This paper provides empirical evidence that product diversity drove a part of the evolution of consumers’ spending in the US over the 1993–2018 period. The change in the set of varieties available led consumers to increase by 1.19% the share of their budget allocated to a sector subject to the average variety expansion over that period. I exploit the exogenous change in the range of products available

This paper examines the impact of Russia’s World Trade Organization (WTO) accession on international trade patterns at the firm level. A large literature of cross-country studies examines the long-run trade effects of the General Agreement on Tariffs and Trade (GATT)/WTO membership. Our paper contributes to this literature by bringing short-run micro-level evidence from the experience of a large trading

This paper investigates how management practices as intangible transfers are associated with the performance of multinational business groups. Differences in the management level across source countries are predictive for multinationals’ investment patterns for a given destination country. This study argues that acquisitions are a means to transplant management practices from parents to affiliates

Using an intra-industry trade model with mobile/immobile capital, we revisit the characteristics of optimal tariffs and tariff wars. In contrast to folk wisdom on optimal tariffs, we show that when capital is freely mobile across countries, smaller countries impose higher tariffs, and they can win tariff wars. This occurs because tariffs have a strong impact on output expansion. Even if capital import

Innovative production is driven by creative destruction. High turnover requires frequent reallocation of capital. Banks play a major role in capital reallocation by withdrawing funds from nonviable firms and redirecting credit to scale up the most productive firms. Structural parameters of the banking system thus affect a country’s comparative advantage in innovative sectors. Using a Heckscher–Ohlin

We extend the Melitz model to include pure exporters and study how they influence economic performance. We find that the presence of pure exporters lowers the productivity premium of exporters. Moreover, if there is a large portion of pure exporters, then international trade lowers the average productivity, but not welfare. Moreover, we explore how trade liberalization in form of lower entry cost into

This paper examines how capital controls affect the volatility of the renminbi (RMB) covered interest deviation (CID). We find that capital controls amplify the volatility of RMB CID and the amplification effect becomes more prominent in more flexible RMB exchange regimes. Capital controls influence the volatility of interest rate differential (IRD) and forward premium (FP), two components of CID,

In this paper, we revisit the evidence on the effects of time spent on border-crossing procedures for international trade using a theory-consistent structural gravity model. We exploit a rich panel dataset including domestic trade flows and employ a recent econometric estimator that exhibits favorable asymptotic properties for inference. The results indicate a significant negative effect of the time

We use the new International Trade and Production Database for Estimation to obtain benchmark gravity estimates for an unprecedented range of 170 industries. We document differences and similarities of standard gravity variables across four broad sectors: Agriculture, Mining and Energy, Manufacturing, and Services. We test the robustness of our main estimates against some key data and estimation approaches

We investigate the nonlinear spillover and portfolio allocation characteristics of the US and Canadian energy equity portfolios. Our empirical study based on directional spillover index and non-convex portfolio optimization show that the spillover effects in the aggregate are smaller for the US portfolio across time. However, when only the largest spillover transmitters and receivers are considered

The relationship between exchange rate volatility and trade is inconclusive in the current literature. I find evidence this is due to variation in definitions of exchange rate volatility. My results suggest common volatility measures weigh variation differently over time and economic conditions. Using an autoregressive distributed lag model, I demonstrate the importance of volatility measurement to

This paper provides the implications of firm heterogeneity for the environment. In autarky, raising emission tax generates an average productivity gain and favors efficient firms in the sense that their output expands. Although some of these efficient firms discharge more emissions, some may discharge less. While trade liberalization raises outputs, global emissions do not necessarily increase. A unilateral

This study examines whether and how economic shocks from natural disasters propagate through supply chains to regions not directly hit by disasters. Although such propagation has been studied, less attention has been paid to heterogeneity across network characteristics of firms. Focusing on the impacts of a hurricane and using firm‐level data for major firms in the world that include supply‐chain ties

This paper theoretically examines how country‐specific formal and informal institutions are interrelated through international trade within a two‐country general‐equilibrium framework. When formal and informal institutions collectively generate institutional quality, formal institutions endogenously arise based on exogenously given informal institutions. Institutional quality governs the productivity

This paper investigates the effects of temperature on agricultural TFP growth rates during the period 1992–2015. We argue that higher temperatures impede TFP growth, particularly in low‐income countries (LICs) using less imported inputs. Our estimates imply that a 1°C rise in annual average temperatures reduces TFP growth rates by 5.2 percentage points in the LICs in question. However, LICs using greater

