Trading Post

Kevin Lewis

November 23, 2022

Has Global Trade Competition Really Led to a Race to the Bottom in Labor Standards?
Alessandro Guasti & Mathias Koenig-Archibugi
International Studies Quarterly, December 2022


The possibility that economic competition puts working and employment conditions under pressure is a frequently voiced concern in debates on international trade. We provide an empirical assessment of the argument that competition for world markets has generated a race to the bottom in labor standards. Spatial econometrics is used to identify interdependence in labor practices among trade competitors. We present a strategy for measuring export competition between countries that fulfills several criteria: It reflects actual competition between firms offering similar products, rather than export similarity in relation to a few very broad product categories; it captures not only what competitor countries export but also how much; it takes into account that states are exposed to export competition to different degrees; and it focuses on the downward pressure stemming from a deterioration of labor rights protections among close competitors. To address endogeneity, we implement a two-stage least-squares (2SLS) instrumental variable approach and a difference two-stage generalized method of moments (GMM) approach. We find no evidence that export competition has triggered a race to the bottom in two samples covering most states in the world over nearly three decades. The finding is robust to a variety of alternative specifications.

Does Globalization Reduce Personal Violence? The Impact of International Trade on Cross-National Homicide Rates
Gary LaFree & Bo Jiang
Social Forces, forthcoming 


While interest in globalization has continued to increase, few researchers have linked it to crime rates. However, if globalization has the characteristics suggested by either its supporters or detractors, it likely has a significant effect on cross-national violent crime rates. Supporters of the doux commerce (gentle commerce) thesis argue that increasing international trade decreases all types of violence, including homicide, by providing individuals with a rational interest in engaging peacefully with others, offering opportunities for cross border commerce and travel, and encouraging greater understanding of diverse cultures. By contrast, detractors argue that as globalization increases, inequality and poverty separate the economic well-being of highly industrialized core nations from that of developing peripheral nations and as this gap intensifies, it leads to crime increases. We also consider the possibility that the effects of trade globalization are either too small or too macro-level to significantly affect violent crime rates. Based on these competing arguments we examine whether homicide rates are significantly lower for countries with high levels of globalization, compared to countries with low globalization levels. We assemble a homicide database of 2145 observations over five decades, control for a wide range of alternative explanations, and test for an interaction between globalization and GDP. Consistent with the doux-commerce argument, we find that rising globalization has resulted in lower cross-national homicide rates during the past half century and that these declines are greatest for low GDP-high inequality countries. We consider the implications for theory, future research and policy.

Does "Made in China 2025" Work for China? Evidence from Chinese Listed Firms
Lee Branstetter & Guangwei Li
NBER Working Paper, November 2022 


Rising concern over the impact of Chinese industrial policy has led to severe trade tensions between China and some of its major trading partners. In recent years, foreign criticism has increasingly focused on the so-called "Made in China 2025" initiative. In this paper, we use information extracted from Chinese listed firms' financial reports and a difference-in-differences approach to examine how the "Made in China 2025" policy initiative has impacted firms' receipt of subsidies, R&D expenditure, patenting, productivity, and profitability. We find that while more innovation promotion subsidies seem to flow into the listed firms targeted by the policy, we see little statistical evidence of productivity improvement or increases in R&D expenditure, patenting and profitability. This paper suggests that the "Made in China 2025" initiative may have not yet achieved its target goals.

Racial and Ethnic Inequality and the China Shock
Lisa Kahn, Lindsay Oldenski & Geunyong Park
NBER Working Paper, November 2022 


We examine how the labor market effects of import competition vary across Black, Hispanic, and white populations. For a given level of exposure to imports from China, we find no evidence that minority workers are relatively more harmed than white workers in terms of their manufacturing employment. However, Hispanic workers are overrepresented in exposed industries and therefore face greater manufacturing employment losses relative to whites on net. In addition, they experienced relative losses in non-manufacturing employment, largely due to their lower educational attainment and baseline industry mix. Overall, the China shock increased the Hispanic-white employment gap by about 5%, though these effects were short lived. In contrast, Black workers are less likely to live in areas or work in industries facing import competition, resulting in less negative effects on manufacturing employment relative to whites. In addition, exposed Black workers experienced gains in non-manufacturing and overall employment with no measurable wage consequences, while white workers saw depressed employment rates due to the China shock. The lasting effects of import competition in exposed areas were driven by white workers, while the experience of Black workers suggests that movement into non-manufacturing jobs was possible. White workers did not take advantage of these opportunities, perhaps due to better safety nets or perceptions that the available jobs were poor substitutes for those lost in manufacturing. The China shock narrowed the Black-white employment gap by about 15%. While many recent labor market trends have exacerbated Black-white gaps, import competition is a modest offsetting force.

