Topic
Research
Policy
Macroeconomics
Political Economy
Development
International Trade
Title / Abstract
Author
12.05.2022

Conflict, Sanctions and the Future of World Trade

Abstract The Russian invasion of Ukraine has been met with unprecedented trade and other economic sanctions. Some members of the World Trade Organization (WTO), including the United States, the European Union (EU), Japan and Canada, have revoked the most-favoured-nation (MFN) status granted to Russia under WTO rules. This allows them to raise tariffs and other barriers against Russian imports. Trade negotiations at the WTO involving Russia are faltering. Heightened geopolitical tensions raise questions about the consequences for the global trading system. Five scenarios have been identified and explored in this paper for the benefit of business and government leaders navigating an increasingly uncertain landscape. [ more ]
International Trade
Policy
Research
29.03.2022

Trade policy and deterring war: The case of Ukraine since the annexation of Crimea

Abstract While potential military developments—including steps that reinforce Ukraine’s capacity to defend itself—may be decisive in the days ahead, the capacity of Ukraine to strengthen its armed forces over the medium term depended on its access to foreign markets in part. In this note evidence is presented that casts doubt on the extent to which EU, UK, and US commercial policies have supported Ukrainian export growth since the annexation of Crimea in 2014. These findings speak to the longstanding cornerstone of the world trading system that international trade and peace are inextricably linked—in this case, short-sighted unilateral policy decisions by the West may have undercut broader diplomatic objectives of shoring up Ukraine and deterring war. [ more ]
Macroeconomics
Research
01.10.2021

On the measurement of the elasticity of labour

Abstract We use a simple theoretical framework, a building block of many macroeconomic models, to study the prominently debated relationship between the model parametrisation of the Frisch elasticity and the reduced-form evidence on the elasticity of labour. Focusing on tax holidays, we show that the elasticity measured with a reduced-form approach is only equal to the Frisch-elasticity parameter if there are no income or general equilibrium effects. Furthermore, for a wide range of standard values of the Frisch-elasticity parameter, the response of labour generated by a tax holiday in the model is aligned with the reduced-form evidence. [ more ]
Political Economy
Development
Research
01.10.2021

Local majorities: How administrative divisions shape comparative development

Abstract We study the role of subnational borders and the importance of local majorities for local economic development. We exploit that France imposed a particular administrative structure on its Sub-Saharan African possessions in the early 20th century. The French government had little interest in pre-colonial political units. As a result, their colonial districts cut across ethnic homelands in a way that led to plausibly exogenous variation in an ethnic group's population share across colonial districts. We find that ethnic groups who were a local majority in most colonial districts, in which they were present, are more economically developed today. Furthermore, we show that the parts of ethnic homelands with a higher district-level population share are more economically developed today than other parts of the same homeland. We also provide evidence that the effects are persistent for various reasons, including the stickiness of subnational borders and higher infrastructure investments during colonial times. [ more ]
Political Economy
Research
01.09.2021

Ethnofederalism and ethnic voting

Abstract We investigate how changes in the administrative-territorial structure affect ethnic voting. We present an event study design that exploits the 2010 constitutional reform in Kenya, which substantially increased the number of primary administrative regions. We find (i) strong evidence for a reduction in ethnic voting when administrative regions become less ethnically diverse and (ii) weak evidence for such a reduction when ethnic groups become less fragmented across regions. These results suggest that ‘ethnofederal’ reforms (leading to administrative borders that more closely follow ethnic boundaries) can mitigate ethnic politics in diverse countries. [ more ]
Political Economy
Development
Research
01.08.2021

Ethnic geography: Measurement and evidence

Abstract We know little about how ethnic geography, i.e., the distribution of ethnic groups across space, shapes comparative economic, political and social development. To make progress and to harness the growing availability of spatially explicit data, we need indices summarizing key aspects of ethnic geography. We develop and axiomatize a novel index of ethnic segregation that takes both ethnic and spatial distances between individuals into account. We can decompose this index into indices of generalized ethnic fractionalization, spatial dispersion, and the alignment of spatial and ethnic distances. For our application, we compute different country-level versions of the segregation index and its components based on either ethnographic maps or geo-referenced survey data. Reassuringly, the different versions of the segregation index are highly correlated. We explore the relation of our indices to (i) existing measures of ethnic segregation and diversity; (ii) climatic and geographical factors; and (iii) the quality of government, economic development, and trust. [ more ]
Political Economy
Development
Research
20.07.2021