The paper analyzes the effects of support for attending trade fairs on exports, foreign direct investments, and service outsourcing, using Japanese firm‐level data on both performances and trade‐fair participation. To solve the self‐selection problem in the service, I utilize a difference‐in‐differences matching estimation approach with unique firm characteristics, as well as a linear estimation approach

We investigate the financial crisis as a cut‐off point in EU financial systems’ evolution and assess its effects on cross‐country convergence patterns. Before the crisis, we observe a rise in the centrality of the financial sector, driven by an upward convergent pattern of bank credit. This inflated leverage ratios across all economic sectors, and a catch‐up phenomenon is retrieved in the leveraging

We study the impact of exogenous terms‐of‐trade shocks in a large sample of small open economies. Using a panel vector autoregression, we estimate the response of domestic variables including the exchange rate, output, exports, imports, and domestic demand, allowing impulse responses to vary according to the de facto exchange rate regime. We find strong evidence that flexible exchange rate regimes

We study how import competition affects the regional concentration of industry location in a small open economy with two regions. Industry concentration is linked with firm‐level investment in process innovation through an import competition effect that is increasing in the market share of imported goods and the productivity differential of domestic firms with the rest of the world. We show that increased

This paper investigates the cross‐border propagation of U.S. monetary policy shocks to the financial markets of five open countries—Australia, Canada, New Zealand, South Korea, and the United Kingdom—from 2000 to 2017. I estimate the structural VAR models that consist of multiple high‐frequency financial variables, in which the impacts of foreign (U.S.) and local monetary policy shocks are estimated

We investigate the effects of trade policy uncertainty on the entry decisions of exporters into Arab League markets. Using a product‐level dataset on World Trade Organization members exporting to Arab League countries for the years 1998–2015, we provide empirical evidence that trade policy uncertainty, a result of significant gaps between tariff bindings and applied tariffs (“tariff water”), led to

What drives the resilience of international trade against increasingly destructive natural disasters? In this study, I investigate the dynamics and spatial distribution of Hurricane Katrina's trade effects across United States infrastructure and break new ground on the mechanisms underlying the static and dynamic trade resilience. Analyzing port‐level data, I find that ports subject to this calamity

This paper analyzes environmental concerns by a government in a setting of rent‐extracting strategic trade policy with endogenous firm investment into production technologies. The simple analysis reinforces the importance of investment incentives caused by tariffs in general and shows that the resulting implications for the optimal tariff decision can be completely different between traditional tariff

We study the reaction of non‐exporters to openness. While static models suggest non‐exporters lose from openness, dynamic ones where firms can innovate allow for gains from internalizing future exports. Developing a tractable model with productivity choices where both effects are present, we show analytically that the former effect dominates for small non‐exporters, while the latter dominates for large

This paper shows that investor‐state dispute settlements (ISDS) make multinational firms more aggressive by increasing cost‐reducing investments with the aim to enlarge the potential compensation an ISDS provision may offer. While a larger investment reduces the market distortion, it will also make potential compensations larger. Consequently, potential compensations to a foreign investor do not imply

This paper uses Bayesian methods to estimate the European (Monetary) Union effect on trade. The high dimensionality of the parameter space when estimating gravity equations with many dummy variables results in standard hypothesis tests with a large Type I (false positive) error. Bayesian methods are able to handle this problem; they also provide a principled method of model selection that can be applied

Business cycle synchronization (BCS) is crucial for effective common monetary policy in the Eurozone. However, the impact of capital market integration on BCS is ambiguous in the literature. In this paper, we quantify the different channels through which capital mobility affects BCS, considering dynamic panel framework accounting for model uncertainty, reverse causality, and contagion. Four different

This paper explores a role for capital control policies in enhancing a sovereign’s commitment to repay its debts. I study the equilibrium of an economy in which a sovereign must finance some expenditure, is constrained by the savings decisions of domestic households, and cannot discriminate between foreign and domestic lenders. I show that capital controls are crucial for implementing an equilibrium

The debate on trade and currency wars has reemerged since the Global Financial Crisis. We study the two forms of noncooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product-level data for 110 countries over the 1989–2013 period. We find that a 1% depreciation of the importer's currency reduces imports

This paper examines the linkages between the trade of goods and financial assets. Do both flows behave as complements (implying a positive correlation) or as substitutes (negative correlation)? Although a classic topic in international macroeconomics, the empirical evidence has remained relatively scarce so far, in particular for the Euro area where trade and financial imbalance played a prominent

This paper analyses the role played by vertical linkages on the effects of trade liberalization on technology upgrading, average productivity, and welfare in a model of trade with heterogeneous firms. We find that the strength of vertical linkages shapes the effects that trade liberalization produces on firms’ survival and technology upgrading decisions, having an impact on the average productivity