Search Results
Working Paper
Structural Change and Global Trade
Services, which are less traded than goods, rose from 58 percent of world expenditure in 1970 to 79 percent in 2015. In a trade model featuring nonhomothetic preferences and input-output linkages, we find that such structural change has restrained the growth in world trade to GDP by 16 percentage points over this period. This magnitude is similar to how much declining trade costs have boosted openness. Moreover, structural change dampens the measured gains from trade by incorporating endogenous responses of expenditure shares to the trade regime. Ongoing structural change implies declining ...
Journal Article
Steeling the U.S. Economy for the Impacts of Tariffs
Proposed steel and aluminum tariffs would likely trim a quarter percent from the U.S. gross domestic product over the long run. U.S. metals industries would likely expand, while heavy industries, such as machines and equipment, would probably contract along with aggregate capital formation. The main risks lie in the potential for retaliation by trading partners and the possibility of a trade war.
Journal Article
Price Equalization Does Not Imply Free Trade
In this article, the authors demonstrate the possibility of price equalization in a two-country world with barriers to international trade. For price equalization to occur when the countries are asymmetric, the country with higher productivity must also be the one with the lower trade barrier. A corollary of the authors? result is that small departures from purchasing power parity do not necessarily imply that world trade is mostly integrated.
Journal Article
Brexit Through the Gift Shop: No Refunds
The effects of Brexit through higher barriers to trade could cost British households the equivalent of 428 British pounds annually or $580 in 2016 prices. Effects across the rest of the EU would vary, but countries that trade extensively with the United Kingdom, such as Ireland, stand to incur the greatest losses.
Working Paper
Capital goods trade, relative prices, and economic development
International trade in capital goods has quantitatively important effects on economic development through two channels: capital formation and aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth framework. Our model matches several trade and development facts within a unified framework: the world distribution of capital goods production and trade, cross-country differences in investment rate and price of final goods, and cross-country equalization of price of capital goods. Reducing barriers to trade capital goods allows poor countries to ...
Working Paper
What Determines State Heterogeneity in Response to US Tariff Changes?
We develop a structural framework to identify the sources of cross-state heterogeneity in response to US tariff changes. We quantify the effects of unilaterally increasing US tariffs by 25 percentage points across sectors. Welfare changes range from −0.8 percent in Oregon to 2.1 percent in Montana. States gain more when their sectoral comparative advantage covaries negatively with that of the aggregate US. Consequently, “preferred” changes in tariffs vary systematically across states, indicating the importance of transfers in aligning state preferences over trade policy. Foreign ...
Working Paper
Structural Change and Global Trade
Services, which are less traded than goods, rose from 50 percent of world expenditure in 1970 to 80 percent in 2015. Such structural change restrained "openness"?the ratio of world trade to world GDP?over this period. We quantify this with a general equilibrium trade model featuring non-homothetic preferences and input-output linkages. Openness would have been 70 percent in 2015, 23 percentage points higher than the data, if expenditure patterns were unchanged from 1970. Structural change is critical for estimating the dynamics of trade barriers and welfare gains from trade. Ongoing ...
Working Paper
Trade and Inequality in an Overlapping Generations Model with Capital Accumulation
We study the lifecycle aspect of within-country inequality that stems from capital and labor services supplied by individuals. Our environment is a combination of a multicountry trade model and an overlapping generations model with production and capital accumulation. Trade liberalization increases the measured total factor productivity in each country, which increases the marginal product of capital and incentivizes capital accumulation. Higher capital stock and higher measured productivity raise the marginal product of labor and, hence, wages. Inequality, measured by the ratio of old ...
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
Capital goods trade and economic development
Almost 80 percent of capital goods production in the world is concentrated in 10 countries. Poor countries import most of their capital goods. We argue that international trade in capital goods has quantitatively important effects on economic development through two channels: (i) capital formation and (ii) aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth model. Barriers to trade result in a misallocation of factors both within and across countries. We calibrate the model to bilateral trade flows, prices, and income per worker. Our model ...