Voting or abstaining in “managed” elections? A field experiment in Bangladesh

Abstract Many governments in weak democracies countries "manage" the electoral process to make their defeat very unlikely. We aim to understand why citizens decide to vote or abstain in managed elections. We focus on the 2018 general election in Bangladesh and randomize the salience of the citizens' views (i) that election outcomes matter for policy outcomes and (ii) that high voting participation increases the winning party's legitimacy. These treatments increase voting participation in government strongholds and decrease participation in opposition strongholds. The legitimacy treatment has stronger effects. These results have important implications for get-out-the-vote and information campaigns in weak democracies. [ more ]
Macroeconomics
Development
Research
20.07.2021

Reassessing the resource curse using causal machine learning

Abstract We reassess the effects of natural resources on economic development and conflict, applying a causal forest estimator and data from 3,800 Sub-Saharan African districts. We find that, on average, mining activities and higher world market prices of locally mined minerals both increase economic development and conflict. Consistent with the previous literature, mining activities have more positive effects on economic development and weaker effects on conflict in places with low ethnic diversity and high institutional quality. In contrast, the effects of changes in mineral prices vary little in ethnic diversity and institutional quality, but are non-linear and largest at relatively high prices. [ more ]
International Trade
Research
01.05.2021

Economic statecraft: Is there a sub-national dimension? Evidence from United States–China rivalry

Abstract Using detailed information on policy interventions by US sub-national governments between 2009 and 2019, the contribution of such public bodies to Sino-US geopolitical rivalry is examined, in particular since President Trump took office in 2017. While US sub-national governments accounted for 28% of all US policy interventions that harmed Chinese commercial interests, awarding firm-specific subsidies in 88% of cases, the timing and sectoral incidence of such intervention suggests that economic statecraft considerations could only be part of the explanation for their actions. Ironically, the interventions of US sub-national governments and their weak commitment to transparency have much in common with their frequently maligned Chinese counterparts. [ more ]
Development
Policy
Research
01.04.2021

Working from home in developing countries

Abstract We use worker-level data on the task content of jobs to measure the ability to work-from-home (WFH) in developing countries. We show that the ability to WFH is low in developing countries and document significant heterogeneity across and within occupations, and across worker characteristics. Our measure suggests that educated workers, wage employees and women have a higher ability to WFH. Using data from Brazil, Costa Rica and Peru, we show that our measure is predictive of actual WFH both in terms of overall levels and variation with occupation and individual characteristics, as well as employment outcomes. Our measure can thus be used to predict WFH outcomes in developing countries. [ more ]
Macroeconomics
Development
Research
01.03.2021

Rising inequality and trends in leisure

Abstract This paper develops a model that generates rising average leisure time and increasing leisure inequality along a path of balanced growth. Households derive utility from three sources: market goods, home goods and leisure. Home production and leisure are both activities that require time and capital. Households allocate time and capital to these non-market activities and supply labor. The dynamics are driven by activity-specific TFP growth and a spread in the distribution of household-specific labor market efficiencies. When the spread is set to replicate the increase in wage inequality across education groups, the model can account for the observed average time series and cross-sectional dynamics of leisure time in the U.S. over the last five decades. [ more ]
Political Economy
Development
Research
01.03.2021

Is favoritism a threat to Chinese aid effectiveness? A subnational analysis of Chinese development projects

Abstract We investigate whether and to what extent Chinese development finance affects infant mortality, combining 92 demographic and health surveys (DHS) for a maximum of 53 countries and almost 55,000 sub-national locations over the 2002-2014 period. We address causality by instrumenting aid with a set of interacted variables. Variation over time results from indicators that measure the availability of funding in a given year. Cross-sectional variation results from a sub-national region’s “probability to receive aid.” Controlled for this probability in tandem with fixed effects for country-years and provinces, the interactions of these variables form powerful and excludable instruments. Our results show that Chinese aid increases infant mortality at sub-national scales, but decreases mortality at the country level. In several tests, we show that this stark contrast likely results from aid being fungible within recipient countries. [ more ]
Macroeconomics
Research
01.02.2021

The earned income tax credit: Targeting the poor but crowding out wealth

Abstract This paper quantifies the individual, aggregate and welfare effects of the US Earned Income Tax Credit (EITC). In particular, we analyze the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labour income and a tax on savings. An increase in EITC generosity raises labour force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population. [ more ]
Macroeconomics
Development
Research
Policy
01.02.2021

Lockdown accounting

Abstract We use worker-level data on the task content of jobs to measure the ability to work-from-home (WFH) in developing countries. We show that the ability to WFH is low in developing countries and document significant heterogeneity across and within occupations, and across worker characteristics. Our measure suggests that educated workers, wage employees and women have a higher ability to WFH. Using data from Brazil, Costa Rica and Peru, we show that our measure is predictive of actual WFH both in terms of overall levels and variation with occupation and individual characteristics, as well as employment outcomes. Our measure can thus be used to predict WFH outcomes in developing countries. [ more ]
International Trade
Research
01.11.2020

