QUOTA‐HOPPING IN‐BOND DIVERSION

We show that the U.S. in‐bond system of imports may be used by firms to illegally avoid trade barriers, a practice known as in‐bond diversion. The illicit scheme involves declaring Chinese exports bound for Mexico but diverting them to the U.S. market while in transit, thus creating a gap between Chinese and Mexican reports. Using the phaseout and removal of U.S. quotas at the end of the Multifiber Agreement as a policy experiment, as well as variation in quota bindingness across products, we show that quota‐bound products were associated with larger trade gaps which shrunk following the quota removals. (JEL F13, O17, O19)     

COTTON IN A FREE TRADE WORLD

Trade liberalizing reform in the world cotton market would increase world cotton traded an average 2.69% over 5 yr and increase world cotton prices to an average 10.5%. A partial equilibrium model was used to estimate the effects of removing global domestic subsidies and border tariffs for cotton. Trade flows in international markets would be affected as U.S. market share of world cotton exports decline, net cotton-importing countries with minimum domestic and trade distortions import less because of higher cotton prices, and net cotton-importing countries that subsidize domestic production and/or impose border tariffs significantly increase their imports. ( JEL F17, F42, F47, O2)     

TRADE ADJUSTMENT,POLITICAL PRESSURE,AND TRADE PROTECTION PATTERNS

This paper introduces trade adjustment considerations as active determinants of trade policy. Using novel U.S. data sets, I show that, despite their small monetary value, trade‐induced unemployment and trade‐adjustment costs can incite an incumbent politician to grant protection to an unorganized industry, even in the presence of political pressure by organized sectors. This finding complements the theoretical predictions from Grossman and Helpman (American Economic Review, 84, 1994, 833–50) who argue that the government should protect organized industries but should subsidize imports in unorganized sectors. (JEL D73, F13, F14, F16, J68)     

KNOWLEDGE SPILLOVERS AND OUTPUT PER WORKER: AN INDUSTRY‐LEVEL ANALYSIS FOR OECD COUNTRIES

This study analyzes the impact of knowledge spillovers on output per worker at the industry level using a primal production function approach. The article makes three different contributions to the international spillovers literature: (1) it identifies trade‐related spillovers under alternative assumptions regarding the information transferred through imports; (2) it explores the importance of horizontal and vertical foreign direct investment (FDI) in knowledge spillovers; and (3) it looks at how institutional factors determine the impact of FDI‐related spillovers on productivity. The main findings of the study are: (1) international knowledge spillover is an important driver of industry output per worker, and the magnitude of this spillover effect varies with alternative assumptions about the information content embodied in imports, while high technology industries benefit significantly more from import‐related knowledge spillovers; and (2) the gains from FDI spillovers are primarily horizontal, but when institutional factors are considered, countries with stronger protection of intellectual property rights and a high “ease of doing business” tend to experience a substantial increase in the effectiveness of both horizontal and vertical FDI‐related spillovers. (JEL E24, F1, F6, O3, O4)     

ARBITRAGE ACROSS BORDERS: WHY ITUNES GIFT CARDS SELL ABOVE FACE VALUE ON EBAY

This paper is one of the first to explore international price differences and arbitrage opportunities in the market for downloadable content, by linking the sale of iTunes gift cards above face value on eBay to the arbitrage of iTunes' products (which include downloadable music and videos). This paper shows that iTunes gift cards targeted to non‐U.S. buyers tend to sell for higher prices, controlling for seller reputation, shipping costs, and other variables. Information about the buyers' countries allows us to see whether it is the U.S. store's greater product availability or its lower prices that buyers are interested in. (JEL D40, L10, F10)     

THE IMPORTANCE OF TRADE COSTS IN DEVIATIONS FROM THE LAW‐OF‐ONE‐PRICE: ESTIMATES BASED ON THE DIRECTION OF TRADE

The full impact of trade costs in segmenting product markets cannot be captured by considering aggregate prices or in the absence of information on the direction of trade. We address this problem by utilizing product‐specific prices, cross‐sectional productivity indices, and bilateral trade flows, allowing us to identify the probable source of any one product. We show that trade costs in the form of transportation and distribution costs are important in determining international price differences and segmenting international markets. Physical distance relative to the origin has a precisely estimated positive impact on international deviations from the Law‐of‐One‐Price that is larger than estimates that do not account for the origin of each product. Based on our benchmark estimates, the price elasticity of distance was around 10% in 1990. (JEL F4)     

Boeing’s Diffusion of Commercial Aircraft Technology to Japan: Surrendering the U.S. Industry for Foreign Financial Support

Japanese firms have become increasingly important first-tier suppliers to the U.S. commercial aircraft industry (large passenger jets). Over time, this relationship has evolved from a simple “build to print” subcontractor arrangement to a turnkey “design and build” risk-sharing partnership. Using the Boeing 767, 777, and 787 as examples, we argue that the motives for Boeing’s commercial outsourcing to Japan are to access the Japanese market, spread risk, gain access to capital, and lower U.S. spending on research and development (R&D). This has clear implications for U.S. trade and employment, in that Japanese-subcontracting boosts foreign imports and reduces the need for domestic production workers and U.S. suppliers. From a trade perspective, however, a troubling feature of allowing the Japanese to produce large commercial aircraft subassemblies is that major Japanese public financial supports are involved which contravene existing international agreements on production subsidies. We review the types of production contracts that Japanese companies have sought on the Boeing 767, 777, and 787 programs. These contracts have allowed the Japanese to develop new capabilities in terms of production capacity, tooling, design, and final assembly. Ultimately, these capabilities imply that Japan will eventually enter the market as a fully-fledged producer of commercial aircraft. This does not bode well for the U.S. commercial aerospace sector.     

