Diversification cones, trade costs and factor market linkages

This paper finds non-uniform differences in the distribution functions of factor usage intensities among 10 rich OECD countries. The 10 countries form three distinct groups such that the between-group differences are more pronounced than within-group differences and capital-abundant countries are in capital-abundant groups. The estimation works even if the same industry codes represent different goods across countries in the data. The finding is consistent with the multiple-cone factor proportions theory with zero trade costs with each group being one cone. An alternative interpretation is non-zero trade costs. Both interpretations imply weak factor market linkages between the countries in different groups.     

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.     

Entrepreneurial ability, income distribution, and international trade

This paper develops a two-sector model in which the firms in one sector are heterogeneous due to differences in the level of ability between entrepreneurs. Changes in prices lead to entry or exit of marginal firms and changes in the size of infra-marginal firms. The effects of endowment changes and output price changes are shown to depend on factor intensities of marginal and infra-marginal firms. Conflicts between entrepreneurs may arise over commercial policies if factor intensities differ sufficiently in the heterogeneous sector.     

Lobbying costs and trade policy

We study how endogenous lobbying costs influence trade policies. Although in practice lobbying expenditures far exceed campaign contributions, the literature on the political economy of trade policy has focused on the latter. In this paper we develop a model in which informational lobbying costs play a role in determining the structure of protection. In the model, special interest groups can choose to send a signal to the policymaker regarding some information they possess, and the policymaker observes the signal before setting the trade policies. We find that lobbying expenditures directly affect the equilibrium policies. In order to test the predictions of the model we collected data on lobbying expenditures from the Center for Responsible Politics as well as data on trade and industry characteristic variables for the United States from other sources. We perform a structural estimation of the equilibrium trade policies and find support for our model. The empirical evidence indicates that lobbying expenditures play an important role in explaining the variation of protection across sectors. Moreover, the model leads to considerably lower and more reasonable estimates of the weight that the government places on social welfare relative to political contributions.     

Firms’ export decisions—fixed trade costs and the size of the export market

This article presents a model of international trade under monopolistic competition. In the increasing returns sector firms face fixed, in addition to variable, trade costs, and both exporters and non-exporters may coexist. Exporters benefit from access to large foreign markets, thus a small country has a higher share of exporting firms than a large one. In contrast to standard models, the increasing returns sector will be more open in a small country than in a large one, and a small country may be a net exporter of such commodities, despite the disadvantage of a smaller home market.     

Labor market institutions,firm-specific skills,and trade patterns

This paper studies how a country's labor market institutions, by affecting workers' skill acquisition, can shape its export patterns. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, labor market protection raises workers' incentives to acquire firm-specific skills relative to general skills, turning labor laws into a source of comparative advantage. In particular, the model shows that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors at both the intensive and extensive margins. To test the theoretical predictions, I construct sector proxies for the firm-specific and industry-specific skill intensity by estimating returns to firm tenure and industry tenure for different U.S. manufacturing sectors during the 1974–1993 period. By estimating sector-level gravity equations for 84 countries using the Helpman–Melitz–Rubinstein (2008) framework, I find evidence supporting the predicted effects of labor market institutions at both margins of exports.     

Credit constraints, equity market liberalizations and international trade

This paper provides evidence that credit constraints are an important determinant of international trade flows. I exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980-1997 period. I show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets. This result is not driven by cross-country differences in factor endowments and is independent of simultaneous trade policy reforms. Moreover, it obtains with equal strength in the full panel of countries as well as in both panel and event-study analyses of countries which removed capital controls during the sample period. Finally, the effects of liberalizations are more pronounced in economies with initially less active stock markets, indicating that foreign equity flows may substitute for an underdeveloped domestic financial system. Similarly, opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies.     

Interacting factor endowments and trade costs: A multi-country, multi-good approach to trade theory

We provide a synthetic analysis of the different ways in which countries participate in the world economy. Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multiple goods or multi-stage production, and country-specific trade costs. Each country's production specialization, trade and welfare is determined by the interaction between its relative endowment and its trade costs. We consider the effects of allowing one good to ‘fragment’ into component and assembly production. The volume of trade and welfare levels are higher with fragmentation for most countries, although for many countries these variables fall with fragmentation.     

Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries

This paper explores a period of substantial variation in trade policy across industries in Colombia (1977-1991) to examine whether increased exposure to foreign competition generates productivity gains for manufacturing plants. Using an estimation methodology that addresses the shortcomings of previous studies, we find a strong positive impact of tariff liberalization on plant productivity, even after controlling for plant and industry heterogeneity, real exchange rates, and cyclical effects. The impact of liberalization is stronger for larger plants and plants in less competitive industries. Our findings are not driven by the endogeneity of protection. Similar results are obtained when using effective rates of protection and import penetration ratios as measures of protection. Productivity gains under trade liberalization are linked to increases in intermediate inputs' imports, skill intensity, and machinery investments, and to output reallocations from less to more productive plants.     

Local costs of distribution,international trade costs and micro evidence on the law of one price

This paper connects trade flows to deviations from the law of one price (LOOP) in a structural model of trade and retailing. It accounts for the observed cross-country dispersion in prices of goods, based on retail price survey data, by focusing on two sources of goods market segmentation — (i) international trade costs, and (ii) non-traded input costs of distribution. I find that a multi-sector Ricardian trade model, ala Eaton–Kortum, augmented with a distribution sector, can account for the average price dispersion for a basket of goods fully and generates 70% of the variation in price dispersion across goods within the basket. While tradability of goods is important in explaining the average price dispersion for the basket of goods, distribution costs are important in explaining why, within the basket, some goods show more price dispersion than others.     

