Research Papers are grouped by topic areas

• Trade Policy, Foreign Direct Investment, and Global Value Chains
• Globalization and Human Capital Acquisition
• Trade Intermediation and Carry-Along Trade
• Experimental Economics
• Policy White Papers, Technical Reports, Opinions, and Other Writing

Trade Policy, Foreign Direct Investment, and Global Value Chains

• Did Trump's Trade War Impact the 2018 Election?

  [UPDATED] January 2024.  WIth C. Bown and D. Chor 

  [forthcoming Journal of International Economics]

  VOX-EU 

  View Abstract
  We uncover evidence that the US- China trade war was consequential for voting outcomes in the 2018 congressional midterm election. Republican House candidates lost support in counties more exposed to tariff retaliation, but saw no appreciable gains in counties that received more direct US tariff  protection. The electoral losses were only modestly mitigated by the US agricultural subsidies announced in summer 2018. Republicans also fared worse in counties that had seen recent gains in health insurance coverage (where efforts to repeal the Affordable Care Act may have been more consequential), and where a new federal cap on state and local tax (SALT) deductions disadvantaged more taxpayers. Counterfactual calculations suggest that Republicans would have lost ten fewer House seats absent the trade war, in a similar range to the number of seats lost for which either health care or SALT policies can account.

• Global Value Chains and Trade Policy

  [UPDATED] December 2023. With C. Bown and R. Johnson. 

  [Resubmitted, Review of Economic Studies]

  View Abstract
  How do global value chain (GVC) linkages modify countries’ incentives to impose import protection? Are these linkages important determinants of trade policy in practice? We develop a new approach to modeling tariff setting with GVCs, in which optimal policy depends on the nationality of value-added content embedded in home and foreign final goods. Theory predicts that discretionary tariffs will be decreasing in the domestic content of foreign-produced final goods and the foreign content of domestically-produced final goods. Using data for 14 countries between 1995 and 2015, we show that governments set lower tariffs and curb their use of temporary trade barriers where GVC linkages are strongest, consistent with theory. Turning to quantitative model counterfactuals, we find that severing GVC linkages would lead to the disappearance of tariff preferences. Further, targeted policies to decouple China from GVCs would increase the optimal tariff set by G7 countries on Chinese exports.

• Implications of Rising Trade Tensions for FDI Projects

  with E. Milet, C. Trentini, and A. Santos Paulino. 2021 Transnational Corporations 28 (2): 1616-184. 

• Trade Wars in the GVC Era

  2019.  Published in Trade War: The Clash of Economic Systems Threatening Global Prosperity (edited by M. Crowley) CEPR Press 

  VOX EU

  View Abstract
  The meteoric rise of global value chain (GVC) trade has reshaped the economic consequences and political calculus of trade protection. Trade wars have always been disruptive, but they are particularly expensive and divisive in the GVC era.

• Externalities and Agricultural Import Bans: Evaluating Regionalization Measures in Light of the Russia – Pigs Dispute

  2019 World Trade Review 18(2): 173-195. With M. Wu

  View Abstract
  Article 6 of the SPS Agreement presents a series of interlinked obligations for importing and exporting countries of diseased agricultural products. The Russia – Pigs dispute raises the question of when an importing country is justified in imposing a ban on products from exporting countries unaffected by the disease, on the basis of the fact that the country is part of the same customs union as another country inflicted with the disease. This Article contends that four distinct classes of cross-border and cross-product externalities ought to play in an important role when assessing this question in the future. It discusses the possible roles to be played by bilateral, sequential, pass-through, and supply chain externalities in propagating the transmission of agricultural disease across borders through trade.

• Renegotiating NAFTA: The Role of Global Supply Chains

  in Economics and Policy in the Age of Trump, (C Bown, ed.) CEPR Press, June 2017.  

  VOX-EU

  View Abstract
  What do global supply chains mean for current proposals to renegotiate or withdraw from the North American Free Trade Agreement? This chapter reviews recent research to offer clues. Upshot: North American Supply Chains are deep and complex: dramatic policy reversals could have sharp, widespread, and unanticipated consequences for all three NAFTA members.

