Summary

Globalization, Trade Imbalances and Labor Market Adjustment
Author(s):
Rafael Dix-Carneiro, Duke University and NBER
João Paulo Pessoa, São Paulo School of Economics
Ricardo M. Reyes-Heroles, Federal Reserve Board
Sharon Traiberman, New York University
Summary:

Dix-Carneiro, Pessoa, Reyes-Heroles, and Traiberman study the role of global trade imbalances in shaping the adjustment dynamics in response to trade shocks. They build an estimable, general equilibrium, multi-country, multi-sector model of trade with two key ingredients: (a) Consumption-saving decisions in each country are commanded by representative households, leading to endogenous trade imbalances, (b) labor market frictions across and within sectors, leading to unemployment dynamics and sluggish transitions to shocks. The researchers estimate their model using data from the World Input-Output Database and household surveys and study the behavior of national labor markets in response to several globalization shocks, including shocks to: (1) technology, (2) trade costs, (3) inter-temporal preferences (e.g. savings gluts). They find that modeling trade imbalances changes both qualitatively and quantitatively the short- and long-run implications of globalization shocks for labor reallocation and unemployment dynamics. In a series of empirical applications, the researchers study the labor market effects of shocks accrued to the global economy, their implications for the gains from trade, and they revisit the "China Shock" through the lens of the model. The researchers show that the US enjoys a 2.2% gain in response to globalization shocks. These gains would have been 73% larger in the absence of the global savings glut, but they would have been 40% smaller if we had lived in a balanced trade world.

In addition to the conference paper, the research was distributed as NBER Working Paper w28315, which may be a more recent version.

When Tariffs Disturb Global Supply Chains
Author(s):
Gene M. Grossman, Princeton University and NBER
Elhanan Helpman, Harvard University and NBER
Summary:

Grossman and Helpman study unanticipated tariffs on imports of intermediate goods in a setting with firm-to-firm supply relationships. Firms that produce differentiated products conduct costly searches for potential input suppliers and negotiate bilateral prices with those that pass a reservation level of match productivity. Global supply chains are formed in anticipation of free trade. Once they are in place, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or new search for replacements. The researchers identify circumstances in which renegotiation generates improvement or deterioration in the terms of trade. The welfare implications of a tariff are ambiguous in this second-best setting, but plausible parameter values suggest a welfare loss that rises rapidly at high tariff rates.

In addition to the conference paper, the research was distributed as NBER Working Paper w27722, which may be a more recent version.

Spatial Economics for Granular Settings
Author(s):
Jonathan I. Dingel, University of Chicago and NBER
Felix Tintelnot, University of Chicago and NBER
Summary:

Dingel and Tintelnot introduce a general-equilibrium model of a "granular" spatial economy populated by a finite number of people. The quantitative model is designed for application to the growing body of fine spatial data used to study economic outcomes for regions, cities, and neighborhoods. Conventional approaches invoking the law of large numbers are ill-suited for such empirical settings. The researchers evaluate quantitative spatial models' out-of-sample predictions using event studies of large office openings in New York City. The granular framework improves upon the conventional continuum-of-individuals model, which perfectly fits the pre-event data but produces predictions uncorrelated with the observed changes in commuting flows. Applying the granular model to Amazon's proposed HQ2 in New York City reveals that the project's predicted consequences for most neighborhoods are small relative to the idiosyncratic component of individual decisions in this setting. The researchers propose a convenient approximation for researchers to quantify the "granular uncertainty" accompanying their counterfactual predictions.