Chinese whispers: COVID-19, global supply chains in essential goods, and public policy

Abstract If taken at their word, senior policymakers in the major economic powers have drawn adverse conclusions concerning the performance of cross-border supply chains during the first 6 months of the COVID-19 pandemic. That such supply chains often implicate China, the origin of the pandemic, has also led to claims that trading partners have become too dependent on Chinese supplies. This in turn has led to policy interventions designed to reconfigure supply chains, which if adopted broadly could revise the terms upon which international business operates. A critical evaluation of this policymaker assessment is presented, based on near-time monitoring of medical and food trade disruption induced by government policy, on fine-grained trade data on the pre-pandemic international sourcing patterns of medical goods and medicines by France, Germany, the United Kingdom, and the United States, on statements from U.S. government health experts before and during the pandemic on the frequency and sources of medicine shortages, and on the U.S. Food and Drug Administration’s latest evidence on the causes of medicine shortages in 2020. Such evidence vitiates the adverse conclusions mentioned above, but raises important questions about the factors that determine policy towards international business during a time of intensifying geopolitical rivalry. [ more ]
International Trade
Research
01.11.2020

COVID-19 as a catalyst for another bout of export mercantilism

Abstract In the midst of profound contemporary shifts and shocks facing humankind, a quarter of a century after its creation the WTO is evidently not where pressing trade problems are being solved. Using the COVID-19 pandemic as a lens, this eBook offers insights into the underlying choices faced by WTO members and offers pragmatic suggestions for a WTO work programme over the next three years [ more ]
International Trade
Research
01.11.2020

Revitalising multilateralism: Pragmatic ideas for the new WTO director-general

Abstract In the midst of profound contemporary shifts and shocks facing humankind, a quarter of a century after its creation the WTO is evidently not where pressing trade problems are being solved. Using the COVID-19 pandemic as a lens, this eBook offers insights into the underlying choices faced by WTO members and offers pragmatic suggestions for a WTO work programme over the next three years [ more ]
Political Economy
Research
01.11.2020

The effects of asylum seekers on political outcomes

Abstract We exploit the quasi-random allocation of asylum seekers across Swiss cantons and the high frequency of national referenda to identify the causal effect of immigration on political outcomes in receiving countries. We find that the arrival of asylum seekers causes voters to increase their support for right-wing and conservative policies. However, this effect is driven by episodes of unusually high inflows of asylum seekers. Moreover, we find that for votes on immigration and refugee policy, the arrival of more asylum seekers shifts voters towards policies endorsed by conservative and centre-right parties but not towards positions backed by the rightmost anti-immigration party. In contrast, the shift towards the rightmost stances is sizeable in votes related to the welfare state, international integration, and the rights of minorities. [ more ]
International Trade
Research
Policy
01.11.2020

Collateral damage: Cross-border fallout from pandemic policy overdrive

Abstract The onset of the COVID-19 pandemic meant governments faced their second systemic economic crisis in under 15 years. This column introduces the latest Global Trade Alert report, which documents the extensive cross-border spillovers created by government policy intervention during the first ten months of the year, much of it in response to the pandemic. The evidence challenges five common claims made by officials during crises and questions the current approach to crisis management found in WTO accords. [ more ]
International Trade
Research
01.09.2020

Power transition and the regulatory state in large emerging markets: Norm‐breaking after the global financial crisis

Abstract I examine the ways in which the global financial crisis that began in 2007, and whose effects arguably condition policymaking to the present day, affected the ongoing global power transition as manifested by the unilateral decisions undertaken by official agencies comprising national regulatory states. The theory of that power transition articulated in the overview paper of this Special Issue is reinterpreted to take into account the circumstances of that crisis. Empirical evidence on the propensity to discriminate against foreign commercial interests by the BRICS, Turkey, the European Union, and the United States during the years 2008 to 2017 at, and behind, the border is employed to identify a group of six potential rule-shapers and two possible sham rule-takers. [ more ]
International Trade
Research
01.08.2020

The European Union’s new move against China: Countervailing Chinese outward foreign direct investment

Abstract In the landmark glass fibre fabrics (GFF) anti-subsidy case, the EU has recently started countervailing foreign direct investment (FDI) of Chinese companies. This is an unwise move from a policy and legal perspective and will come back to haunt EU companies in the future. The timing is also unfortunate seeing how the EU and its Member States are spending billions of Euros in subsidies to support industrial sectors in the EU supposedly affected by Covid-19. [ more ]
International Trade
Research
01.04.2020