DISENTANGLING DEMAND‐ENHANCING AND TRADE‐COST EFFECTS OF MAXIMUM RESIDUE REGULATIONS

Maximum residue level (MRL) regulations in plant products can create unnecessary trade barriers on one hand and enhance demand via risk mitigation or quality assurance on the other. We stipulate a generalized gravity equation model to disentangle the effects of MRLs on the import demand and foreign exporters' supply. Applying the framework to the MRLs on pesticides imposed by high‐income Organization for Economic Co‐operation and Development countries, we find that the MRLs jointly enhance the import demand and hinder foreign exporters' supply. In addition, exporters from the less and least developed countries are more constrained by the MRLs than their competitors from the developed world. (JEL F14, Q17)     

THE HOME MARKET EFFECT IN INTERNATIONAL ARMS TRADE

I show that military spending contributes to international arms proliferation through a push effect: large demand encourages production growth in the domestic market if transport costs are non‐negligible. Under increasing returns to scale, the country can then supply weapons on the global market at low prices. This is a manifestation of the home market effect (HME), which states that countries with higher demand for a differentiated good will be net exporters of that good. I construct a monopolistic competition model of international trade that accounts for differences in demand across countries, and test its predictions using post‐Cold War data. (JEL F1, H5, R1)     

FOREIGN TRADE AND DOMESTIC COMPETITION

This paper contains estimates of the determinants of the commodity composition of U. S. trade flows and of price-cost margins in U. S. domestic manufacturing in a simultaneous context. Above-competitive profits in U. S. manufacturing appear to provide a powerful incentive to import competition. These imports, in turn, provide a check on the ability of domestic firms to earn monopoly rents. The estimates indicate that failure to account for imports leads to a substantial underestimation of the impact of market structure on price-cost margins. The linkages between exports and domestic market conditions appear to be of second-order importance.     

Transnationalism and American Exports in an English‐Speaking World1

Investigating the relationship between immigration, middleman minority status, transnationalism, and U.S. foreign trade, the authors assembled a census‐based data file that contains aggregate‐level variables for 88 foreign‐born groups by national origin between 1980 and 1990. They regressed immigrant characteristics and immigration volume upon time‐lagged import/export statistics from the same 88 nations between 1985 and 1995. Results show the independent influence on exports of immigrant entrepreneurship, transnationalism, and middleman minority status. But these variables, exhaustively derived from the existing literature, had no effect on U.S. imports; they only affected exports. The authors propose that the discrepancy between imports and exports arises because of the dominance of English as a world business language. In this situation, foreigners need no help from immigrants when they export to the United States; but native‐born, monolingual Americans need the help of bicultural immigrants when they export. The empirical results suggest that immigrant entrepreneurs enhance the United States' exports and thus reduce the United States' balance of payments deficit.     

GRAVITY REDUX: MEASURING INTERNATIONAL TRADE COSTS WITH PANEL DATA

Barriers to international trade are known to be large but because of data limitations it is hard to measure them directly for a large number of countries over many years. To address this problem, I derive a micro‐founded measure of bilateral trade costs that indirectly infers trade frictions from observable trade data. I show that this trade cost measure is consistent with a broad range of leading trade theories including Ricardian and heterogeneous firms models. In an application I show that U.S. trade costs with major trading partners declined on average by about 40 between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions. (JEL F10, F15)     

THE HAZARDOUS EFFECTS OF ANTIDUMPING

We investigate the extent to which antidumping actions eliminate trade altogether. Using quarterly 10‐digit HS‐level export data for products involved in U.S. antidumping cases we find that antidumping actions increase the hazard rate by more than 50%. We find strong evidence of investigation effects with the impact during the initiation and preliminary duty phases considerably larger than once final duties are imposed. There are also important differences with respect to the size of duties with cases with large duties experiencing very large investigation effects. We show the antidumping (AD)‐affected countries are less likely to return to the market even after the AD order is removed. (JEL F13, F14)     

Employment effects of trade in intermediate and final goods: An empirical assessment

The steady growth of international trade in intermediate goods and services has made the relationship between trade and the international division of labour more complex. For 39 countries, the author decomposes the employment effects of international trade into five components, namely, the labour content of – or employment generated by – (1) exports; (2) imports; (3) the import content of exports; (4) the export content of imports; and (5) the third‐country import content of imports. He shows that in 2009, trade in intermediate goods accounted for some 88 million jobs – 14 per cent of all jobs generated by international trade – while the import content of exports accounted for 44 million jobs.     