Aggregate Implications of Firm Heterogeneity: A Nonparametric Analysis of Monopolistic Competition Trade Models
Author(s):
Rodrigo Adão, University of Chicago and NBER
Costas Arkolakis, Yale University and NBER
Sharat Ganapati, Georgetown University
Summary:

How does firm heterogeneity affect the aggregate consequences of international trade shocks? In the workhorse monopolistic competition model, Adão, Arkolakis, and Ganapati show that the distribution of firm fundamentals affects aggregate equilibrium outcomes only through the shape of two univariate functions of the exporter firm share. These functions determine semiparametric gravity equations for the extensive and intensive margins of firm exports, yielding bilateral elasticities of trade flows to trade costs that vary with the exporter firm share. The researchers show that the shape of these elasticity functions is sufficient to compute (i) counterfactual changes in aggregate outcomes and (ii) expressions for welfare gains. The researchers estimate these elasticity functions using the model-implied semiparametric gravity equations of firm exports. The estimates imply that bilateral trade is less sensitive to trade shocks when the exporter firm share is high. Firm heterogeneity leads to a 15% change in the gains from trade (compared to the constant elasticity gravity benchmark) that are higher in countries with a higher exporter firm share.

In addition to the conference paper, the research was distributed as NBER Working Paper w28081, which may be a more recent version.

Offshoring and Inflation
Author(s):
Diego A. Comin, Dartmouth College and NBER
Robert C. Johnson, University of Notre Dame and NBER
Summary:

Did trade integration suppress inflation in the United States? Comin and Johnson say no, in contradiction to the conventional wisdom. The researchers' answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, the researchers show trade integration was inflationary. This result continues to hold when they extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, the researchers demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation.

In addition to the conference paper, the research was distributed as NBER Working Paper w27957, which may be a more recent version.

A Second-Best Argument for Low Optimal Tariffs
Author(s):
Lorenzo Caliendo, Yale University and NBER
Robert C. Feenstra, University of California, Davis and NBER
John Romalis, The University of Sydney
Alan M. Taylor, University of California, Davis and NBER
Summary:

Caliendo, Feenstra, Romalis, and Taylor derive a new formula for the optimal uniform tariff in a small-country, heterogeneous-firm model with a traded and a nontraded sector, and with roundabout production in both. Tariffs are applied on the imported differentiated inputs in the traded sector, which are bundled with domestic inputs to produce a nontraded finished good. First-best policy requires that markups on domestic intermediate inputs are offset by subsidies. The researchers compare the optimal second-best tariff -- when such subsidies are not used -- to the first-best tariff from a one-sector, no roundabout model. Under a wide range of parameter values the second-best import tariff is lower. In a 186country, 15-sector quantitative version of the model, the optimal uniform tariff has a median value of 10% (7.5% for countries with above-median shares of manufacturing production), and it is negative for five countries.

In addition to the conference paper, the research was distributed as NBER Working Paper w28380, which may be a more recent version.

The Long and Short (Run) of Trade Elasticities
Author(s):
Christoph Boehm, University of Texas at Austin
Andrei A. Levchenko, University of Michigan and NBER
Nitya Pandalai-Nayar, University of Texas at Austin and NBER
Summary:

Boehm, Levchenko, and Pandalai-Nayar propose a novel approach to estimate the trade elasticity at various horizons. When countries change Most Favored Nation (MFN) tariffs, partners that trade on MFN terms experience plausibly exogenous tariff changes. The differential growth rates of imports from these countries relative to a control group - countries not subject to the MFN tariff scheme - can be used to identify the trade elasticity. The researchers build a panel dataset combining information on product-level tariffs and trade flows covering 1995-2018 and estimate the trade elasticity at short and long horizons using local projections (Jordà, 2005). The main findings are that the elasticity of tariff exclusive trade flows in the year following the exogenous tariff change is about −0.76, and the long-run elasticity ranges from −1.75 to −2.25. The long-run estimates are smaller than typical in the literature, and it takes 7-10 years to converge to the long run, implying that (i) the welfare gains from trade are high and (ii) there are substantial convexities in the costs of adjusting export participation.

Quantifying the Extensive Margin of Trade
Author(s):
James E. Anderson, Boston College and NBER
Yoto V. Yotov, Drexel University
Summary:

Anderson and Yotov propose a short-run model of the extensive margin of trade and deploy it to distinguish and quantify domestic and cross-border margins. The empirical focus is on the domestic extensive margin of trade (domestic distribution of a product) and its importance for quantifying globalization effects on the international extensive margin of trade. The researchers build a dataset that combines data on the domestic extensive margin and the standard international extensive margin. It reveals significant and intuitive variation in the domestic extensive margin across countries and over time. They quantify the extensive margin effects of European Union (EU) integration, 2008-2018, and demonstrate that these effects cannot be identified without the domestic extensive margin. The researchers find strong and highly heterogeneous effects, both across countries and directionally.

