Tricks of the trade
Temporary Payoffs or Trade Policy Priorities? Congressional Support for Trade Adjustment Assistance
Robert Galantucci
Foreign Policy Analysis, forthcoming
Abstract:
Trade adjustment assistance (“TAA”) programs provide financial benefits and training to workers who have suffered job loss due to foreign competition. Existing research identifies a host of reasons why legislators of different stripes would be willing to support TAA. However, in practice, TAA implementation often does not reflect a broad consensus and is a highly contentious issue. I argue that we can better identify who supports TAA by focusing on the extent to which a legislator will see immediate payoffs from the policy proposal under consideration. Legislators who represent workers vulnerable to trade competition will support such policies to dampen globalization's adverse consequences. Many legislators who prefer greater trade, however, will often not want to bear the budgetary costs of such programs. For this latter group of legislators, even if TAA might potentially have favorable long-term implications — by reducing opposition to trade liberalization, for example — they will only support adjustment assistance when it is paired with other policies that deliver immediate and tangible benefits. A statistical analysis of several recent Congressional votes, as well as a discussion of legislative wrangling during a number of high-profile TAA implementation episodes, yields results consistent with my hypotheses.
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Monopoly Money: Foreign Investment and Bribery in Vietnam, a Survey Experiment
Edmund Malesky, Dimitar Gueorguiev & Nathan Jensen
American Journal of Political Science, forthcoming
Abstract:
Prevailing work argues that foreign investment reduces corruption, either by competing down monopoly rents or diffusing best practices of corporate governance. We argue that the mechanisms generating this relationship are not clear because the extant empirical work is too heavily drawn from aggregations of total foreign investment entering an economy. Alternatively, we suggest that openness to foreign investment has differential effects on corruption even within the same country and under the same domestic institutions over time. We argue that foreign firms use bribes to enter protected industries in search of rents, and therefore we expect variation in bribe propensity across sectors according to expected profitability. We test this effect using a list experiment embedded in three waves of a nationally representative survey of 20,000 foreign and domestic businesses in Vietnam, finding that the effect of economic openness on the probability to engage in bribes is conditional on policies that restrict investment.
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Measuring the Unequal Gains from Trade
Pablo Fajgelbaum & Amit Khandelwal
NBER Working Paper, July 2014
Abstract:
Individuals that consume different baskets of goods are differentially affected by relative price changes caused by international trade. We develop a methodology to measure the unequal gains from trade across consumers within countries that is applicable across countries and time. The approach uses data on aggregate expenditures across goods with different income elasticities and parameters estimated from a non-homothetic gravity equation. We find considerable variation in the pro-poor bias of trade depending on the income elasticity of each country's exports and imports. Non-homotheticities across sectors imply that trade typically favors the poor, who concentrate spending in more traded sectors.
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Coercion and the Global Spread of Securities Regulation
Johannes Kleibl
International Interactions, forthcoming
Abstract:
Securities laws, overseen by independent regulatory agencies, have spread around the world. This article argues that coercion has played a more critical role in the spread of regulatory models than previously acknowledged. In particular, I argue that globally integrated markets can provide powerful regulators and governments with strong incentives to actively promote the export of their regulatory models. Case study evidence and the analysis of a global data set on the establishment of US-style securities regulatory regimes between 1973 and 2007 lend support to the crucial role of the US government and the US Securities and Exchange Commission in spreading the US securities regulatory model around the world.
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How Important Are Exports for Job Growth in China? A Demand Side Analysis
Bart Los, Marcel Timmer & Gaaitzen de Vries
Journal of Comparative Economics, forthcoming
Abstract:
We analyze the impact of foreign demand on Chinese employment creation by extending the global input-output methodology introduced by Johnson and Noguera (2012). We find that between 1995 and 2001, fast growth in foreign demand was offset by strong increases in labor productivity and the net effect on employment was nil. Between 2001 and 2006, booming foreign demand added about 70 million jobs. These jobs were overridingly for workers with only primary education. Since 2006 growth in domestic demand for non-tradables has become more important for job creation than foreign demand, signaling a rebalancing of the Chinese economy.
