Trade, turnover, and tithing

This paper examines the hypothesis that turnover affects trade preferences. High turnover industries are similar to the Stolper-Samuelson assumption of perfect factor mobility, so factor of production drives trade preferences. Among low turnover industries, as in the specific factors model, net export position determines trade preferences. We show that PAC contribution patterns are consistent with this hypothesis. In high turnover industries, capital groups give significantly larger shares of their campaign contributions to free trade supporters than labor groups do. Among low turnover industries, on the other hand, exporting and import-competing groups differ significantly in their financial support for free traders.     

The effects of offshoring on the elasticity of labor demand

In this paper, I use detailed plant-level data to analyze the relationship between offshoring and labor demand elasticities in the U.S. manufacturing sector during the 1972-2001 period. The results suggest that conditional demand elasticities for production workers are positively associated with increased exposure to offshoring both in the short-run and in the long-run. This relationship holds both for the unbalanced panel of plants and, for plants which continue their operations throughout the sample period. Controlling for skill biased technical change does not alter the magnitude or the significance of the estimated positive relationship between offshoring and labor demand elasticities.     

The asymmetric effects of tariffs on intra-firm trade and offshoring decisions

This paper studies the effects of tariffs on intra-firm trade. Building on the Antràs and Helpman (2004) North–South theoretical framework, I show that higher Northern tariffs reduce the incentives for outsourcing and offshoring, while higher Southern tariffs have the opposite effects. I also show that increased offshoring and outsourcing imply a decrease in the ratio of Northern intra-firm imports to total imports, an empirically testable prediction. Using a highly disaggregated dataset of U.S. (the North) imports and relevant U.S. and foreign tariffs, I find robust evidence to support the model's predictions.     

Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms

Worker industry affiliation plays a crucial role in how trade policy affects wages in many trade models. Yet, most research has focused on how trade policy affects wages by altering the economy-wide returns to a specific worker characteristic (i.e., skill or education) rather than through worker industry affiliation. This paper exploits drastic trade liberalizations in Colombia in the 1980s and 1990s to investigate the relationship between protection and industry wage premiums. We relate wage premiums to trade policy in an empirical framework that accounts for the political economy of trade protection. Accounting for time-invariant political economy factors is critical. When we do not control for unobserved time-invariant industry characteristics, we find that workers in protected sectors earn less than workers with similar observable characteristics in unprotected sectors. Allowing for industry fixed effects reverses the result: trade protection increases relative wages. This positive relationship persists when we instrument for tariff changes. Our results are in line with short- and medium-run models of trade where labor is immobile across sectors or, alternatively, with the existence of industry rents that are reduced by trade liberalization. In the context of the current debate on the rising income inequality in developing countries, our findings point to a source of disparity beyond the well-documented rise in the economy-wide skill premium: because tariff reductions were proportionately larger in sectors employing a high fraction of less-skilled workers, the decrease in the wage premiums in these sectors affected such workers disproportionately.     

Wage Effects of Trade Reform with Endogenous Worker Mobility

In this paper, we use a linked employer–employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to domestic firms, consistent with earlier studies. However, using disaggregated, employer–employee level data, and allowing for the endogenous assignment of workers to firms due to match-specific productivity, we find that the premium paid to workers at exporting firms is economically and statistically insignificant, as is the differential impact of trade openness on the wages of workers at exporting firms relative to otherwise identical workers at domestic firms. We also find that workforce composition improves systematically in exporting firms, in terms of the combination of worker ability and the quality of worker–firm matches, post-liberalization. These results stand in stark contrast to the findings reported in many earlier studies and underscore the importance of endogenous matching and, more generally, non-random labor market allocation mechanisms, in determining the effects of trade policy changes on wages.     