Openness and income: The roles of trade and migration

This paper explores the relationship between openness to trade, immigration, and income per person across countries. To address endogeneity concerns we extend the instrumental-variables strategy introduced by Frankel and Romer (1999). We build predictors of openness to immigration and to trade for each country by using information on bilateral geographical and cultural distance (while controlling for country size). Since geography may affect income through other channels, we also control for climate, disease environment, natural resources, and colonial origins. Most importantly, we also account for the roles of institutions and early development. Our instrumental-variables estimates provide evidence of a robust, positive effect of openness to immigration on long-run income per capita. In contrast, we are unable to establish an effect of trade openness on income. We also show that the effect of migration operates through an increase in total factor productivity, which appears to reflect increased diversity in productive skills and, to some extent, a higher rate of innovation.     

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.     

Cooperative and non-cooperative R&D and trade costs

We examine the effect of trade liberalization on the level and mode of R&D in an international duopoly setting. Firms have the choice to invest in R&D either independently or cooperatively. A reduction in trade cost increases R&D irrespective of the mode of R&D. However, an increase in spillovers has ambiguous effects on R&D. More precisely, we find that an increase in spillover leads to higher R&D activity under cooperation but lower R&D activity under non-cooperation. Concerning cooperation versus non-cooperation, we find that firms prefer cooperation only if trade costs are low. Consumers are better off under cooperation if spillovers are high. We find that there can be a mismatch between private and social incentives. If spillovers are low and trade costs are low then cooperation might be privately profitable but socially undesirable. On the other hand, if there are large spillovers and high trade costs then cooperation may be socially desirable but not privately profitable.     

Product market competition and access to credit

In this paper, we unveil a disregarded benefit of product market competition for firms. We introduce the probability of bankruptcy in a simple model where firms compete à la Cournot and apply for collateralized bank loans to undertake productive investments. We show that the number of competitors and the existence of outsiders willing to acquire the productive assets of distressed incumbents affect the equilibrium share of investment financed by bank credit. Using a sample of Italian manufacturing firms, mostly small- and medium-sized enterprises (SMEs), we found evidence showing that the degree of product market competition is positively correlated with the share of investment financed by bank credit only when outsiders are absent.     

Anonymous market and group ties in international trade

History provides many examples of cohesive groups dispersed over several countries who exploit the ties between their members to gain entry into foreign markets. The phenomenon is well-established empirically and noteworthy because it suggests the importance of informational barriers in international transactions. We present a simple model where output is produced through a joint venture, and agents have complete information domestically but are unable to judge the quality of their match abroad. A minority of individuals, otherwise identical to all others, can exploit complete information in international matches between group members, if they so choose. Group ties increase aggregate trade and income, but hurt the anonymous market because they deprive it disproportionately of the group’s more productive members.     

个人所得税改革与车市兴衰

个人所得税改革，算是近期引发全国大讨论的要闻，人们对提高起征点和高收入申报制尤其感兴趣，似乎个人所得税已成为“劫富济贫”的工具。与此同时，也有人提出，对高收入者苛以重税，将毁掉正在起步的中国车市。     

Productivity, terms of trade and the ‘home market effect’

This paper analyzes the international transmission and welfare implications of productivity gains and changes in market size when macroeconomic adjustment occurs both along the intensive margin of trade (changes in the relative price of existing varieties of tradable goods) and the extensive margin (creation and destruction of varieties). We draw a distinction between productivity gains that enhance manufacturing efficiency and gains that lower the cost of firms' entry and of product differentiation. Countries with lower manufacturing costs have higher GDP but supply their products at lower international prices. Instead, countries with lower entry costs supply a larger array of goods at improved terms of trade. Output growth driven by demographic expansions, as well as government spending, is associated with an improvement in international relative prices and firms' entry. While trade liberalization may result in a smaller array of goods available to consumers, efficiency gains from deeper economic integration benefit consumers via lower goods prices. The international transmission mechanism and the welfare spillovers vary under different asset market structures, depending on trade costs, the elasticity of labor supply, and consumers' taste for varieties.     

International trade and macroeconomic dynamics with labor market frictions

This paper studies how labor market frictions affect the consequences of trade integration in a two-country dynamic stochastic general equilibrium model with heterogeneous firms and endogenous producer entry. Two main results emerge. First, trade integration is beneficial for welfare by inducing higher productivity, but unemployment can temporarily rise during the transitional adjustment. Labor market rigidities reduce gains from trade, even though they can mitigate short-run employment losses. Second, consistent with the data, the model predicts that stronger trade linkages lead to increased business cycle synchronization. The strength of this effect, however, depends on the labor market characteristics of the integrating partners.     

Emerging market hedge funds and the yen carry trade

For emerging market hedge funds, funding through the yen carry trade provides the possibility of enhancing returns by funding in a low coupon currency. This study examines whether emerging market hedge funds are exposed to the value of the Japanese yen and whether this is the key exposure associated with their use of leverage. The results suggest that the returns of these hedge funds are only weakly exposed to yen exchange rate but the use of leverage is associated with yen exposure, which implicates the importance of the yen carry trade.