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Media slant against foreign owners: Downsizing
Guido Friebel & Matthias Heinz
Journal of Public Economics, December 2014, Pages 97–106
Abstract:
Using a unique data set from nationally distributed quality newspapers in Germany, we find evidence for both quantitative and qualitative media slant against foreign firms. A downsizing foreign firm receives almost twice as much attention as a domestic firm, and the tone of media reports is more negative. Media slant is a measure for economic xenophobia directed against foreign owners, which constitutes an obstacle to foreign direct investment.
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Trade Costs, Conflicts, and Defense Spending
Michael Seitz, Alexander Tarasov & Roman Zakharenko
Journal of International Economics, forthcoming
Abstract:
This paper develops a quantitative model of trade, military conflicts, and defense spending. Lowering trade costs between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.
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Causes of Noncompliance with International Law: A Field Experiment on Anonymous Incorporation
Michael Findley, Daniel Nielson & J.C. Sharman
American Journal of Political Science, forthcoming
Abstract:
Using two field experiments, we probe the efficacy of international rules mandating that incorporation services establish their customers’ true identities. The standards were designed to prevent anonymous “shell” corporations central to money laundering, corruption, and other crimes. Posing as consultants seeking confidential incorporation, we randomly assigned six experimental conditions in emails varying information about monetary reward, international and domestic law, and customer risk to 1,793 incorporation services in 177 countries and 1,722 U.S. firms. Firms in tax havens obey the rules significantly more often than in OECD countries, whereas services in poor nations sometimes prove more compliant than those in rich countries. Only the risk of terrorism and specter of the Internal Revenue Service decrease offers for anonymous incorporation, but they also lower compliance. Offers to “pay a premium” reduce compliance. The risk of corruption decreases response rates but, alarmingly, also decreases compliance rates. Raising international law has no significant effect.
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Waves in Ship Prices and Investment
Robin Greenwood & Samuel Hanson
Quarterly Journal of Economics, forthcoming
Abstract:
We study the link between investment boom and bust cycles and returns on capital in the dry bulk shipping industry. We show that high current ship earnings are associated with high used ship prices and heightened industry investment in new ships, but forecast low future returns. We propose and estimate a behavioral model of industry cycles that can account for the evidence. In our model, firms over-extrapolate exogenous demand shocks and partially neglect the endogenous investment response of their competitors. As a result, firms overpay for ships and overinvest in booms and are disappointed by the subsequent low returns. Formal estimation of the model suggests that modest expectational errors can result in dramatic excess volatility in prices and investment.
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Exports, HIV incidence and the Baltic Dry Index: Further evidence from sub-Saharan Africa
Faqin Lin & Nicholas Sim
Economics Letters, January 2015, Pages 35–39
Abstract:
We estimate the effect of exports on HIV incidence for sub-Saharan African countries, using an instrument related to the Baltic Dry Index. We find that a doubling of exports per capita could increase HIV incidence by about 55% on average.
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Estimates of the Trade and Welfare Effects of NAFTA
Lorenzo Caliendo & Fernando Parro
Review of Economic Studies, forthcoming
Abstract:
We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods and sectoral linkages for the quantification of the welfare gains from tariffs reductions.
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Douglas Howland
Review of International Studies, January 2015, Pages 161-183
Abstract:
A novel form of international order was developed in the nineteenth century by international administrative unions such as the International Telegraph Union and the Universal Postal Union. This administrative internationalism posed a striking alternative to the international society of great powers, sovereignty, and forms of imperial domination, for the members of administrative unions included not only sovereign states but also semi-sovereigns, vassals, and colonies. Members were equal and bound identically to the union treaty and its international administrative law. This article examines the structure of unions and their politics of membership in the nineteenth century, and engages theories of global governance to argue that early administrative unions present a mode of international order different from theories of both global networks and the international system of neorealism.
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Sheng Lu
International Trade Journal, Winter 2015, Pages 19-38
Abstract:
This study intends to quantify the potential effect of the implementation of the Trans-Pacific Partnership (TPP) on China’s textiles and apparel exports. Results show that, first, China’s apparel exports to the United States, Japan, and the NAFTA region will significantly decline after the TPP. Second, trade diversion effect caused by Japan will negatively offset the potential expansion of China’s textile exports to Vietnam and other Asian TPP members after the TPP. Third, Japan’s accession to the TPP will impose substantial negative impact on China’s textile and apparel exports in the TPP era.