Did U.S. Politicians Expect the China Shock?
Author(s):
Matilde Bombardini, University of California, Berkeley and NBER
Bingjing Li, National University of Singapore
Francesco Trebbi, University of California, Berkeley and NBER
Summary:

In the two decades straddling China's WTO accession, the China Shock, i.e. the rapid trade integration of China in the early 2000's, has had a profound economic impact across US regions. It is now both an internationally litigated issue and the casus belli for a global trade war. Were its consequences unexpected? Did US politicians have imperfect information about the extent of China Shock's repercussions in their district at the time when they voted on China's Normal Trade Relations status? Or did they have accurate expectations, yet placed a relatively low weight on the subconstituencies that ended up being adversely affected? Information sets, expectations, and preferences of politicians are fundamental, but unobserved determinants of their policy choices. Bombardini, Li, and Trebbi apply a moment inequality approach designed to deliver unbiased estimates under weak informational assumptions on the information sets of members of Congress. This methodology offers a robust way to test hypotheses about the expectations of politicians at the time of their vote. Employing repeated roll call votes in the US House of Representatives on China's Normal Trade Relations status, the researchers formally test what information politicians had at the time of their decision and consistently estimate the weights that constituent interests, ideology, and other factors had in congressional votes. The researchers show how assuming perfect foresight of the shocks biases the role of constituent interests and how standard proxies to modeling politician's expectations bias the estimation. The researchers cannot reject that politicians could predict the initial China Shock in the early 1990's, but not around 2000, when China started entering new sectors, and find a moderate role of constituent interests, compared to ideology. Overall, US legislators appear to have had accurate information on the China Shock, but did not place substantial weight on its adverse consequences.

In addition to the conference paper, the research was distributed as NBER Working Paper w28073, which may be a more recent version.

On the Persistence of the China Shock
Author(s):
David Autor, Massachusetts Institute of Technology and NBER
David Dorn, University of Zurich
Gordon H. Hanson, Harvard University and NBER
Summary:

In this paper, Autor, Dorn, and Hanson build on previous research regarding how greater import competition from China has affected U.S. local labor markets. By extending the time period under study, expanding the set of outcomes considered, and incorporating insights from recent literature on shift-share research designs and the connection between reduced-form and general-equilibrium impacts, the researchers evaluate the duration of the China trade shock, the relative and absolute effects of greater trade exposure on local economic well-being, and the robustness of the results to alternative specifications, outcome measures, and sample periods. They first document that the China trade shock plateaued in 2010, which allows us to examine its effects for nearly a decade past its culmination. Adverse impacts of greater import competition on manufacturing employment, employment-population ratios, and income per capita in more trade-exposed U.S. commuting zones are still present out to 2018. Reductions in population headcounts, which indicate net out migration, register only for workers 25-39 years old. Although more negatively affected regions see larger increases in the uptake of government transfers, these transfers replace only a small fraction of the loss in personal income and primarily take the form of increased Social Security and Medicare benefits. The results are consistent with the exit from work being a primary means of adjustment to trade induced negative labor demand shocks and with prolonged adverse outcomes in the U.S. local labor markets most exposed to China's rise.

Participants

Below is a list of conference attendees.
Isabela Manelici, Princeton University
Conor Walsh, Princeton University
Woan Foong Wong, University of Oregon

More from NBER

In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, and the Bulletin on Health — as well as online conference reports, video lectures, and interviews.

Economics of Digitization Figure 1
  • Article
The NBER Economics of Digitization Project, established in 2010 with support from the Alfred P. Sloan Foundation,...
claudiagoldinpromoimagelecture.png
  • Lecture
Claudia Goldin, the Henry Lee Professor of Economics at Harvard University and a past president of the American...
2020 Methods Lecture Promo Image
  • Lecture
The extent to which individual responses to household surveys are protected from discovery by outside parties depends...