Flawed prescription: Export curbs on medical goods won’t tackle shortages

Abstract The COVID-19 pandemic sparked broad-ranging resort to export restrictions on medical supplies and food. This eBook asks: Should governments react to the health, economic, and trade crises by turning inward? The authors provide an unequivocal answer: No. Turning inward won’t help today’s fight against COVID-19. National trade barriers in a world of internationalised manufacturing processes will make it harder for every nation to produce vital medical supplies. Insular policies will also fail to foster economic recovery, and they are a threat to the collaborative spirit that the human race will need to defeat this threat. [ more ]
International Trade
Research
01.04.2020

COVID-19 and trade policy: Why turning inward won’t work

Abstract The COVID-19 pandemic sparked broad-ranging resort to export restrictions on medical supplies and food. This eBook asks: Should governments react to the health, economic, and trade crises by turning inward? The authors provide an unequivocal answer: No. Turning inward won’t help today’s fight against COVID-19. National trade barriers in a world of internationalised manufacturing processes will make it harder for every nation to produce vital medical supplies. Insular policies will also fail to foster economic recovery, and they are a threat to the collaborative spirit that the human race will need to defeat this threat. [ more ]
Macroeconomics
International Trade
Research
01.04.2020

Innovation and trade in the presence of credit contraints

Abstract This paper examines how trade liberalization affects investment in R&D at the firm level. We provide a model with entrepreneurs that differ in their wealth endowments, causing them to rely on external funds to different extents. In the presence of capital market imperfections, this implies heterogeneous access to external financing such that poor entrepreneurs run smaller firms, are less likely to invest in R&D, and more likely to exit the market. Decreasing trade costs resulting from tariff reductions exacerbate these characteristics. Using firm-level panel data on seven Latin American countries for 2006 and 2010, we find support for our theoretical predictions. While prior research emphasizes a positive impact of trade liberalization on firms’ productivity-enhancing activities, we provide novel evidence showing that financial constraints can impair the effect on R&D efforts. These results suggest that imperfect capital markets can prevent welfare gains from trade liberalization to materialize. [ more ]
International Trade
Research
01.03.2020

Sicken thy neighbour: The initial trade policy response to COVID

Abstract Since the onset of the COVID-19 pandemic, many governments have limited exports of medical supplies and medicines. Pre-pandemic barriers to imports of medical supplies and soap remain largely in place. Having characterised trade policy stance towards COVID-19-related goods, this study critically assesses the resort to export curbs and import taxes. Elements of an alternative, positive trade policy contribution to surmount this pandemic are presented. [ more ]
Political Economy
Research
01.03.2020

Expropriations, property confiscations and new offshore entities: Evidence from the Panama papers

Abstract Using the Panama Papers, we show that the beginning of media reporting on expropriations and property confiscations in a country increases the probability that offshore entities are incorporated by agents from the same country in the same month. This result is robust to the use of country-year fixed effects and the exclusion of tax havens. Further analysis shows that the effect is driven by countries with non-corrupt and effective governments, which supports the notion that offshore entities are incorporated when reasonably well-intended and well-functioning governments become more serious about fighting organized crime by confiscating proceeds of crime. [ more ]
Development
Research
01.03.2020

Key players in economic development

Abstract This paper analyzes the role of networks in the spatial diffusion of local economic shocks in Africa. We show that road and ethnic connectivity are particularly important factors for diffusing economic spillovers over longer distances. We then determine the key players, i.e., which districts are key in propagating local economic shocks across Africa. Using these results, we conduct counterfactual policy exercises to evaluate the potential gains from policies that increase economic activity in specific districts or improve road connectivity between districts. [ more ]
Political Economy
Research
01.03.2020

Religion and terrorism: Evidence from Ramadan fasting

Abstract We study the effect of religion and intense religious experiences on terrorism by focusing on one of the five pillars of Islam: Ramadan fasting. For identification, we exploit two facts: First, daily fasting from dawn to sunset during Ramadan is considered mandatory for most Muslims. Second, the Islamic calendar is not synchronized with the solar cycle. We find a robust negative effect of more intense Ramadan fasting on terrorist events within districts and country-years in predominantly Muslim countries. This effect seems to operate partly through decreases in public support for terrorism and the operational capabilities of terrorist groups. [ more ]
International Trade
Research
01.12.2019

The Smoot–Hawley fixation: Putting the Sino-US trade war in contemporary and historical perspective