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Foreign Aid, Time Horizons, and Trade Policy
Daniel Yuichi Kono & Gabriella Montinola
Comparative Political Studies, forthcoming
Abstract:
Although there are theoretical reasons to expect foreign aid to promote trade liberalization, empirical research has found no relationship. Without disputing this general nonresult, we argue that foreign aid can incentivize liberalization under certain conditions. In the absence of aid, the incentive to liberalize trade depends on government time horizons: Far-sighted governments have incentives to do so, whereas short-sighted governments do not. It follows that foreign aid should not encourage far-sighted governments to liberalize, as they do so in any case. Foreign aid can, however, induce short-sighted governments to liberalize by ameliorating short-term adjustment costs. We thus hypothesize that aid is more likely to promote trade liberalization when given to governments with short time horizons. We support this hypothesis with an analysis of aid, time horizons, and two measures of trade policy. Our results contribute to the growing debate about the conditions under which foreign aid encourages growth-enhancing policies.
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The Comparative Effects of Independence on Trade
Emmanuelle Lavallée & Julie Lochard
Journal of Comparative Economics, forthcoming
Abstract:
Empirical evidence suggests that belonging to an empire favours trade by lowering transaction costs and establishing preferential trade agreements. Does the end of an empire invert this effect, and if so, through which channels? This paper uses an original dataset to explore the impact of independence on former colonies’ bilateral trade over the 1948-2007 period. We show large differences across empires. Whereas independence reduces the trade (imports and exports) between former French colonies and their coloniser, as well as with other colonies of the same empire, we do not find any comparable effect for former British colonies. We attribute this finding to the particularly protectionist trade policy implemented by France during the colonial era, and we are able to rule out alternative explanations related to transaction costs. We also find that after independence, all former colonies trade more with third countries, and we relate this result to the geographical diversification of trade.
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Tariff Incidence: Evidence from U.S. Sugar Duties, 1890-1930
Douglas Irwin
NBER Working Paper, October 2014
Abstract:
Direct empirical evidence on whether domestic consumers or foreign exporters bear the burden of a country's import duties is scarce. This paper examines the incidence of U.S. sugar duties using a unique set of high-frequency (weekly, and sometimes daily) data on the landed and the duty-inclusive price of raw sugar in New York City from 1890 to 1930, a time when the United States consumed more than 20 percent of world sugar production and was therefore plausibly a "large" country. The results reveal a striking asymmetry: a tariff reduction is immediately passed through to consumer prices with no impact on the import price, whereas about 40 percent of a tariff increase is passed through to consumer prices and 60 percent borne by foreign exporters. The apparent explanation for the asymmetric response is the asymmetric response of demand: imports collapse upon a tariff increase, but do not surge after a tariff reduction.
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International trade, the gender wage gap and female labor force participation
Philip Sauré & Hosny Zoabi
Journal of Development Economics, November 2014, Pages 17–33
Abstract:
Recent work in gender economics has identified trade as a potential determinant of female labor force participation (FLFP). It is usually suggested that FLFP rises whenever trade expands those sectors which use female labor intensively. This paper develops a theoretical model to argue that, quite surprisingly, the opposite effects can occur. Distinguishing between female intensive sectors (FIS) and male intensive sectors (MIS), we show that FLFP may actually fall if trade expands FIS. When FIS are capital intensive, trade integration of a capital-abundant economy expands FIS and contracts MIS. Consequently, male workers migrate from MIS to FIS, diluting the capital labor ratio in the FIS. Under a high complementarity between capital and female labor, the marginal productivity of women drops more than that of men. Thus, the gender wage gap widens and FLFP falls. Employment patterns in the U.S. following NAFTA are broadly consistent with our theory.