Panda Games: Corporate Disclosure in the Eclipse of Search
Kemin Wang, Xiaoyun Yu & Bohui Zhang
Management Science, forthcoming


We show that firms strategically alter their disclosures when investors' access to information via search engines is interrupted. We conduct a textual analysis and exploit an exogenous event - Google's 2010 surprising withdrawal from mainland China, which significantly hampered domestic investors' ability to search for foreign information but did not affect their cost to access domestic information. Following Google's exit, Chinese firms' announcements on foreign transactions become more bullish relative to domestic transactions. Optimism in disclosure is especially rosy if the press releases are conveying negative news or are issued by poorly governed firms. This effect is mitigated in the presence of foreign investors or analysts affiliated with foreign brokers who are not subject to foreign information censorship by the government. The increase in search cost also appears to leave domestic news media and financial analysts more vulnerable to the influence of corporate disclosure. These optimistic announcements allow insiders to harvest higher returns from selling their shares and are associated with a higher likelihood of corporate misconduct.

How has Tesla's entry affected China's electric vehicle market?
Yunyi Hu et al.
Applied Economics Letters, forthcoming


We study the impact of Tesla's entry on China's electric vehicle (EV) market. We find that Tesla's entry has substantially increased the demand for EVs in China, and therefore has benefited Chinese EV producers. However, we also find that this positive impact was nullified for local EV producers that compete with Tesla in a more head-to-head manner, and those that compete in markets that host Tesla Galleries and have a higher annual income per capita. Moreover, local manufacturers lowered their EV prices when faced with competition from domestically produced Tesla vehicles, and the magnitude of such price reductions was larger for battery electric vehicle (BEV) models.

Do International Dispute Bodies Overreach? Reassessing World Trade Organization Dispute Ruling
Jeffrey Kucik & Sergio Puig
International Studies Quarterly, December 2022


Compliance with World Trade Organization dispute rulings declined in recent years. Governments frequently accuse the Appellate Body (AB) of exceeding its mandate by relying on precedent despite having no such authority. Is this criticism fair? We use new data on over 5,000 applications of legal precedent in AB rulings to test competing hypotheses. The "legal coherence hypothesis" says that legal systems adhere to precedent because they have strong incentives to appear consistent in their rulings over time. Alternatively, the "adaptation hypothesis" says that legal systems respond to political resistance, such as noncompliance, by subtly modifying precedent. The results lend greater support to the "adaptation hypothesis." The AB is much more likely to drift from previous rulings when those decisions failed to induce compliance. The results speak to common criticisms about the intransigence of international legal systems and the ways in which international case law evolves.

Who Controls the Past: Far-Sighted Bargaining in International Regimes
Amanda Kennard
American Journal of Political Science, forthcoming 


How do international regimes change over time? Regimes facilitate cooperation by linking together otherwise ad hoc negotiations. These linkages endogenize the status quo from which subsequent negotiations depart. I develop a theory of endogenous status quo within international regimes: prior outcomes implicitly define the status quo of new negotiations by acting as focal points and by creating inconsistency costs. I test observable implications of the theory in the context of the multilateral trade regime, focusing on new member accession negotiations. These negotiations attract interest from a surprising subset of World Trade Organization members, many with few observable trade ties or other economic incentives to participate. Nonetheless participation enables states to shape the emergent status quo strategically, with potentially far-reaching implications for future bargaining. I employ a text-as-data approach - together with a novel corpus of negotiating documents - finding consistent support for the theory and mechanisms.

The Reconstruction of Federalism: Foreign Submarine Telegraph Cables and American Law, 1868-78
Brooks Tucker Swett
Law and History Review, August 2022, Pages 409-435


In the wake of the Civil War, Americans contested the relationship between the federal government and states. Conflict over federal authority played out in concrete and surprising terms in a controversy that erupted in 1868 surrounding regulation of international telegraphy. The debate, which has remained largely unexamined, centered on whether a state could authorize a foreign company to land a submarine telegraph cable on American shores without Congress's permission. Scholars have scrutinized consequences of the revision of federalism for individuals' rights but have devoted less attention to implications for the nation's international relations and commerce. The regulation of foreign cables, however, proved a key testing ground for the federal government's efforts to assert sovereignty before both state authorities and other nations during Reconstruction. The episode revealed varied alliances and sources of opposition that emerged amid attempts to project federal power. It also reflected many Americans' growing expectations of an expanded role for the national government in commerce and the international sphere-a position the federal government realized only haltingly. Intractable problems of federalism contributed to congressional inaction. While undertaking the formidable work of reconstructing the Union, the United States government struggled to delineate the physical boundaries of its authority.


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