Abstract The extent to which the Sino-US trade war represents a break from the past is examined. This ongoing trade war is benchmarked empirically against the Smoot–Hawley tariff increase and against the sustained, covert discrimination by governments against foreign commercial interests witnessed since the start of the global economic crisis. The Sino-US trade war is not the defining moment that some contend. Thus, laying the blame for the current woes of global trade entirely at the feet of policymakers in Beijing or Washington, D.C., is unfounded. Since the rot started well before 2018 and implicates many states, greater attention should be given to the factors determining the unilateral commercial policies of governments during and after a systemic economic crisis. The insights from the economic history literature of the 1930s presented here are useful in this regard. Moreover, claims that existing multilateral trade rules have bite are hard to square with the very large shares of global trade affected by policy measures favouring local firms implemented over the past decade. When confronted with severe adverse economic conditions for better or for worse, WTO members had plenty of policy space after all. [ more ]
Macroeconomics
Research
01.12.2019

Labor supply in the past, present, and future: A balanced-growth perspective

Abstract The absence of a trend in hours worked in the postwar United States is an exception: across countries and historically, hours fall steadily by a little below 0.5% per year. Are steadily falling hours consistent with a stable utility function over consumption and leisure under balanced growth of the macroeconomic aggregates? Yes. We fully characterize the class of such functions and thus generalize the well-known “balanced-growth preferences” that demand constant (as opposed to falling) long-run hours. Key to falling hours is an income effect (of steady productivity growth on hours) that slightly outweighs the substitution effect. [ more ]
International Trade
Research
01.09.2019

Language as a barrier to entry: Foreign competition in Georgian public procurement

Abstract Provision of government contract information in English reduces the barriers to participation by foreign suppliers. We measure this effect using data from the country of Georgia, where English translations of government tenders were provided above specified contract size thresholds, which varied over time and across contract types. The provision of English documentation more than doubles foreign company participation for low value contracts, and leads to smaller, though still substantial, increases for higher value contracts. Because foreign bidder participation in Georgia is relatively small, the resulting impact on prices is in the order of only one percent. [ more ]
Political Economy
Research
01.09.2019

African leaders and the geography of China’s foreign assistance

Abstract We investigate whether foreign aid from China is prone to political capture in aid-receiving countries. Specifically, we examine whether more Chinese aid is allocated to the birth regions of political leaders, controlling for indicators of need and various fixed effects. We collect data on 117 African leaders' birthplaces and geocode 1650 Chinese development projects across 2969 physical locations in Africa from 2000 to 2012. Our econometric results show that political leaders' birth regions receive substantially larger financial flows from China in the years when they hold power compared to what the same region receives at other times. We find evidence that these biases are a consequence of electoral competition: Chinese aid disproportionately benefits politically privileged regions in country-years when incumbents face upcoming elections and when electoral competitiveness is high. We observe no such pattern of favoritism in the spatial distribution of World Bank development projects. [ more ]
Macroeconomics
Research
01.08.2019

Missing growth from creative destruction

Abstract For exiting products, statistical agencies often impute inflation from surviving products. This understates growth if creatively-destroyed products improve more than surviving ones. If so, then the market share of surviving products should systematically shrink. Using entering and exiting establishments to proxy for creative destruction, we estimate missing growth in US Census data on non-farm businesses from 1983 to 2013. We find missing growth (i) equaled about one-half a percentage point per year; (ii) arose mostly from hotels and restaurants rather than manufacturing; and (iii) did not accelerate much after 2005, and therefore does not explain the sharp slowdown in growth since then. [ more ]
Development
Research
01.05.2019

Communal land and agricultural productivity

Abstract Communal land tenure is prevalent across many developing countries. It implements a “use it or lose it” principle that allows owners to farm their land but restricts their right to transfer it away. This paper measures the distortionary impact of communal land in a dynamic general equilibrium model of occupational selection, calibrated to Ethiopia. We find that lifting communal land tenure increases GDP by 9% and lowers agricultural employment by 18 percentage points. While agricultural productivity increases, that of non-agriculture drops. Communal land tenure rationalizes about one-half of the relative agricultural productivity gap in the poorest economies. Its impact on aggregate productivity, though, is comparatively minor. [ more ]
International Trade
Research
01.05.2019

Harmful procompetitive effects of trade in presence of credit market frictions

Abstract We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark-ups due to credit market frictions. We show that in such an environment a gradual opening of trade may—but not necessarily must—have a negative impact on productivity and overall output. The reason is that the procompetitive effects of trade reduce mark-ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms—while not driven out of the market—may be forced to switch to less productive technologies. [ more ]
Political Economy
Research
01.04.2019

Wars of conquest and independence

Abstract Wars of conquest and wars of independence are characterized by an asymmetry in the payoff structure: The production of one party constitutes the winner’s prize, while the other party’s production is not contested. We present and solve a model of warfare that nests this asymmetric payoff structure as well as the standard symmetric payoff structure. We find that both parties choose lower fighting efforts in asymmetric wars, but that the difference is smaller for the party whose production constitutes the prize. We further show that this party prefers fighting an asymmetric war if its resource endowment is relatively large. [ more ]
Macroeconomics
Research
01.03.2019

