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International Trade

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Hilton Atlanta, 203
Hosted By: International Economics and Finance Society
  • Chair: Jeffrey Bergstrand, University of Notre Dame

Phase Out Tariffs, Phase In Trade?

Tibor Besedes
,
Georgia Institute of Technology
Tristan Kohl
,
University of Groningen
James Lake
,
Southern Methodist University

Abstract

What causes US trade with Mexico and Canada to continue growing
faster relative to countries with which the US does not have a Free Trade
Agreement (FTA)? Baier and Bergstrand (2017) suggest that tariff phase-outs and delayed
terms-of-trade effects cause prolonged differential import growth. We
examine how tariff cuts negotiated under the Canada-US Free Trade Agreement
(CUSFTA) and North American Free Trade Agreement (NAFTA) affected US import
growth in 1989-2017 using detailed product-level data on tariff stagings in
the original treaties. Surprisingly, we find that most FTA-induced trade
growth occurs instantly upon enforcement, even for products subject to phase
out tariffs. Moreover, FTAs have a long-lasting effect on trade growth
beyond the phase out period. These effects are not explained by changes in
the terms of trade.

External Economies of Scale and Industrial Policy: A View from Trade

Dominick Bartelme
,
University of Michigan
Arnaud Costinot
,
Massachusetts Institute of Technology
Dave Donaldson
,
Massachusetts Institute of Technology
Andres Rodriguez-Clare
,
University of California-Berkeley

Abstract

We develop a new empirical strategy to estimate external economies of scale using trade data. Across 2-digit manufacturing sectors, our baseline estimates of scale elasticities range from 0 to 0.23 and average 0.06. We then use our estimates of external economies of scale across sectors to explore the structure and implications of optimal industrial policy. We find that gains from optimal industrial policy are only around 0.1% on average across the countries in our sample – this is small relative to the gains from optimal trade policy, which are around 0.6% on average.

Productivity, (Mis)allocation and Trade

Antoine Berthou
,
Bank of France
John Jong-Hyun Chung
,
Stanford University
Charlotte Sandoz Dit Bragard
,
International Monetary Fund
Kalina Manova
,
University College London

Abstract

We examine the impact of international trade on aggregate productivity. We show theoretically and numerically that bilateral and unilateral export liberalization increase aggregate welfare and productivity, while unilateral import liberalization can either raise or reduce them. However, all three tradereforms have ambiguous effects in the presence of resource misallocation. Using unique new data on 14 European countries and 20 manufacturing industries during 1998-2011, we empirically establish that
exogenous shocks to both export demand and import competition generate large gains in aggregate productivity. Decomposing these gains, we …nd that both trade activities increase average …rm pro-ductivity, but export expansion also reallocates activity towards more productive …rms, while import
penetration acts in reverse. To unpack the adjustment mechanisms, we show that both export and import exposure raise the minimum productivity among active …rms. We also document that e¢ cient institutions, factor and product markets amplify the productivity gains from import competition, but
dampen those from export expansion. We conclude that the e¤ects of globalization operate through a combination of improved …rm selection and reallocation across …rms in the presence of resource misallocation.

Political Distortions and Infrastructure Networks in China: A Quantitative Spatial Equilibrium Analysis

Simon Alder
,
University of North Carolina-Chapel Hill
Illenin Kondo
,
University of Notre Dame

Abstract

Using the timing of China's highway network construction and political leadership cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network's implementation are closer to the actual network, compared to the counterfactual optimal network in a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate costs of distortions in the highway network. Overall, compared to the actual highway network, aggregate income is 1.45 percent higher with the heuristic optimal network and political distortions account for part of this welfare loss.
JEL Classifications
  • F1 - Trade
  • F4 - Macroeconomic Aspects of International Trade and Finance