Topics in International Trade
Lightning Round SessionFriday, Jan. 3, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Mauricio Ulate, Federal Reserve Bank of San Francisco
Distributional and Welfare Effects of Trade Facilitation: Evidence from China
Abstract
This paper investigates how trade facilitation affects firms asymmetrically. We explore China's "Single Window" reform, which streamlined administrative procedures in international trade, to elucidate within-country distributional effects. Leveraging the by-province roll-out of the reform, we find decreasing per-shipment fixed costs and increasing export value at the aggregate level due to quantity growth. The falling trade costs encourage entry of new firms, intensify competition, thus lead to null, if any negative, impacts on top firms. Such pro-competition effects not only improve domestic allocation efficiency, the consequent declining export prices also signify welfare gains to international buyers. Our findings provide vital empirical insights for the real impacts of the trade facilitation reform.Do Capital Inflows Spur Technology Diffusion? Evidence from a New Technology Adoption Index
Abstract
We construct a novel measure of technology adoption, the Embodied Technology Imports Indicator (ETI), available for 181 countries over the period 1970-2020. The ETI measures the technological intensity of imports of each country by leveraging patent data from PATSTAT and product-level trade data from COMTRADE. We use this index to assess the link between capital flows and the diffusion of new technologies across emerging economies and low-income countries. Through a local projection difference-in-differences approach, we establish that variations in statutory capital flow regulations increase technological intensity by 7-9 percentage points over 5 to 10 years. This increase is accompanied by a significant 28-33 pp rise in the volume of gross capital inflows, driven primarily by foreign direct investment (21 pp increase), and a 9 to 12 percentage points shift in the level of Real GDP per capita in PPP terms.E-commerce and Regional Inequality: A Trade Framework and Evidence from Amazon’s Expansion
Abstract
E-commerce exposes consumers to a broader set of goods and retailers, and online retailing by nature is more mobile in space. This paper studies the spatial general equilibrium and redistribution effects of e-commerce on different local labor markets from a trade perspective based on the production technology change in the retail sector. Using the universe of products and retailers on Amazon, I document that online retailers are more agglomerated in space, particularly for those using Amazon’s distribution and fulfillment centers, and their agglomeration is related to higher trade flows of the upstream goods. I then incorporate consumer search and retailer location choices into a multi-sector gravity trade model with an elastic supply of heterogeneous workers. The model implies that the increase in online shopping efficiency, the rise in online retailer agglomeration, and the reduction in shipping friction will induce greater industrial and occupational specialization. Quantitative analysis shows that the growth of Amazon from 2007-2017 had led to overall declines in retail prices, but also worker reallocation out of manufacturing sector, resulting in a 1 percent decrease in welfare. Non-employment increases by 2.3 percentage points and the Gini index on employment across regions increases by near 20 percent, exacerbating regional inequality. Counterfactual exper- iments allowing government to redistribute regional trade surpluses and intervene in online market design improve spatial efficiency.Exchange Rate Narratives
Abstract
Leveraging Wall Street Journal news, recent developments in textual analysis, and generative AI, we estimate a narrative decomposition of the dollar exchange rate. Our findings shed light on the connection between economic fundamentals and the exchange rate, as well as on its absence. Starting from the late 1970s, we identify six non-overlapping narratives explaining exchange rate changes. These narratives include U.S. policy and technological changes in the first half of the sample, and financial market news in the second half.Global Exchange Rate Pass Through and Heterogeneous Firms
Abstract
Estimating exchange rate pass-through (ERPT) at the micro-level can reveal hidden dynamics of exchange rate transmission obscured by aggregate data. However, the limited availability of data at the firm or product level restricts empirical evidence, thereby hindering cross-country comparability.To overcome this, we devise a new method to estimate ERPT at firm-level domestic prices using a theoretical framework that incorporates variable markups and imported intermediate inputs, even in the absence of direct price data. This novel approach quantifies ERPT using commonly available firm-level revenue and cost data (e.g., Orbis) for firms with varying characteristics in a variety of sectors and countries, allowing scholars to estimate ERPT to firms, even without broad access to price data.
We propose a model in which Multinational Corporations (MNCs) invoicing in ‘vehicle currencies’ (e.g., USD) have very low ERPT in terms of producer prices due to their ability to absorb exchange rate shocks through the internalization of firm processes. Conversely, small importing firms in commodity sectors in countries with non-vehicle currencies and high financial openness face very high ERPT.