• U.S. Multinationals and Preferential Market Access [WP Version]

  2015. With X. Matschke. Review of Economics and Statistics 97(4): 839-854.

  VOX-EU

  View Abstract
  This paper examines the relationship between U.S. multinational firms' off-shoring activity and the structure of U.S trade preferences. We combine firm level panel data on U.S. foreign affiliate activity from the U.S. Bureau of Economic Analysis (BEA) with detailed measures of U.S. trade preferences from the U.S. International Trade Commission (USITC) to create a three-way panel that spans 80 industries, 184 countries, and ten years (1997-2006). Consistent with existing theory, we find that off-shoring and preferential market access are positively and consistently correlated, both in the pooled sample and within countries, industries, and years. Using instrumental variables to address the endogeneity of export-oriented foreign investment, we find that a 10% increase in U.S. foreign affiliate exports to the U.S. from a particular industry and country is associated with a 4 percentage point increase in the rate of preferential duty-free access. Restricting attention to the Generalized System of Preferences (GSP) among potentially eligible developing countries, we find that the influence of multinational affiliate sales on preferential market access more than triples relative to the baseline, full sample results.

• A Shifting Mandate: International Ownership, Global Fragmentation, and a Case for Deeper Liberalization Under the WTO [WP Version]

  2015.  World Trade Review 14 (1): 87-99.

  View Abstract
  This paper reviews several key implications of international investment and global supply chain fragmentation for the multilateral trading system. Based on existing economic research, I identify a two-fold challenge for policy makers: first, to leverage the trade-liberalizing potential of global fragmentation at the multilateral level; and second, to counter the potential for opportunistic manipulation of behind-the-border policy instruments.

• What Global Fragmentation Means for the WTO: Article XXIV, Behind-the-Border Concessions, and A New Case for WTO Limits on Investment Incentives [WP Version]

  December 2014. Background paper for the WTO 2014 World Trade Report.  WTO WP 2014-03

  View Abstract
  The rapid rise in global fragmentation -- foreign investment, global supply chains, and `production sharing' -- is fundamentally reshaping the multilateral trading system. This paper uses a simple economic modeling framework to understand how the global fragmentation phenomenon may reshape the WTO, and particularly its developing country members that are most affected by the rise in global production sharing and foreign direct investment. The paper argues that the surge in global production sharing, supply chain agreements, and investment has not only recast the role of existing GATT/WTO rules, but that these same forces also create a strong rationale for new multilateral disciplines pertaining to investment incentives and other `behind-the-border' policies.

• The U.S. Generalized System of Preferences in Principle and Practice [WP Version]

  2015. With Shushanik Hakobyan.  World Economy 38(3): 399-424. 

  View Abstract
  In principle, the U.S. Generalized System of Preferences (GSP) offers uniform market access to exports from eligible developing countries for a broad set of GSP-eligible products. In practice, realized GSP tariff-exemptions demonstrate marked variation across countries, industries, and years. In this paper, we identify the sources of discretionary and non-discretionary GSP exclusions, and quantify the extent to which competitive needs limitations (CNLs), waivers, and additional annual product, country, and country-product exclusions drive a wedge between the ‘generalized’ principle of GSP and its implementation in practice.

• Reevaluating the Role of Trade Agreements: Does Investment Globalization Make the WTO Obsolete? [WP Version]

  2010. Journal of International Economics 82: 63-72.

  View Abstract
  International ownership alters the role of multilateral trade institutions by redefining pecuniary externalities among countries. Regardless of the underlying cause – whether foreign direct investment, international portfolio diversification, cross-country mergers, or multinational firms – international ownership can mitigate incentives that lead large countries to set inefficiently high tariffs. At the same time, however, foreign ownership introduces the potential for expropriation by investment-host countries, which can extract rent from foreign owners by manipulating local prices. The basic principle of reciprocity continues to serve as an important guide to efficiency, though its application must account for the pattern of international ownership in addition to traditional measures of market access.

• Trade Taxes and International Investment [WP Version]

  2009. Canadian Journal of Economics 42(3): 882-899.

  View Abstract
  This paper demonstrates that international investment disturbs the conventionally understood equivalence between import tariffs and export taxes. Fundamentally, remittances to foreigners introduce an additional pecuniary channel between countries so that two-good Lerner Symmetry generally will not hold. Moreover, because tariffs subsidize investors in the local import competing sector while export taxes can extract rent from foreign investors in the export sector, the pattern of international investment will influence government preferences over trade policy instruments as well as levels. Notably, trade tax symmetry is restored by introducing a third policy tool in the form of a direct a tax on international remittances.

• Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements

  2007. B.E. Journal of Economic Analysis & Policy [Advances] 7(1): 1-37 

  View Abstract
  This paper examines the complementarity between international trade and investment policies, and argues that preferential trade agreements may be a particularly effective means for harnessing the tariff liberalizing potential of foreign direct investment. A simple two country model demonstrates that export-platform foreign investment induces unilateral tariff liberalization by the investment-source country, suggesting that international capital mobility may substitute partially for multilateral forums such as the WTO in achieving efficient tariffs. A multi-country extension of the model in which countries can compete for foreign investors via subsidies then develops an efficiency argument in favor of discriminatory tariff allowances such as Article XXIV of the GATT or the Generalized System of Preferences. When small countries can earn preferential tariff treatment from a large trading counterpart by encouraging local export-platform investment (or by discouraging import competing investment), the equilibrium tariff level will be lower when discriminatory tariffs are possible rather than when they are not.

Globalization and Human Capital Acquisition

• Unequal Gains, Prolonged Pain: A Model of Protectionist Overshooting and Escalation [WP Version]

  With G. Willmann. 2022. Journal of International Economics, 135 (103559): 1-32.

  Data Source and Replication Files

  View Abstract
  We develop a model of democratic responses to macroeconomic shocks, and show that when economic adjustment is slower than potential political change, economic shocks can trigger populist surges. Applied to trade policy, we show that unexpected changes in world prices or skill biased technological change can induce a surge in economic nationalism and trade protection. Over time, the initial protectionist surge will gradually diminish if and only if educational gains enable less-skilled workers to catch up with the overall economy. The more unequal the initial distribution of the returns to human capital, the greater and longer-lasting the protectionist backlash will be: unequal gains, prolonged pain. Evidence on key data markers suggested by the model exhibits patterns consistent with recent populist support for Brexit and Trump.

• Globalization and Human Capital Investment: Export Composition Drives Educational Attainment [WP Version]

  with W. Olney. 2017. Journal of International Economics 106: 165-183

  View Abstract
  Human capital is among the most important drivers of long-run economic growth, but its macroeconomic determinants are still not well understood. This paper demonstrates the importance of a key demand-side driver of education, using exports as a lens to study how shifting patterns of production affect subsequent educational attainment. Using a panel of 102 countries and 45 years, we fi…nd that growth in less skill-intensive exports depresses average educational attainment while growth in skill-intensive exports increases schooling. Our results provide insight into which types of sectoral growth are most beneficial for long-run human capital formation and suggest that trade liberalization could exacerbate initial differences in factor endowments across countries.

• Trade, Education, and the Shrinking Middle Class [WP Version]

  With G. Willmann.  2016. Journal of International Economics 99(1): 263-277.

  View Abstract
  We develop a new model of trade in which educational institutions drive comparative advantage and determine the distribution of human capital within and across countries. Our framework exploits a multiplicity of sectors and the continuous support of human capital choices to demonstrate that freer trade can induce crowding out of the middle occupations towards the skill acquisition extremes in one country, and simultaneous expansion of middle-income industries in another. Individual gains from trade may be non-monotonic in workers' ability, and middle ability agents can lose the most from trade liberalization. Comparing trade and education policy, we find that targeted education subsidies like Trade Adjustment Assistance are an effective means to bolster the "middle class."

• Escaping a Protectionist Rut: Policy Mechanisms for Trade Reform Under Democracy [WP Version]

  With G. Willmann. 2011. Journal of International Economics 85(1): 72-85.

  View Abstract
  This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions and thus voters' trade policy preferences. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or tariff liberalization by trading partners, but generally not by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a protectionist political rut.

• Opening (and Closing) Doors: Country Specific Shocks in U.S. Doctorate Education

  2008. With John Bound and Sarah Turner in Doctoral Education and the Faculty of the Future, edited by R. Ehrenberg and C. Kuhn, Cornell University Press.

  View Abstract
  The influx of foreign students to doctorate programs at U.S. universities has been a subject of much discussion, particularly as the representation of students from outside the U.S. accounted for 51% of PhD recipients in science and engineering fields in 2003, up from 27% in 1973. While some of these changes reflect relatively continuous adjustments in the choices of students from countries with long-standing diplomatic and trade ties with the United States, other adjustments reflect sharp changes in access to the U.S. education market. The most dramatic examples of the latter type are the entry of PhD students from China in the early 1980s and the entry of PhD students from Eastern Europe in the late 1980s and the Soviet Union in the early 1990s. Sharp changes in political circumstances within countries appear to have direct impacts on the flow of doctorate students to the U.S. These changes raise two sets of questions for economic analysis. First, how can we model the change from no educational exchange to relatively open access to U.S. graduate programs? Secondly, we ask whether such sharp changes in the supply of students from abroad lead to reductions in PhD attainment among students from the U.S.