Loss aversion at the aggregate level across countries and its relation to economic fundamentals

Abstract Preferences are important when thinking about macroeconomic problems and questions. Differences in preferences might, for example, explain cross-country variations in economic fundamentals. In recent years, differences in preferences across countries and cultures have been studied more frequently, usually concentrating on micro evidence. However, it is an open question as to how differences in average preferences affect the aggregate economy. Coming from a macroeconomic perspective, we test whether preferences stated in Kahneman and Tversky’s prospect theory, namely, reference point dependence and loss aversion, prevail on the aggregate and whether the average degree of loss aversion differs across countries. We find evidence of loss aversion for a broad set of OECD countries, while the average loss aversion clearly differs across these countries. We find little evidence that these differences could be linked to micro evidence. Furthermore, we analyse whether the different degrees of loss aversion correlate with economic fundamentals such as the level of GDP and consumption per capita. We find that indeed loss aversion is negatively correlated with GDP and consumption per capita and positively correlated with consumption smoothing. [ more ]
Development
Research
01.03.2019

Effect of oil spills on infant mortality in Nigeria

Abstract Oil spills can lead to irreversible environmental degradation and are a potential hazard to human health. We study how onshore oil spills affect neonatal and infant mortality by combining spatial data from the Nigerian Oil Spill Monitor with Demographic and Health Surveys. To identify a causal effect, we compare siblings born to the same mother, conceived before and after a nearby oil spill. We find that nearby oil spills that occur before conception increase neonatal mortality by 38.3 deaths per 1,000 live births, which corresponds to an increase of around 100% on the sample mean. The effect is fairly uniform across girls and boys, socio-economic backgrounds, and locations. We show that this effect is not driven by events related to oil production or violent conflict. Rather, our results are consistent with medical and epidemiological evidence showing that exposure to hydrocarbons can pose risks to fetal development. We provide further evidence suggesting that the effects of oil spills on neonatal mortality persist for several years after the occurrence of an oil spill. [ more ]
International Trade
Research
01.02.2019

Protectionism, state discrimination, and international business since the onset of the Global Financial Crisis

Abstract The manner and extent of state discrimination against international business since the start of the Global Financial Crisis is documented and interpreted. Without resorting to 1930s-style across-the-board tariff increases, governments have tilted the playing field in favor of local firms so often since November 2008 that 70% of the world’s goods exports competed against crisis-era trade distortions by 2013. Export mercantilism and other forms of selective subsidization are persistent features of crisis-era policy response. Available evidence also casts doubt on the notion that foreign direct investments have been treated as well as successive World Investment Reports contend. [ more ]
International Trade
Research
01.01.2019

Swiss goods exports and the Sino-US trade war: Conflicting transmission mechanisms

Abstract This paper identifies various channels through which the Sino-US trade war and the January 2020 truce affect Swiss goods exports. As a third party to this bilateral trade war, Switzerland’s goods exports were not targeted directly. Nevertheless, Swiss goods exports were implicated and evidence is presented that scales different transmission mechanisms. Given that leading central banks eased monetary policy partly on account of the macroeconomic consequences of the SinoUS trade war, a new dimension to the trade and monetary nexus has arisen. The consequences of this for the conduct of Swiss monetary policy are discussed. [ more ]
Macroeconomics
Research
01.01.2019

The economic effects of genocide: Evidence from Rwanda

Abstract Cross-country studies on the economic consequences of internal political violence typically find short-run effects that are not very large, and no evidence for full economic recovery. We study the economic impact of the Rwandan genocide in 1994, which has been one of the most intense events of political violence since World War II. More precisely, we estimate its effect on economic development using the synthetic control method and addressing data quality issues that have been a concern in the literature. We find a 58% decrease in GDP in 1994. This effect still corresponds to a decrease in GDP per capita of around 31% when taking into account that 800,000 people were killed and that around two million fled the country during the genocide. We further provide strong evidence that Rwanda’s economy was then catching up with the estimated counterfactual GDP it would have had in absence of the genocide, with the gap closing after 17 years. When focusing on the effects on the Rwandan exports as reported by the importing countries, we find similar short-run effects but somewhat slower recovery. We finally show that agriculture was less severely hit by the genocide than the industry and service sectors, and that it also recovered much more quickly. [ more ]
Macroeconomics
International Trade
Research
01.09.2018

