Global Value Chains, Trade and Productivity
Paper Session
Friday, Jan. 7, 2022 3:45 PM - 5:45 PM (EST)
- Chair: John Van Reenen, London School of Economics
Global Value Chain Tariffs: Implications for Trade Elasticities
Abstract
Today’s trade landscape is characterized by global value chain (GVC) transactions, whereby intermediate inputs cross borders multiple times. As such, trade partners exchange goods and services not only directly, but also indirectly when a given import contains embedded inputs from a range of destinations. In this context, even small tariffs accumulate through GVC trade networks, because firms face tariffs on the gross value of their exports to downstream partners, including on their imported inputs and tariffs previously paid. This paper uses input-output techniques to compute the indirect tariff implied by GVC trade and exploits this information to re-examine the most crucial parameter needed to calibrate quantitative trade and macro models: the trade elasticity. We show that (1) indirect tariffs are higher in sectors which are more integrated into GVCs; and (2) such tariffs apply to a non-trivial share of trade which faces no tariffs, including services and domestic transactions. Capitalizing on the structural foundation of the gravity model, we derive an estimating equation which allows us to empirically identify and decompose the trade elasticity into channels for final versus intermediates trade. Adding further structure, we demonstrateLanguage Barriers in Multinationals and Knowledge Transfers
Abstract
A distinctive feature of MNCs is a three-tier organizational structure: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Language barriers between FMs and DMs could impede transfers of management knowledge. We develop a model in which DMs learn general management by communicating with FMs, but communication effort is non-contractible. These conditions generate sub-optimal communication within the MNC. If communication is complementary with language skills, the planner could raise welfare by subsidizing foreign language acquisition. We experimentally assess the validity of the general skills and the complementarity assumptions in Myanmar, a setting where FMs and DMs communicate in English despite DMs’ low English proficiency. The first experiment examines the general skills assumption by hiring human-resource managers at domestic firms to rate hypothetical job candidates. They value candidates with both higher English proficiency and MNC experience, a premium is driven, in part, by the frequency of interactions with FMs. The second experiment examines the complementarity assumption by providing English training to a random sample of DMs working at MNCs. At end line, treated DMs have higher English proficiency, communicate more frequently with their FMs, are more involved in firm management, and perform better in simulated management tasks. Organizational barriers within MNCs can thus hinder knowledge transfers.Management in Mexico: Market Size, Frictions and Misallocation
Abstract
We present evidence comparing management practices within Mexico, and between Mexico and the US. These management practices are associated with higher productivity, growth, trade, and innovation, and are worse in Mexico than in the US. One driver is greater misallocation in Mexico, which we evaluate using the covariance between firm size and managerial quality. We show three piece of evidence this misallocation is greater when market frictions are higher. First, the size-management relationship is stronger in the US than in Mexico, and within Mexico is stronger in the more open Manufacturing sector than in the Service sector. Second, the size-management relationship is stronger in larger markets, measured by distance to the US for manufacturing firms and population density for service firms. Third, municipalities with weaker institutions, measured by contract enforcement, crime, and corruption, have a weaker size-management relation. These results are consistent with frictions lowering aggregate management quality and productivity.JEL Classifications
- F1 - Trade
- O3 - Innovation; Research and Development; Technological Change; Intellectual Property Rights