Trade Intermediation and Carry-Along Trade

• Carry-Along Trade [WP Version]

  This version: September 2017. With A. Bernard, I. Van Beveren, and H. Vandenbussche. Forthcoming, Review of Economic Studies   Online theory appendix.

  View Abstract
  Large multi-product firms dominate international trade flows. Using novel linked production and export data at the firm-product level, we find that the overwhelming majority of manufacturing firms export products that they do not produce. Three quarters of the exported products and thirty percent of export value from Belgian manufacturers are in goods that are not produced by the firm, so-called Carry-Along Trade (CAT). The number of CAT products is strongly increasing in firm productivity while the number of produced products that are exported is weakly increasing in firm productivity. We propose a general model of production and sourcing at multi product firms and explore new demand- and supply-side modeling features capable of generating predictions consistent with the empirical findings. Export price data and company interviews offer suggestive evidence for the presence of demand-scope complementarities.

• Private Labels and Exporting: Trading Variety for Volume [WP Version]

  2017. With T. Chesnokova and G. Willmann. Review of World Economics 153(3): 545-572.

  View Abstract
  This paper explores the role of pooled-producer, e.g. private label, trade intermediation in shaping the range and diversity of exports. Direct sales maintain a firm’s unique product characteristics – or ‘brand equity’ – whereas trade through an intermediary takes the form of a ‘private label’ contract under which the firm’s product is pooled with other firms’ output and re-sold under a new private label brand created by the intermediary. This paper shows that the availability of the private label option results in greater total export volumes and lower average prices for consumers, but fewer independent varieties available in equilibrium. Welfare implications are mixed: consumers trade variety for volume, firms face greater competition from the new pooled-products, and intermediaries capture much of the gains from trade. We explore the implications of competition at the intermediary level and trade costs for the equilibrium pattern of private label and direct exporting activities.

Experimental Economics

• Testing Subgame Perfection Apart From Fairness in Ultimatum Games

  With J. Andreoni. 2005. Experimental Economics 9(4): 307-321.

  View Abstract
  We present an experiment designed to separate the two commonplace explanations for behavior in ultimatum games—subjects’ concern for fairness versus the failure of subgame perfection as an equilibrium refinement. We employ a tournament structure of the bargaining interaction to eliminate the potential for fairness to influence behavior. Comparing the results of the tournament game with two control treatments affords us a clean test of subgame perfection as well as a measure fairness-induced play. We find after 10 iterations of play that about half of all non-subgame-perfect demands are due to fairness, and the rest to imperfect learning. However, as suggested by models of learning, we also confirm that the ultimatum game presents an especially difficult environment for learning subgame perfection.

• Production and Gains from Trade

  2008. With L. Anderson, K. Chaston, C. Holt, L. Razzolini, and R. Singleton. Perspectives in Economic Education Research, 4(1) pp.3-22.

  View Abstract
  This paper describes a classroom game in which students make production and trade decisions. Each student represents a country and decides how much of two goods to produce, how much to exchange with a partner country, and whether to specialize in the production of one of the two goods. In introductory level classes, the game helps students understand the notion of comparative advantage in production and distinguish between gains from pure exchange and gains from specialization and trade. Class discussion focuses on the concepts of production possibility frontier, marginal productivity of inputs, and on the determination of the price ratio at which trade may occur. In advanced classes, the exercise facilitates comparisons among different models of international trade and serves as a platform from which to introduce and discuss key issues in current research and public debate.

Policy White Papers, Technical Reports, Opinions, and Other Writing

• Trade Impacts of the COVID-19 Pandemic on Graduating LDCs

  2020. With W. Olney.  Prepared for the WTO under the auspices of the EIF-WTO Projecton LDC Graduation.

• Education and Health as Industrial Policy

  2020.  Invited opinion essay for the 2020 WTO World Trade Report: Government Policies to Promote Innovation in the Digital Age

• What Global Fragmentation Means for the WTO: Article XXIV, Behind-the-Border Concessions, and A New Case for WTO Limits on Investment Incentives

  2014.  Invited background paper for the 2014 WTO World Trade Report: Trade and Development - Recent Trands and the Role of the WTO.

• Leveraging Global Supply Chains in Canadian Trade Policy

  2014. Invited Report for the Canada's Institute for Research on Publica Policy (IRPP); republished in "Art of the State (VI): Redesigning Canadian Trade Policies for New Global Realities," S. Tapp, A Van Assche, and R. Wolfe (ed) Wiley Blackwell, 2017.