Openness and productivity of the Swiss economy

Abstract This paper analyzes the connection between openness and economic performance in Switzerland. Considering different dimensions of openness, we show that the Swiss economy is classified as relatively open. Nevertheless, there still is potential to further increase international integration, particularly through deregulation in the services sector. We also show that for some branches in the Swiss manufacturing sector, increases in international trade are associated with higher productivity in the long run. With regard to financial openness, we show that in the aftermath of the financial crisis, Switzerland mainly suffered from capital retrenchment. Foreign capital inflows were of minor importance. Short-run costs due to high volatility of capital flows might therefore be lower than widely perceived. [ more ]
Development
Research
01.09.2018

Nighttime lights as a proxy for human development at the local level

Abstract Nighttime lights, calculated from weather satellite recordings, are increasingly used by social scientists as a proxy for economic activity or economic development in subnational regions of developing countries where disaggregated data from statistical offices are not available. However, so far, our understanding of what nighttime lights capture in these countries is limited. We use geo-referenced Demographic and Health Surveys (DHS) from 29 African countries to construct indicators of household wealth, education and health for DHS cluster locations as well as for grid cells of roughly 50 × 50 km. We show that nighttime lights are positively associated with these location-specific indicators of human development, and that the variation in nighttime lights can explain a substantial share in the variation in these indicators. We conclude that nighttime lights are a good proxy for human development at the local level. [ more ]
Macroeconomics
Research
01.08.2018

Firm dynamics and growth measurement in France

Abstract In this paper we use the same methodology as Aghion et al. (2017a) to compute missing growth estimates from creative destruction in France. We find that from 2004 to 2015, about 0.5 percentage point of real output growth per year is missed by the statistical office, which is about the same as what was found in the United States. We look at how missing growth varies across French sectors and regions, and we look at the underlying establishment and firm dynamics. In particular we show that the similar missing growth estimates between France and the United States hide noticeable differences in plant dynamics between the two countries. [ more ]
International Trade
Research
01.05.2018

The Trump-induced G20 stress test on trade: Did the German presidency pass?

Abstract At the beginning of its G20 year, the German Presidency attached little priority to trade policy. That stance had to change with the ascension to office of a U.S. President unwilling to follow the diplomatic niceties on trade policy of his predecessors. Moreover, following the U.S. withdrawal from the Trans-Pacific Partnership (TPP) in the first quarter of 2017, the fear grew that election-era protectionist slogans might be converted into action by the United States. This article assesses how effectively the German Presidency and the G20 process in general managed the Trump-induced “stress test” on trade policy. The non-binding form of international economic cooperation, evident with the Leaders’ Summit appears, in our opinion, to have been only partially successful. [ more ]
Macroeconomics
Research
01.04.2018

Exploiting MIT shocks in heterogeneous-agent economies: The impulse response as a numerical derivative

Abstract We propose a new method for computing equilibria in heterogeneous-agent models with aggregate uncertainty. The idea relies on an assumption that linearization offers a good approximation; we share this assumption with existing linearization methods. However, unlike those methods, the approach here does not rely on direct derivation of first-order Taylor terms. It also does not use recursive methods, whereby aggregates and prices would be expressed as linear functions of the state, usually a very high-dimensional object (such as the wealth distribution). Rather, we rely merely on solving nonlinearly for a deterministic transition path: we study the equilibrium response to a single, small “MIT shock” carefully. We then regard this impulse response path as a numerical derivative in sequence space and hence provide our linearized solution directly using this path. The method can easily be extended to the case of many shocks and computation time rises linearly in the number of shocks. We also propose a set of checks on whether linearization is a good approximation. We assert that our method is the simplest and most transparent linearization technique among currently known methods. The key numerical tool required to implement it is value-function iteration, using a very limited set of state variables. [ more ]
Macroeconomics
International Trade
Research
01.01.2018

A dynamic North-South model of demand-induced product cycles

Abstract This paper presents a dynamic North-South general-equilibrium model where per capita incomes shape demand patterns across regions. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in North. Allowing a role for per capita incomes in determining demand delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply-side factors but also by the distribution of income between North and South. We analyze how changes in the gap between North and South due to changes in Southern labor productivity, population size in South and inequality across regions affect the international product cycle. In line with presented stylized facts, we predict a negative correlation between adoption time and per capita incomes. [ more ]
Macroeconomics
International Trade
Research
01.01.2018

International arbitrage and the extensive margin of trade between rich and poor countries