Trade liberalisation and human capital adjustment

This paper highlights the way in which workers of different ages and abilities are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin trade model is supplemented with an education sector which uses skilled labour and time to convert unskilled workers into skilled workers. A skilled worker's income depends on her ability, but all unskilled workers have the same income. Trade liberalisation in a relatively skilled labour abundant country increases the relative skilled wage and induces skill upgrading by the existing workforce, with younger and more able unskilled workers most likely to upgrade. But not all upgraders are better off as a result of the liberalisation. The older and less able upgraders are likely to lose. For an anticipated liberalisation we show that the preferred upgrading strategies depend on a worker's ability and that much of the upgrading will take place before the liberalisation. Hence some workers who would have upgraded had they anticipated the liberalisation will not if it is unanticipated, and adjustment assistance that applies only to post-liberalisation upgraders will fail to compensate some losers and distort the upgrading decisions of others.     

Trade, demand spillovers, and industrialization: The emerging global middle class in perspective

In this paper, we investigate international demand spillovers brought about by a global middle class and their impact on trade patterns and industrialization. We propose a multi-industry and two-country trade model featuring demand complementarities propagating increasing returns across industries and national boundaries. We show how the international extent of demand spillovers depends upon asymmetries in domestic income distribution, labor efficiency, and labor force size; that is, on the global distribution of real income.     

Unemployment and relative labor market institutions between trading partners

This paper contributes to the literature that highlights the role of trading partners' institutions for a country's unemployment rate. The objective is to study whether the results established in the minimum wage-setting of Davis (1998) hold when unemployment is driven by search frictions. This paper finds that relative labor market institutions matter for equilibrium unemployment as they generate comparative advantages, but there are two main differences with Davis. With North-North trade, unemployment decreases in the low-regulation country. When South is brought into the picture, low-regulation North is not insulated, and unemployment increases in both developed countries as a result of specialization.     

Realizing the gains from trade: Export crops, marketing costs, and poverty

This paper explores the role of export costs in the process of poverty reduction in rural Africa. We claim that the marketing costs that emerge when the commercialization of export crops requires intermediaries can lead to lower participation into export cropping and, thus, to higher poverty. We test the model using data from the Uganda National Household Survey. We show that: i) farmers living in villages with fewer outlets for sales of agricultural exports are likely to be poorer than farmers residing in market-endowed villages; ii) market availability leads to increased household participation in export cropping (coffee, tea, cotton, fruits); iii) households engaged in export cropping are less likely to be poor than subsistence-based households. We conclude that the availability of markets for agricultural export crops help realize the gains from trade. This result uncovers the role of complementary factors that provide market access and reduce marketing costs as key building blocks in the link between the gains from export opportunities and the poor.     

Volatility due to offshoring: Theory and evidence

Existing models of offshoring are not equipped to explain how global production sharing affects the volatility of economic activity. This paper develops a trade model that can account for why offshoring industries in low wage countries such as Mexico experience fluctuations in employment that are twice as large as in high wage countries such as the United States. We argue that a key to explaining this outcome is that the extensive margin of offshoring responds endogenously to shocks in demand and transmits those shocks across borders in an amplified manner. Empirical evidence supports the claim that the extensive margin of offshoring is an active margin of adjustment, and quantitative simulation experiments show that the degree of movement of this margin in the data is sufficient to explain relative employment volatility in Mexico and the U.S.     

Native language,spoken language,translation and trade

We construct new series for common native language and common spoken language for 195 countries, which we use together with series for common official language and linguistic proximity in order to draw inferences about (1) the aggregate impact of all linguistic factors on bilateral trade, (2) the separate role of ease of communication as distinct from ethnicity and trust, and (3) the contribution of translation and interpreters to ease of communication. The results show that the impact of linguistic factors, all together, is at least twice as great as the usual dummy variable for common language, resting on official language, would say. In addition, ease of communication plays a distinct role, apart from ethnicity and trust, and so far as ease of communication enters, translation and interpreters are significant. Finally, emigrants have much to do with the role of ethnicity and trust in linguistic influence.     

