Trade War
Qingyuan Du & Shang-Jin Wei
NBER Working Paper, February 2011
Abstract:
A rise in the sex ratio (increasing relative surplus of men in the marriage market) in China and several other economies, in theory, can simultaneously generate a decline in the real exchange rate (RER) and a rise in the current account surplus. We demonstrate this logic through both a savings channel and an effective labor supply channel. In this model, a low RER is not a cause of the current account surplus, nor is it a consequence of currency manipulations. Empirically, those economies with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. Once these factors are accounted for, the Chinese real exchange rate is estimated to be undervalued by only a relatively trivial amount.
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Helen Milner & Dustin Tingley
International Organization, February 2011, Pages 37-68
Abstract:
In this article we bring together opposing international relations theories to better understand U.S. foreign policy, in particular foreign trade and aid. Using votes in the U.S. House of Representatives from 1979-2004, we explore different theoretical predictions about preferences for foreign economic policy. We assess the impact of domestic factors, namely political economy and ideological preferences, versus foreign policy pressures. Our three main results highlight the differential effect of these factors in the two issue areas. First, aid preferences are as affected by domestic political economy factors as are trade preferences. Second, trade preferences, but not economic aid ones, are shaped by the president's foreign policy concerns; for economic aid, domestic political economy factors matter more than foreign policy ones. Third, aid preferences are shaped more by ideological factors than are trade ones, but ideology plays a different substantive role in each. Different constituencies support aid and trade. This finding has implications for foreign policy substitutability, "the internationalist coalition" in U.S. foreign policy, "statist" theories of foreign policy, and the connection between public opinion and legislative voting.
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The Economic Costs to the U.S. of Closing Its Borders: A Computable General Equilibrium Analysis
P.B. Dixon, J.A. Giesecke, M.T. Rimmer & A. Rose
Defence and Peace Economics, February 2011, Pages 85-97
Abstract:
We use a CGE model to simulate the effects of a one-year US border closure. Relative to previously used input-output modeling, CGE modeling offers a flexible framework for capturing bottleneck and labor-market effects. Our analysis suggests that the costs of a prolonged closure could be much greater than indicated by input-output studies. We find that cutting all imports by 95% in an environment of sticky real wages would reduce GDP by 48%. However, if bottleneck imports (mainly oil) were exempt and workers accepted real wage cuts then the GDP reduction would be only 11%.
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Business as Usual? Economic Responses to Political Tensions
Christina Davis & Sophie Meunier
American Journal of Political Science, forthcoming
Abstract:
Do political tensions harm economic relations? Theories claim that trade prevents war and political relations motivate trade, but less is known about whether smaller shifts in political relations impact economic exchange. Looking at two major economies, we show that negative events have not hurt U.S. or Japanese trade or investment flows. We then examine specific incidents of tensions in U.S.-French and Sino-Japanese relations over the past decade-two case pairs that allow us to compare varying levels of political tension given high existing economic interdependence and different alliance relations. Aggregate economic flows and high salience sectors like wine and autos are unaffected by the deterioration of political relations. In an era of globalization, actors lack incentives to link political and economic relations. We argue that sunk costs in existing trade and investment make governments, firms, and consumers unlikely to change their behavior in response to political disputes.
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A Global View of Productivity Growth in China
Chang-Tai Hsieh & Ralph Ossa
NBER Working Paper, February 2011
Abstract:
We revisit a classic question in international economics: how does a country's productivity growth affect worldwide real incomes through international trade? We first identify the channels through which productivity shocks transmit in a model featuring inter-industry trade as in Ricardo (1817), intra-industry trade as in Krugman (1980), and firm heterogeneity as in Melitz (2003). We then estimate China's productivity growth at the industry level and use our model to quantify what would have happened to real incomes throughout the world if nothing but China's productivity had changed. We find that average real income in the rest of the world increased by a cumulative 0.48% from 1992-2007 due to China's productivity growth. This represents 2.2% of the total income gains to the world.