INTERNATIONAL SUPPLY CHAINS AND THE VOLATILITY OF TRADE

Were the large import fluctuations around the 2007–2009 recession because of increasing trade volatility? I show that import volatility relative to gross domestic product (GDP) increased in the 2000s and examine whether vertical specialization (VS) trade can explain this increase. I develop and calibrate a model of VS trade that generates most of the observed increase in relative import volatility from the 1960s to the 2000s. The increase is because of GDP's shift to less volatile services production. VS trade has a negligible impact. VS causes trade to fall more in recession but also increases the share of output that is traded, leaving volatility unaffected. It increases volatility by shifting trade to more volatile sectors, but this effect is quantitatively small. (JEL E3, F1)     

INTERNATIONAL TRADE AND THE COMPOSITION OF LABOR MARKET TURNOVER

The composition of labor market turnover is shown to influence patterns of international trade. Job and worker turnover have opposing marginal effects on industry export intensity, highlighting the importance of relative turnover shares on either side of the labor market, as opposed to total volumes of labor mobility, in shaping economic outcomes. Industries with relatively greater shares of worker turnover export more of total production, and those with higher job turnover export less. Furthermore, relatively high job turnover hinders industry adjustment following trade liberalization. These predictions receive support for U.S. manufacturing industries using turnover data in the Quarterly Workforce Indicators available from the U.S. Census Bureau. (JEL F16)     

THE ROLE OF REGULATORY ARBITRAGE IN U.S. BANKS' INTERNATIONAL FLOWS: BANK‐LEVEL EVIDENCE

I study the prevalence and profitability of regulatory arbitrage in U.S. banks' foreign activities. I analyze a publicly available bank‐level data set on bilateral lending flows to 75 countries over 2003–2013. U.S. banks' affiliates lend less to borrowers in host countries with stricter bank capital regulations, and are less likely to maintain affiliates in such countries. Banks substitute from (host‐regulated) affiliate toward (U.S.‐regulated) cross‐border lending in hosts with strict bank capital rules. This is particularly so for low‐capitalized banks with lower foreign ownership shares. Banks that reduce their exposure to stricter host capital rules are more profitable in foreign activities. (JEL F3, F4, G2)     

THE DETERMINANTS AND STRUCTURE OF IMPORT SUBSTITUTION

In Latin America, import substitution is a synonym for industrialization. Influences having an effect on this process range from the capacity to import (a supply influence) to the output-induced demand for import substitutes in production. Relative prices, changed through the exchange rate, may also switch demand from imports to import substitutes. A time-series “test” using measures of these three variables showed that the sectoral capacity to import was the most important determinant of the pattern and variation in Argentine import substitution (1951–65). Left unanswered was the relative influence that world-market conditions, home consumption of exportables, or factor movements to industry may have had on import capacity. With a mean R² of only .42, it is clear that influences other than the three used have played a role in determining Argentine import substitution. Using measures of backward (demanding) and forward (supplying) linkages, we sought to identify “key” import-substitute sectors in the industrialization process. According to Hirschman, if these sectors expand rapidly and bottlenecks are created, greater than “normal” profit opportunities may occur. The result would be that more private savings may be mobilized and investment decisions made more obvious. Although no such key sectors could be identified, this result is partly dependent on the degree of input-output aggregation, which, for Argentine data, is substantial.     

INTERNATIONAL EFFECTS OF EURO AREA VERSUS U.S. POLICY UNCERTAINTY: A FAVAR APPROACH

Estimating a large‐scale factor‐augmented vector autoregressive model for 18 Organisation for Economic Co‐operation and Development member countries, we quantify the global effects of economic policy uncertainty shocks. More specifically, we check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a U.S. and a Euro area policy uncertainty shock. According to our results, an increase in economic policy uncertainty has a strong negative impact on economic activity (gross domestic product), consumer prices, equity prices, and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo‐Saxon countries. U.S. uncertainty shocks have a bigger impact than those for the Euro area. Economic policy uncertainty does not only affect that country where the shock originates but also has large cross‐border effects. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long‐term interest rates to an economic policy uncertainty shock, our results reveal a strong “North‐South” divide within the Euro area with rates decreasing less significantly in the South. Moreover, economic policy uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin. (JEL C32, F42, D80)     

INTERNATIONAL R&D SPILLOVERS AND PRODUCTIVITY TRENDS IN THE ASIAN MIRACLE ECONOMIES

This paper examines the importance of the domestic research and development stock and foreign knowledge spillovers on total factor productivity for six Asian miracle economies over the period from 1955 to 2006. The productivity effects of international knowledge spillovers through the following channels are considered: imports, exports, inward foreign direct investment, patents, geographical proximity, and the general channel. The general channel is a transmission mechanism where knowledge spillovers occur automatically and do not pass through any specific channel. The estimates show that knowledge has been transmitted through all the channels considered but that the import channel and the general channel have probably been the most important ones for the Asian miracle economies. (JEL O10, O30, O40)