and high tax rates. Finally, low fines for disclosed offshore tax evasion, e.g. in special programs for tax evaders who voluntarily report their offshore wealth, strengthen haven countries against international pressure.
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David Kuenzel
European Economic Review, forthcoming
Abstract:
The notion of dispute resolution is central to WTO theory, which emphasizes country size and the ability to retaliate against trading partners as major determinants of WTO disputes. But these explanations cannot account for the steady drop in trade quarrels since the early 2000 s and are silent on the link between trade policy and dispute initiations. This paper presents a new theory to show that “tariff overhangs”, the difference between WTO members' bound and applied tariffs, are the key to understanding the WTO dispute pattern. In the model, lower tariff overhangs constrain WTO members' legal policy options when responding to adverse shocks. Moreover, countries are more likely to gain from dispute filings through WTO-administered tariff retaliation when applied tariff rates are close to their bindings. Guided by this framework, the paper presents empirical evidence that tariff overhangs are an essential determinant of WTO disputes.
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Cultural and Economic Impacts on Global Cultural Products: Evidence from U.S. Movies
Sangkil Moon et al.
Journal of International Marketing, September 2016, Pages 78-97
Abstract:
Existing international product diffusion studies have identified economic and cultural factors that influence consumers’ acceptance of new products, but they have not fully examined these factors’ roles in the international diffusion of global cultural products. The authors examine country-level economic and cultural factors that influence consumers’ acceptance of new global cultural products across countries. Using 846 recent U.S. movies’ box office performances in 48 national markets as the empirical context, the authors obtain the following key novel findings on product sales: (1) an inverse U-shaped impact of economic development status, (2) a positive impact of the cultural compatibility of the product and the market, and (3) a U-shaped impact of intercountry cultural distance in the presence of cultural compatibility and a decreasing linear impact of cultural distance in the absence of cultural compatibility.