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International Negotiations in the Shadow of National Elections
Stephanie Rickard & Teri Caraway
International Organization, Summer 2014, Pages 701-720
Abstract:
This study examines the role elections play in negotiations between states and the International Monetary Fund (IMF). Although loans made by the IMF often require countries to introduce painful austerity measures that provoke a backlash from angry citizens, some governments are able to negotiate more favorable terms than others. Original data on the substantive content of IMF loans show that governments leverage imminent elections to obtain more lenient loan terms. Conditions that require labor market reforms in exchange for IMF financing are relatively less stringent in loans negotiated within six months before a pending democratic election, all else equal. The further away elections are from loan negotiations, the more stringent the labor conditions included in countries’ loan programs. Elections give governments leverage in their international negotiations and this leverage is effective even when states negotiate with unelected bureaucrats during times of economic crisis.
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The long-run effect of trade on life expectancy in the United States: An empirical note
Dierk Herzer
Applied Economics Letters, Winter 2015, Pages 416-420
Abstract:
This note analyses the long-run impact of trade on population health by applying cointegration techniques to US time series data for the period 1960 to 2011. Despite the concerns of many commentators and observers, it is found that trade has a positive and significant long-run impact on population health, as measured by life expectancy.
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Feeding humanity through global food trade
Paolo D'Odorico et al.
Earth's Future, September 2014, Pages 458–469
Abstract:
The recent intensification of international trade has led to a globalization of food commodities and to an increased disconnection between human populations and the land and water resources that support them through crop and livestock production. Several countries are not self-sufficient and depend on imports from other regions. Despite the recognized importance of the role of trade in global and regional food security, the societal reliance on domestic production and international trade remains poorly quantified. Here we investigate the global patterns of food trade and evaluate the dependency of food security on imports. We investigate the relationship existing between the trade of food calories and the virtual transfer of water used for their production. We show how the amount of food calories traded in the international market has more than doubled between 1986 and 2009, while the number of links in the trade network has increased by more than 50%. Likewise, global food production has increased by more than 50% in the same period, providing an amount of food that is overall sufficient to support the global population at a rate of 2700-3000 kcal per person per day. About 23% of the food produced for human consumption is traded internationally. The Water Use Efficiency of food trade (i.e., food calories produced per unit volume of water used) has declined in the last few decades. The water use efficiency of food production overall increases with the countries’ affluence; this trend is likely due to the use of more advanced technology.
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Does FDI Bring Good Jobs to Host Countries?
Beata Javorcik
World Bank Research Observer, forthcoming
Abstract:
Are jobs created by foreign investors good jobs? The evidence reviewed in this article is consistent with the view that jobs created by foreign direct investment (FDI) are good jobs, both from the worker’s and the country’s perspective. From the worker’s perspective, this is because such jobs are likely to pay higher wages than jobs in domestic firms, at least in developing countries, and because foreign employers tend to offer more training than local firms do. From the country’s perspective, jobs in foreign affiliates are good jobs because FDI inflows boost the aggregate productivity of the host country.
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Ran Abramitzky & Isabelle Sin
Journal of the European Economic Association, December 2014, Pages 1453–1520
Abstract:
We use book translations as a new measure of international idea flows and study the effects of Communism's collapse in Eastern Europe on these flows. Using novel data on 800,000 translations and difference-in-differences approaches, we show that while translations between Communist languages decreased by two thirds with the collapse, Western-to-Communist translations increased by a factor of 4 and quickly converged to Western levels. Convergence was more pronounced in the fields of applied and social sciences, and was more complete in Satellite and Baltic than in Soviet countries. We discuss how these patterns help us understand how repressive institutions and preferences towards Western European ideas shaped the international diffusion of knowledge.
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Who Gets to Be In the Room? Manipulating Participation in WTO Disputes
Leslie Johns & Krzysztof Pelc
International Organization, Summer 2014, Pages 663-699
Abstract:
Third parties complicate World Trade Organization (WTO) dispute settlement by adding voices and issues to a dispute. However, complainants can limit third parties by filing cases under Article XXIII of the General Agreement on Tariffs and Trade (GATT), rather than Article XXII. We argue that third parties create “insurance” by lowering the benefit of winning and the cost of losing a dispute. We construct a formal model in which third parties make settlement less likely. The weaker the complainant's case, the more likely the complainant is to promote third party participation and to settle. Article XXII cases are therefore more likely to settle, controlling for the realized number of third parties, and a complainant who files under Article XXIII is more likely to win a ruling and less likely to see that ruling appealed by the defendant. We provide empirical support using WTO disputes from 1995 to 2011.