Search Results
Working Paper
Can multi-stage production explain the home bias in trade?
A large empirical literature finds that there is too little international trade, and too much intra-national trade to be rationalized by observed international trade costs such as tariffs and transport costs. The literature uses frameworks in which goods are assumed to be produced in just one stage. This paper investigates whether the multi-stage nature of production helps explain the home bias in trade. The author shows that multi-stage production magnifies the effects of trade costs. He then calibrates a multi-stage production model to the U.S. and Canada. He solves the model with measures ...
Working Paper
An Anatomy of U.S. Establishments’ Trade Linkages in Global Value Chains
Global value chains (GVC) are a pervasive feature of modern production, but they are hard to measure. Using U.S. Census microdata, we develop novel measures of the linkages between U.S. manufacturing establishments’ imports and exports. We document three new GVC patterns. First, for every dollar of exports, imported inputs represent 13 cents in 2002 and 20 cents by 2017, substantially higher than what aggregate data suggests. Second, we find strong complementarities between input and output markets reflected in “round-trip” trade linkages where an establishment sources inputs from and ...
Journal Article
Understanding Global Trends in Long-run Real Interest Rates
The authors explore trends in long-run real interest rates and their underlying factors for the 20 largest economies from the 1950s through the present day. {{p}}Real, or inflation-adjusted, interest rates may well be the most important prices for any nation?s economy. They govern intertemporal purchasing decisions facing households, firms, and all levels of government. That is, virtually all interactions in the marketplace that entail making a choice between spending now and spending later necessarily involve real interest rates, which specify the real cost of borrowing to make a purchase ...
Working Paper
Mobility and Engagement Following the SARS-Cov-2 Outbreak
We develop a Mobility and Engagement Index (MEI) based on a range of mobility metrics from Safegraph geolocation data, and validate the index with mobility data from Google and Unacast. We construct MEIs at the county, MSA, state and nationwide level, and link these measures to indicators of economic activity. According to our measures, the bulk of sheltering-in-place and social disengagement occurred during the week of March 15 and simultaneously across the U.S. At the national peak of the decline in mobility in early April, localities that engaged in a 10% larger decrease in mobility than ...
Working Paper
Trade Integration, Global Value Chains, and Capital Accumulation
Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, ...
Working Paper
The Micro and Macro Dynamics of Capital Flows
We study empirically and theoretically the effects of international financial flows on resource allocation. Using the universe of firms in Hungary, we show that removing capital controls lowers firms’ cost of capital and increases household consumption, with the latter playing a dominant role. The consumption channel leads to reallocation of resources toward high expenditure elasticity activities—such as services—promoting both the expansion of incumbents and firm entry. A multi-sector heterogeneous firm model replicates these dynamics. Our model shows that non-homotheticity in ...
Report
The nature and growth of vertical specialization in world trade
Dramatic changes are occurring in the nature of international trade. Production processes increasingly involve a sequential, vertical trading chain stretching across many countries, with each country specializing in particular stages of a good's production sequence. We document a key aspect of these vertical linkages--the use of imported inputs in producing goods that are exported -- which we call vertical specialization. Using input-output tables from the OECD and emerging market countries we estimate that vertical specialization accounts for up to 30 percent of world exports, and has grown ...
Working Paper
Structural Change in Sub-Saharan Africa: An Open Economy Perspective
We study the evolution of manufacturing value added shares in 11 sub-Saharan African (SSA) countries through the lens of an open economy model of structural change. Our analysis leverages recent developments in input-output tables in SSA countries. Our model allows for income effects via non-homothetic preferences, substitution and relative price effects, as well as comparative advantage and specialization effects. We calibrate our model to include each SSA country with nine other major economies for each year between 2000 and 2018. We also do a similar set of calibrations for 11 developing ...
Report
The growth of world trade
The growth in the trade share of output is one of the most important features of the world economy since World War II. We show that an important propagation mechanism for this growth is vertical specialization. Simply put, vertical specialization occurs when imported inputs are used to produce goods that are then exported. We show that many of the standard trade models - the Ricardian model, the monopolistic competition model, and the international real business cycle models - cannot explain the growth in trade unless very high elasticities of demand and substitution are assumed. We then use ...
Working Paper
Multinationals and Structural Transformation
We study how multinational corporations (MNCs) shape firm-level and aggregate structural transformation. Using confidential microdata from Japan and exploiting a quasi-exogenous reform that expanded foreign investment opportunities in China, we assess empirically how this reform affected employment at firms in both the host country (China) and the home country (Japan). In liberalized industries, Japanese manufacturing affiliates in China expanded employment, while parent firms in Japan shifted out of manufacturing and into higher-value service activities, including R&D. To assess the broader ...