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Does Trade Adjustment Assistance Make a Difference?
Kara Reynolds & John Palatucci
Contemporary Economic Policy, forthcoming
Abstract:
The U.S. Trade Adjustment Assistance (TAA) program provides workers who have lost their jobs due to increased trade with income support and training, job search, and relocation benefits. This paper uses data collected by the Department of Labor on TAA beneficiaries to provide the most recent econometric evaluation of the effectiveness of the TAA program. Summary statistics suggest that the TAA program successfully targets displaced workers who have a greater difficulty finding new employment. However, using propensity score matching techniques we find that while the required training component of the program improves the employment outcomes of beneficiaries, on average the TAA program has no discernible impact on the employment outcomes of the participants.
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Unionisation Triggers Tax Incentives to Attract Foreign Direct Investment
Andreas Haufler & Ferdinand Mittermaier
Economic Journal, forthcoming
Abstract:
This article analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation increases the incentive for the government to attract a foreign investor, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country attracts the foreign investment, even if it has no other location advantages.
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David Khoudour-Casteras
International Trade Journal, October 2010, Pages 440-476
Abstract:
The traditional theory of international trade assumes that there is a substitution relationship between international trade and migration flows. However, trade liberalization in Latin America has come with an increase in emigration. This article, based on an econometric analysis for the period 1981-2002, shows that there is a complementary relationship between trade and international migration. One explanation is related to the Washington Consensus. In particular, higher labor market flexibility, in the context of trade openness, has resulted in higher levels of unemployment. Therefore, emigration represents a safety valve that reduces the pressure on Latin American labor markets.
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Impact of trade freedom on per capita real GDP growth among OECD nations: Recent panel data evidence
Richard Cebula
Applied Economics Letters, November 2010, Pages 1687-1690
Abstract:
Motivated by the Organisation for Economic Co-operation and Development (OECD)'s call to nations to resist protectionism and keep markets open to competition in the midst of the current world economic crisis, this study empirically investigates the impact of trade freedom (TF) on recent per capita real Gross Domestic Product (GDP) growth among OECD nations. In addition to TF, the study controls for the impacts of Business Freedom (BF), Monetary Freedom (MF) and Property Rights (PR), along with various economic factors. The study period runs from 2005 to 2007. Panel Least-Squares (PLS) estimation finds that the natural log of per capita real Purchasing-Power-Parity (PPP)-adjusted GDP in OECD nations is in fact an increasing function of TF, as well as BF, MF and PR security. The OECD appears correct in its position on behalf of maintaining TF.
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Technological diffusion and the union blockade
Bruce Hetherington & Peter Kower
Explorations in Economic History, forthcoming
Abstract:
This paper answers the following question. If returns from smuggling cotton and contraband through the blockade of Confederate ports during the American Civil War were significantly lower than earnings from alternative investments, why did private firms so quickly adopt costly purpose-built steam ships in the face of the strengthening Northern blockade? First, we note that the rate of diffusion of steam ships, specially designed to run the blockade significantly exceeded any reported for innovations from the late 19th or early 20th century. Second, we correct an error in Stanley Lebergott's (1981) seminal work and conclude that that returns to infamous steamer, the Banshee (I) of 700 percent to be quite plausible. This finding of high returns is confirmed by two other historical sources, which have not been previously used. Additionally, we calculate that investors in the one of the leading blockade running firms, known as the Bee Company, earned in excess of 86 percent return on their investment, over double the profits previously reported. Finally, we demonstrate that adoption of purpose-built ships, significantly decreased the arrival rate of capture, thus increasing expected profits.
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Eelke Heemskerk
Global Networks, forthcoming
Abstract:
In this article I investigate the emerging patterns of the European corporate elite network as an example of a European social field, as described by Fligstein. The findings confirm that interlocking directorates form a European corporate network. However, the intercorporate network rests on a very small group of European corporate elite members: it remains the playground of a select few pan-European 'big linkers'. Although financial institutions and bankers appear in the upper echelons of the network, they do not occupy crucial positions. Rather, (former) CEOs of Europe's largest big non-financial businesses knit together the network of interlocking directorates. The network rests on a coalescence of finance and industry, rather than on the dominance of the one over the other. Although the project of European unification has been quite successful in organizing the formal institutional structures, it has not yet led to reproduction of a European business community reminiscent of the national communities.