Abstract We incorporate consumption indivisibilities into the Krugman (1980) model and show that an importer's per capita income becomes a primary determinant of “export zeros”. Households in the rich North (poor South) are willing to pay high (low) prices for consumer goods; hence, unconstrained monopoly pricing generates arbitrage opportunities for internationally traded products. Export zeros arise because some northern firms abstain from exporting to the South, to avoid international arbitrage. Rich countries benefit from a trade liberalization, while poor countries lose. These results hold also under more general preferences with both extensive and intensive consumption margins. We show that a standard calibrated trade model (that ignores arbitrage) generates predictions on relative prices that violate no-arbitrage constraints in many bilateral trade relations. This suggests that international arbitrage is potentially important. [ more ]
Political Economy
Research
01.01.2018

The political economics of the Arab Spring

Abstract There were large differences in the responses of Arab dictators to the Arab Spring protests. To understand these differences, I present a stylized model of how a dictator responds to mass protests for democratization in a polarized country with two ethnic or religious groups. In this model, the dictator's response crucially depends on oil revenues and his affiliation to either the majority or the minority group. I document that the model's predictions are consistent with the observed differences in the Arab dictators' responses. Hence, ethnic politics and religious divides may play an important role in political transitions and regime changes. [ more ]
International Trade
Research
01.12.2017

Resilient soft law? Lessons from the US-EU TTIP negotiation on financial services regulation

Abstract This article documents and examines the implications of the European Union’s failure to persuade the United States to include financial services regulation in the negotiation of the Transatlantic Trade and Investment Partnership. [ more ]
Development
Research
01.10.2017

Ethnic politics and the diffusion of mobile technology in Africa

Abstract We analyze the effect of an ethnic group’s country-level population share on the mobile phone infrastructure in Africa. Consistent with the African power-sharing arrangements documented by Francois et al. (2015), we find that larger ethnic groups benefit from a higher concentration of mobile phone infrastructure and a higher fraction of UMTS cell sites. [ more ]
International Trade
Research
01.09.2017

The Transatlantic Trade and Investment Partnership: Limits on negotiating behind the border barriers

Abstract This special issue focuses on the difficulties of negotiating the Transatlantic Trade and Investment Partnership (TTIP), with contributions by scholars from different perspectives. This introductory article briefly examines the trend to mega-FTAs of which TTIP is a leading example. It then reviews the contributions to this special issue, drawing on an analytical approach that reflects extant work on transnational and transgovernmental relations. This approach, we contend, helps to understand the stark mismatch between the desire of some parties to negotiate binding trade rules on behind-the-border regulatory policies in certain key sectors of national economies and the progress made in TTIP talks. We then highlight the significance of some key actors in a case study of failed E.U. attempts to include financial sector reforms and associated regulatory processes in TTIP. [ more ]
International Trade
Research
01.09.2017

Resisting behind the border talks in TTIP: The cases of GMOs and data privacy

Abstract Despite initial intentions to better align transatlantic regulation and associated practices in the negotiation of the Transatlantic Trade and Investment Partnership (TTIP), this was not possible for rules concerning genetically modified organisms and data privacy. By 2016 both matters effectively fell off the TTIP negotiating agenda. This paper identifies the factors responsible, specifically the critical role played by independent regulatory agencies and associated bureaucratic politics, transnational coalitions of private sector organizations, and non-government organizations and contingency. These factors are not exclusive to the two salient regulations considered here, with the implication that the identification of cross-border spillovers is at best a necessary condition for the successful negotiation of binding trade rules on behind-the-border government policies. [ more ]
Macroeconomics
Research
01.01.2017

Asset market participation and portfolio choice over the life-cycle

Abstract Using error-free data on life-cycle portfolio allocations of a large sample of Norwegian households, we document a double adjustment as households age: a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement. When structurally estimating an extended life-cycle model, the parameter combination that best fits the data is one with a relatively large risk aversion, a small per-period participation cost, and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in Norway. [ more ]
Macroeconomics
Research
01.07.2016

Volatile top income shares in Switzerland? Reassessing the evolution between 1981 and 2010

Abstract In the past twenty years, the share of top incomes in Switzerland has risen, while exhibiting large variations. Switzerland is similar to European countries for the top 1% but closer to the United States for higher top income groups. With the synthetic control method, we close a time gap in the tax data, exploiting the fact that Swiss cantons changed their tax system at different points in time. Using social security data, which cover all top labor incomes, we document the growing importance of labor compared to capital incomes among top income earners in Switzerland. [ more ]
Macroeconomics
Research
01.03.2016

Is inequality harmful for innovation and growth? Price versus market size effects

Abstract We introduce non-homothetic preferences into an R&D based growth model to study how demand forces shape the impact of inequality on innovation and growth. Inequality affects the incentive to innovate via a price effect and a market size effect. When innovators have a large productivity advantage over traditional producers a higher extent of inequality tends to increase innovators’ prices and mark-ups. When this productivity gap is small, however, a redistribution from the rich to the poor increases market sizes and speeds up growth. [ more ]