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Working Paper
Innovation and Trade Policy in a Globalized World
Akcigit, Ufuk; Impullitti, Giammario; Ates, Sina T. (2018-06-15)
How do import tariffs and R&D subsidies help domestic firms compete globally? How do these policies affect aggregate growth and economic welfare? To answer these questions, we build a dynamic general equilibrium growth model where firm innovation endogenously determines the dynamics of technology, market leadership, and trade flows, in a world with two large open economies at different stages of development. Firms? R&D decisions are driven by (i) the defensive innovation motive, (ii) the expansionary innovation motive, and (iii) technology spillovers. The theoretical investigation illustrates ...
International Finance Discussion Papers , Paper 1230

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
What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models
Sager, Erick; Jaravel, Xavier (2019-09-20)
This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identification strategies, we estimate that a 1pp increase in import penetration from China causes a 1.91% decline in consumer prices. This price response is driven by declining markups for domestically-produced goods, and is one order of magnitude larger than in standard trade models that abstract from strategic price-setting. The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and ...
Finance and Economics Discussion Series , Paper 2019-068

Working Paper
How do Firms in Different Sectors Organize their Supply Chains? Evidence from Transaction-Level Import Data
Heise, Sebastian; Pierce, Justin R.; Schaur, Georg; Schott, Peter K. (2025-02-27)
Heise et al. (2021) develop a model-based empirical measure—sellers per shipment (SPS)—to characterize how firms organize supply chains in response to a quality control problem. High SPS indicates spot-market purchasing with costly inspections, while low SPS suggests long-term relationships where buyers pay an incentive premium to prevent cheating. Here, we document intuitive variation in US importers' SPS across sectors, and that show shipping characteristics such as average price, quantity shipped and shipment frequency are in each sector consistent with the model of sourcing developed ...
International Finance Discussion Papers , Paper 1405

Working Paper
Private Information and Optimal Infant Industry Protection
Riezman, Raymond; Ravikumar, B.; Zhang, Yuzhe (2022-05-20)
We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. We use a mechanism-design approach to induce the industry to reveal its true cost. We show that (i) the optimal protection, measured by infant industry output, declines over time and is less than that under public information, (ii) the optimal protection policy is time consistent under public information but not ...
Working Papers , Paper 2022-013

Working Paper
Does Trade Liberalization with China Influence U.S. Elections?
Che, Yi; Tao, Zhigang; Lu, Yi; Schott, Peter K.; Pierce, Justin R. (2016-03)
This paper examines the impact of trade liberalization on U.S. Congressional elections. We find that U.S. counties subject to greater competition from China via a change in U.S. trade policy exhibit relative increases in turnout, the share of votes cast for Democrats and the probability that the county is represented by a Democrat. We find that these changes are consistent with Democrats in office being more likely than Republicans to support legislation limiting import competition or favoring economic assistance.
Finance and Economics Discussion Series , Paper 2016-039

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
Oil Curse, Economic Growth and Trade Openness
Vespignani, Joaquin L.; Raghavan, Mala; Majumder, Monoj Kumar (2019-10-01)
An important economic paradox that frequently arises in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the ?resource curse,? is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resource abundance for the period 1980?2017. In addition, the study examines the role of trade openness in influencing the relationship between oil ...
Globalization Institute Working Papers , Paper 370

Working Paper
The Optimal Monetary Policy Response to Tariffs
Bianchi, Javier; Coulibaly, Louphou (2025-03-07)
What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether tariffs address other distortions.
Working Papers , Paper 810

Working Paper
The 2025 Trade War: Dynamic Impacts Across U.S. States and the Global Economy
Rodríguez-Clare, Andrés; Ulate, Mauricio; Vasquez, Jose P. (2025-04-22)
We use a dynamic trade and reallocation model with downward nominal wage rigidities to quantitatively assess the economic consequences of the recent increase in the U.S. tariffs on imports from Mexico, Canada, and China, as well as the “reciprocal” tariff changes announced on “Liberation Day” and retaliatory measures by other countries. Higher tariffs trigger an expansion in U.S. manufacturing employment, but this comes at the expense of declines in service and agricultural employment, with overall employment declining as lower real wages reduce labor-force participation. For the ...
Working Paper Series , Paper 2025-09

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