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Working Paper
On Terms of Trade, Offshoring Ties, and the Enforcement of Trade Agreements
Bandyopadhyay, Subhayu; Basu, Arnab K.; Chau, Nancy H.; Mitra, Devashish (2023-04)
This paper unpacks the role of offshoring in the enforcement of trade agreements. In a two-country model of task offshoring, we show that by depressing demand and thus demand for embodied labor, own-tariff effects on factor content weighted terms of trade are: (i) negative in upstream countries, backfiring on upstream workers, and (ii) positive in downstream countries which render imported labor tasks even cheaper. This progression in own-tariff effects on terms of trade along the supply chain presents a novel challenge to the effectiveness of dispute settlement rules designed to nullify ...
Working Papers , Paper 2022-039

Working Paper
Trade Liberalization versus Protectionism: Dynamic Welfare Asymmetries
Santacreu, Ana Maria; Ravikumar, B.; Sposi, Michael (2024-01-18)
We investigate whether the losses from an increase in trade costs (protectionism) are equal to the gains from a symmetric decrease in trade costs (liberalization). We incorporate dynamics through capital accumulation into a multicountry trade model and show that the welfare changes are asymmetric: Losses from protectionism are smaller than the gains from liberalization. In contrast, standard static trade models imply that the losses equal the gains. The intuition for asymmetry in our model is that, following protectionism, the economy can coast on its previously accumulated capital stock, so ...
Working Papers , Paper 2023-019

Working Paper
Trade and Inequality in an Overlapping Generations Model with Capital Accumulation
Nie, Jun; Ravikumar, B.; Sposi, Michael (2024-09-23)
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 Papers , Paper 2024-018

Working Paper
The Evolution of Comparative Advantage: Measurement and Implications
Levchenko, Andrei A.; Zhang, Jing (2014-10-07)
We estimate productivities at the sector level for 72 countries and 5 decades, and examine how they evolve over time in both developed and developing countries. In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact. In the counterfactual scenario in which each country's comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the ...
Working Paper Series , Paper WP-2014-12

Working Paper
Demographics and the Evolution of Global Imbalances
Sposi, Michael (2017-12-01)
The age distribution evolves asymmetrically across countries, influencing relative saving rates and labor supply. Emerging economies experienced faster increases in working age shares than advanced economies did. Using a dynamic, multicountry model I quantify the effect of demographic changes on trade imbalances across 28 countries since 1970. Counterfactually holding demographics constant reduces net exports in emerging economies and boosts them in advanced economies. On average, a one percentage point increase in a country?s working age share, relative to the world, increases its ratio of ...
Globalization Institute Working Papers , Paper 332

Working Paper
Spoils of War: Trade Shocks and Segmented Labor Markets in Spain during WWI
Fuchs, Simon (2021-05-28)
How does intranational factor mobility shape the welfare effects of a trade shock? I provide evidence that during WWI, a demand shock emanated from belligerent countries and affected neutral Spain. Within Spain, labor predominantly reallocated locally, while the most affected provinces experienced drastic increases in wages and consumer prices. Embedding imperfect labor mobility in an economic geography model, I show that external demand shocks can improve allocative efficiency, but asymmetric shocks cause localized increases in wages and consumer prices instead of reallocation. Adjusting an ...
FRB Atlanta Working Paper , Paper 2021-14

Working Paper
A Quantitative Analysis of Tariffs across U.S. States
Zhang, Jing; Sposi, Michael; Santacreu, Ana Maria (2021-05-21)
We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2 to 25 across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to $-0.3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred'' tariff rate varies greatly across states. Foreign retaliation in trade policy ...
Working Papers , Paper 2021-007

Working Paper
Structural Change in Sub-Saharan Africa: An Open Economy Perspective
de Vries, Gaaitzen; Yi, Kei-Mu; Mensah, Emmanuel; Kruse, Hagen; Vidogbena, Yabo (2024-12-24)
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 ...
Working Papers , Paper 2418

Working Paper
Terrorism, Trade and Welfare: Some Paradoxes and a Policy Conundrum
Younas, Javed; Sandler, Todd; Bandyopadhyay, Subhayu (2016-03-01)
We present a standard trade model and show that terrorism can be trade inducing, starting from autarky. In addition, terrorism can be shown to be welfare augmenting for a group of nations. Finally, we present some qualitative conditions that identify when a nation?s trade volume may rise (or fall) in response to a greater incidence of terrorism. Our trade and welfare results point to potential difficulties in international coordination of counterterrorism policy because of terrorism?s differential impact across nations.
Working Papers , Paper 2016-2

Working Paper
Capital Accumulation and Dynamic Gains from Trade
Santacreu, Ana Maria; Ravikumar, B.; Sposi, Michael (2017-02-27)
We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation. We examine transition paths for 93 countries following a permanent, uniform, unanticipated trade liberalization. Both the relative price of investment and the investment rate respond to changes in trade frictions. Relative to a static model, the dynamic welfare gains in a model with balanced trade are three times as large. The gains including transition are 60 percent of those computed by comparing only steady states. Trade imbalances have negligible effects on the cross-country distribution of ...
Working Papers , Paper 2017-5

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