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Amsterdam and London as financial centers in the eighteenth century
Ann Carlos & Larry Neal
Financial History Review, forthcoming
Abstract:
In the seventeenth century, Amsterdam and London developed distinctive innovations in finance through both banks and markets that facilitated the growth of trade in each city. In the eighteenth century, a symbiotic relation developed that led to bank-oriented finance in Amsterdam cooperating with market-oriented finance in London. The relationship that emerged allowed each to rise to unprecedented dominance in Europe, while the respective financial innovations in each city provided the means for the continued expansion of European trade, both within Europe and with the rest of the world. The increasing strains of war finance for the competing European powers over the course of the eighteenth century stimulated fresh financial innovations in each city that initially reinforced the symbiosis of the two centers. The external shocks arising from revolutionary movements in America and France, however, interrupted the relationship long enough to leave London as the supreme financial center.
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Counterfeiters: Foes or Friends?
Yi Qian
NBER Working Paper, February 2011
Abstract:
This paper combines a natural policy experiment and randomized lab experiments to estimate the differential impacts of counterfeiting on the sales and purchase intent of branded products of various quality levels. I collect new product-line level panel data from Chinese shoe companies from 1993-2004. Exploiting the discontinuity of government enforcement efforts for the footwear sector in 1995 and the differences in authentic companies' relationships with the government, I identify heterogeneous effects of counterfeit entry on sales of authentic products of three quality tiers. In particular, counterfeits have both advertising effects for the brand and substitution effects for authentic products. The advertising effect dominates substitution effect for high-end authentic product sales, and the substitution effect outweighs advertising effect for low-end product sales. The positive effect of counterfeits is most pronounced for the high-fashion products (such as women's high-leg boots) and for the high-end shoes of the brands that were not yet well-known at the time of the entry by counterfeiters. I provide a theoretical framework to generalize such impacts due to counterfeits. Analogous heterogeneous effects of counterfeiting on consumer purchase intent for branded products of three quality tiers are also discovered in lab experiments. Responses in the lab allude to the fact that counterfeits could increase brand awareness as well as steal business.
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The impact of piracy on innovation in the presence of technological and market uncertainty
Dyuti Banerjee & Ishita Chatterjee
Information Economics and Policy, December 2010, Pages 391-397
Abstract:
With a single innovating firm facing only technological uncertainty, piracy unambiguously retards innovation. However, with R&D competition where firms face both market and technological uncertainties, we show that if the two firms differ "significantly" with respect to the efficiency in R&D investment, then piracy increases the R&D investment of the less efficient firm and reduces that of the more efficient firm. In this case piracy enhances the overall probability of a successful innovation.
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Money Launderers and Tax Havens: Two Sides of the Same Coin?
Peter Schwarz
International Review of Law and Economics, forthcoming
Abstract:
This paper investigates whether tax havens have an incentive to maintain low regulatory standards in order to attract black money activities. Using a new dataset on money laundering regulation, the results of this study show that tax haven and money laundering services coincide within the same country. This effect is especially observable for regulative instruments which increase the probability of detecting money laundering; whereas in the case of punitive regulation for money laundering the complementary relationship is weaker, perhaps due to a "false friends" effect. If we classify tax havens according to their per capita GDP, poorer tax havens in particular tend to supply both services, because the gains from their tax haven status are low compared to those of wealthier and well-established tax havens. From a policy perspective the results add new insights to the debate on the welfare effects of tax havens since the results suggest that poorer tax havens might be reluctant to provide the necessary regulatory environment in order to constrain money laundering. This externality is beyond the familiar tax revenue effects caused by tax havens.