Specialization and the volume of trade: do the data obey the laws?
The core subjects of trade theory are the pattern and volume of trade: which goods are traded by which countries, and how much of those goods are traded. The first part of this paper discusses evidence on comparative advantage, with an emphasis on carefully connecting theoretical models with data analyses. The second part of the paper considers the theoretical foundations of the gravity model and reviews the small number of studies that have tried to test, rather than simply use, the implications of gravity. Both parts of the paper yield the same conclusion: we are still in the very early ...
New China Tariffs Increase Costs to U.S. Households
Tariffs on $200 billion of U.S. imports from China subject to earlier 10 percent levies increased to 25 percent beginning May 10, 2019, after a breakdown in trade negotiations. In this post, we consider the cost of these higher tariffs to the typical U.S. household.
How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?
The COVID-19 pandemic has had a significant impact on trade between the United States and China so far. As workers became sick or were quarantined, factories temporarily closed, disrupting international supply chains. At the same time, the trade relationship between the United States and China has been characterized by rising protectionism and heightened trade policy uncertainty over the last few years. Against this background, this post examines how the recent period of economic disruptions in China has affected U.S. imports and discusses how this episode might impact firms’ supply chains ...
Modeling the Global Effects of the COVID-19 Sudden Stop in Capital Flows
The COVID-19 outbreak has triggered unusually fast outﬂows of dollar funding from emerging market economies (EMEs). These outflows are known as “sudden stop” episodes, and they are typically followed by economic contractions. In this post, we assess the macroeconomic eﬀects of the COVID-induced sudden stop of capital flows to EMEs, using our open-economy DSGE model. Unlike existing frameworks, such as the Federal Reserve Board’s SIGMA model, our model features both domestic and international ﬁnancial constraints, making it well-suited to capture the eﬀects of an outﬂow of ...
Estimation of cross-country differences in industry production functions.
International trade economists typically assume that there are no cross-country differences in industry total factor productivity (TFP). In contrast, this paper finds large and persistent TFP differences across a group of industrialized countries in the 1980s. The paper calculates TFP indices, and statistically examines the sources of the observed large TFP differences across countries. Two hypotheses are examined to account for TFP differences: constant returns to scale production with country-specific technological differences, and industry-level scale economies with identical technology in ...
The home market, trade, and industrial structure
Does national market size matter for industrial structure? This has been suggested by theoretical work on "home market" effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience ? transport costs only for the differentiated goods ? matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogeneous goods. No compelling argument is found that ...
The dual nature of trade: measuring its impact on imitation and growth
Imports of goods that embody foreign technology raise a country's output directly as inputs into production and indirectly through reverse-engineering of these goods, which contributes to domestic imitation and innovation. This paper first quantifies spillovers from high-technology imports from developed countries to domestic imitation and innovation in both developed and developing countries. It then considers the contribution of foreign and domestic innovation to real per capita GDP growth. ; International patent data for forty countries from 1970 to 1985 are used to create proxies for ...
Truncated Firm Productivity Distributions and Trade Margins
A standard theoretical prediction is that average exports are independent of tariff rates when the underlying distribution of firm productivities is assumed to be the widely-used Pareto distribution. Assuming that the underlying distribution has no upper bound is undoubtedly inaccurate and produces theoretical results at odds with empirical results. In contrast, we show that upper-truncation of the Pareto distribution makes average exports rise with trade liberalization. This result is derived analytically, and is supported by simulations. We extend our analysis to the cases of lognormal and ...
International Trade of Essential Goods During a Pandemic
This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country, multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or ...
International Trade of Essential Goods During a Pandemic
This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or ...