Globalization, regional wage differentials and the Stolper-Samuelson Theorem: Evidence from Mexico

In this paper, I study what factors determined the changes in Mexico's regional wage differentials during the nineties. I exploit the regional variation in exposure to international markets to identify the effects of NAFTA on wages and the skill premium. The results support the presence of Stolper-Samuelson type of responses during Mexico's trade liberalization: regions more exposed to globalization appear to have exhibited an increase in overall wage levels, but a decrease in the skill premium, relative to other regions of the country. The results suggest that trade liberalization has a spatial dimension that is usually neglected in traditional models.     

Stuck on gold: Real exchange rate volatility and the rise and fall of the gold standard, 1875-1939

Did the gold standard diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. Hard regimes like the gold standard limit monetary shocks by tying policymakers' hands; but exchange-rate inflexibility compromises shock absorption in a world of real disturbances and nominal stickiness. A model shows how lack of flexibility affects the transmission of terms-of-trade shocks. Evidence from the late nineteenth and early twentieth century exposes a dramatic change. The classical gold standard did absorb shocks, but the interwar gold standard did not, supporting the view that the interwar gold standard was a poor regime choice.     

Unions, competition and international trade in general equilibrium

We develop a two-country, multi-sector model of oligopoly in which unionised and non-unionised sectors interact in general equilibrium. The model is used to study the impact of trade liberalisation, deunionisation and firm entry on wages in unionised and non-unionised sectors, and on welfare. We find that a shift from autarky to free trade increases non-union wages and welfare, whereas the effect on union wages is ambiguous. We also show that partial deunionisation leads to higher wages in both unionised and non-unionised sectors, but only increases welfare when the proportion of unionised sectors is sufficiently low. Finally, wages in non-unionised sectors necessarily increase with firm entry, while the response of union wages and welfare depends on the trade regime.     

Exchange rate forecasting, order flow and macroeconomic information

This paper adds to the research efforts that aim to bridge the divide between macro and micro approaches to exchange rate economics by examining the linkages between exchange rate movements, order flow and expectations of macroeconomic variables. The basic hypothesis tested is that if order flow reflects heterogeneous expectations about macroeconomic fundamentals, and currency markets learn about the state of the economy gradually, then order flow can have both explanatory and forecasting power for exchange rates. Using one year of high frequency data collected via a live feed from Reuters for three major exchange rates, we find that: i) order flow is intimately related to a broad set of current and expected macroeconomic fundamentals; ii) more importantly, order flow is a powerful predictor of daily movements in exchange rates in an out-of-sample exercise, on the basis of economic value criteria such as Sharpe ratios and performance fees implied by utility calculations.     

Intraindustry trade and the skill premium: Theory and evidence

We explore theoretically and empirically the relationship between intraindustry trade and the skill premium. Our model features a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism.     

Market imperfections, wealth inequality, and the distribution of trade gains

Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.     

The exchange rate, employment and hours: What firm-level data say

Using a representative panel of manufacturing firms, we estimate the response of job and hours worked to currency swings, showing that it depends primarily on firms' exposure to foreign sales and their reliance on imported inputs. We also show that, for a given international exposure, the response to exchange rate fluctuations is magnified when firms exhibit a lower monopoly power and when they face foreign pressure in the domestic market through import penetration. The degree of substitutability between imported and other inputs and the distribution of workers by type introduce additional degrees of specificity in the employment sensitivity to exchange rate swings. Moreover, we show that episodes of entry and exit in the export market are associated with a heterogeneous employment response depending on the degree of external orientation when the switch of export status occurs.     

Trade booms, trade busts, and trade costs

What has driven trade booms and trade busts in the past and present? We employ a micro-founded measure of trade frictions consistent with leading trade theories to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.     

The effect of outward processing trade on wage inequality: the Hong Kong case

This study uses time series analysis to investigate the impact of Hong Kong's increased outward processing trade with the Chinese Mainland on wage inequality. We found a significant positive association between outward processing trade and the wage premium of university graduates over primary school graduates and that over secondary school graduates. Moreover, a standard test showed one-way causality from outward processing trade to the widening of skill wage gap. Furthermore, the increase of outward processing trade is found to both increase the pay for well-educated people and decrease the pay for less well-educated people, thereby widening the wage gap.