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Jel Classification:F23 

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International Trade, Risk and the Role of Banks

Banks play a critical role in international trade by providing trade finance products that reduce the risk of exporting. This paper employs two new data sets to shed light on the magnitude and structure of this business, which, as we show, is highly concentrated in a few large banks. The two principal trade finance instruments, letters of credit and documentary collections, covered about 10 percent of U.S. exports in 2012. They are preferred for larger transactions, which indicates the existence of substantial fixed costs in the provision and use of these instruments. Letters of credit are ...
Staff Reports , Paper 633

Working Paper
Markets, Externalities, and the Dynamic Gains of Openness

Inflows of foreign knowledge are the key for developing countries to catch up with the world technology frontier. In this paper, I construct a simple tractable model to analyze (a) the incentives of foreign firms to bring their know-how to a developing country and (b) the incentives of domestic firms to invest in their own know-how, given the exposure to foreign ideas and competition. The model embeds two diffusion mechanisms typically considered separately in the literature: externalities and markets. The dynamic gains of openness can be substantial under either mechanism, but their relative ...
Working Papers , Paper 2016-23

Working Paper
High-Skill Migration, Multinational Companies, and the Location of Economic Activity

This paper examines the relationship between high-skill immigration and multinational activity. I assemble a novel firm-level dataset on high-skill visa applications and show that there is a large home-bias effect. Foreign multinational enterprises (MNEs) in the US tend to hire more migrant workers from their home countries compared to US firms. To quantify the general equilibrium implications for production and welfare, I build and estimate a quantitative model that includes trade, MNE production, and the migration decisions of high-skill workers. I use an instrumental variables approach to ...
Working Paper , Paper 19-20

Working Paper
Vertical integration and supplier finance

We investigate the financial implications of a multinational firm's choice between outsourcing and integration from the perspective of the supplier. Using a simple model, we explore the extent to which an integrated supplier's access to finance, as well as its sources of funding, change relative to a firm supplying a multinational at arm's-length. The model predicts that integrated firms have better access to finance and cover a larger share of their costs using internal funds. Furthermore, improvements in a host country's level of financial development have less of an impact on the financial ...
Globalization Institute Working Papers , Paper 168

Working Paper
\"It's Not You, It's Me\" : Breakups in U.S.-China Trade Relationships

Costs to switching suppliers can affect prices by discouraging buyer movements from high to low cost sellers. This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters to investigate these costs. I find considerable barriers to supply chain adjustments: 45% of arm?s-length importers keep their partner, and one-third of switching importers remain in the same city. Guided by these regularities, I propose and structurally estimate a dynamic discrete exporter choice model. Cost estimates are large and heterogeneous across products. These costs matter for trade ...
International Finance Discussion Papers , Paper 1165

Working Paper
No Guarantees, No Trade: How Banks Affect Export Patterns

How relevant are financial instruments to manage risk in international trade for exporting? Employing a unique dataset of U.S. banks' trade finance claims by country, this paper estimates the effect of shocks to the supply of letters of credit on U.S. exports. We show that a one-standard deviation negative shock to a country's supply of letters of credit reduces U.S. exports to that country by 1.5 percentage points. This effect is stronger for smaller and poorer destinations. It more than doubles during crisis times, suggesting a non-negligible role for finance in explaining the Great Trade ...
International Finance Discussion Papers , Paper 1158

Working Paper
Banking Across Borders With Heterogeneous Banks

This paper develops a model of banking across borders where banks differ in their efficiencies that can replicate key patterns in the data. More efficient banks are more likely to have assets, liabilities and affiliates abroad and have larger foreign operations. Banks are more likely to be active in countries that have less efficient domestic banks, are bigger and more open to foreign entry. In the model, banking sector integration leads to bank exit and entry and convergence in the return on loans and funding costs across countries. Bank heterogeneity matters for the associated welfare ...
International Finance Discussion Papers , Paper 1177

Working Paper
Benefits of foreign ownership: evidence from foreign direct investment in china

To examine the effect of foreign direct investment, this paper compares the post-acquisition performance changes of foreign- and domestic-acquired firms in China. Unlike previous studies, we investigate the purified effect of foreign ownership by using domestic-acquired firms as the control group. After controlling for the acquisition effect that also exists in domestic acquisitions, we find no evidence in the data that foreign ownership can bring productivity gains to target firms. In contrast, a strong and robust finding is that foreign ownership significantly improves target firms' ...
Globalization Institute Working Papers , Paper 191

Working Paper
International Transfer Pricing and Tax Avoidance : Evidence from Linked Trade-Tax Statistics in the UK

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It uncovers three new findings on tax-motivated transfer mispricing in real goods. First, transfer mispricing increases substantially when taxation of foreign profits changes from a worldwide to a territorial approach in the UK, with multinationals shifting more profits into low-tax jurisdictions. Second, transfer mispricing increases with a firm's R&D intensity. Third, tax-motivated ...
International Finance Discussion Papers , Paper 1214

Working Paper
What are the consequences of global banking for the international transmission of shocks?: a quantitative analysis

The global financial crisis of 2008 was followed by a wave of regulatory reforms that affected large banks, especially those with a global presence. These reforms were reactive to the crisis. In this paper we propose a structural model of global banking that can be used proactively to perform counterfactual analysis on the effects of alternative regulatory policies. The structure of the model mimics the US regulatory framework and highlights the organizational choices that banks face when entering a foreign market: branching versus subsidiarization. When calibrated to match moments from a ...
Working Papers , Paper 18-11

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