Our findings reveal that: (1) MNCs exhibit substantially lower ERPT levels compared to purely domestic firms; (2) firms in countries with greater capital account openness experience higher ERPT levels; (3) firms in emerging markets (EMs), especially those with high import intensities, display higher ERPT than their counterparts in advanced economies; and (4) the impact of financial openness on ERPT is somewhat mitigated by multinationalism for EM firms. Import-intensive non-MNCs in financially open EMs with non-vehicle currencies face the highest levels of ERPT.
The significant presence of multinational companies in domestic markets may account for the observed aggregate ERPT being lower than what canonical models predict. However, ERPT for small, import-intensive non-MNCs in financial open economies more closely aligns with canonical model expectations.
In Search of (Factor-Biased) Learning by Exporting
Abstract
We develop a novel production function framework to analyze learning by exporting with factor-specific productivity dynamics. Contrary to standard practices that view learning-by-exporting as a Hicks-neutral shifter, exporting has varied impacts on factor-augmenting productivities in our framework. Analyzing a historical period in Colombia from 1981 to 1991, we find that (1) skilled and unskilled labor are complements; (2) exporting does not improve the Hicks-neutral productivity, confirming earlier work; and (3) unskilled labor efficiency rises both absolutely and relative to skilled labor after exporting, leading exporters to become more skilled-intensive. Our findings suggest a new insight into trade liberalization. Trade liberalization could have facilitated export-led industrialization, driving manufacturing productivity gains by adopting unskilled labor-saving technology and capitalizing on scale economies.Market Power and Distorted Firm Growth: The Role of Endogenous Suppliers Accumulation
Abstract
Countries tend to set higher import tariffs on final goods than on intermediate input goods, a phenomenon referred to as tariff escalation. How does this policy shape dynamic gains from trade liberalization?Using international transaction-level data and balance sheet data for Colombia, we uncover a set of new stylized facts. First, we show that firms slowly accumulate foreign suppliers of intermediate inputs over time. Second, firms that add more suppliers experience faster sales growth. Third, there is a heterogeneous response to intermediate inputs trade liberalization: large final good firms increase their portfolio of suppliers just slightly, while small firms have a higher growth rate in the number of new connections. Fourth, in response to the final good’s tariff fall (import shock), large final good firms increase the number of new suppliers, while small firms decrease the rate of accumulating new suppliers. Fifth, final good trade liberalization generates faster growth of sales for large firms, while small firms significantly decrease their sales growth.
To rationalize these findings, we propose a new model of firm growth. In this framework, differentiated firms engage in monopolistic competition, charge heterogeneous markups, and make forward-looking investments in search of intermediate input suppliers to improve their process efficiency. We show that markups distort the scale at which final good firms invest into their suppliers’ portfolio and can generate an inverted-U relationship between the productivity of firms and search intensity: large firms find it more profitable to manipulate markups than to invest in suppliers. Calibrating the model to the data, we show that a 20% reduction in final goods tariffs could help to achieve 45% faster productivity growth, which generates a 7.2% increase in welfare across steady-states. Intermediate trade liberalization achieves only 12% faster productivity growth and a 2.2% welfare increase.
Multinational Production, Trade, and the Global Diffusion of Knowledge
Abstract
This paper develops a tractable model of international trade and multinational production (MP) that studies their effects on knowledge diffusion and productivity growth. We estimate the rates of diffusion from domestic and foreign firms and show that while long-run growth is solely driven by domestic firms, MP has significant impacts on short and medium-run productivity growth. Furthermore, increase in bilateral trade costs can cause significant substitution away from exporting to producing abroad. This can have positive effects on the destination of the multinational's investments, at the expense of the productivity growth of the exporting country. Counterfactual analysis shows that the model can account for a greater proportion of the variance in productivity growth across recent growth episodes relative to a model without diffusion or MP.U.S. Monetary Policy Spillovers to Emerging Markets: The Role of Trade Credit
Abstract
We analyse the effects of exogenous US monetary policy shocks on trade credit towards emerging markets by using a proprietary database on trade credit amounts. We show that a US monetary tightening leads to an increase in foreign-supplied trade credit in Mexico. Thanks to the granularity of our database, we can identify a stronger effect on bad-credit-quality buyers, who are subject to larger financial constraints after the shock. Distinguishing across the extensive and intensive margins, we show that trade credit can be used by these buyers as an alternative to tighter financial constraints, but only within pre-existing relationships. Finally, we find no similar increase in trade credit following ECB monetary shocks. Given the importance of US monetary policy spillovers for emerging markets, this emphasises the buffer role of trade credit when financial conditions tighten after US monetary policy shocksJEL Classifications
- F0 - General