PUBLICATIONS
Recent paper title links go to working papers. Older paper title links and journal title links go to journal articles.
The 2020 US Presidential election and Trump's wars on trade and health insurance, with Jun Nie (Southern Methodist University). European Journal of Political Economy, 2023, June, 102338.
The first versions of this paper circulated under titles of "The 2020 US Presidential election and Trump's wars on COVID-19, health insurance, and trade" (CESifo WP) and "Did COVID-19 cost Trump the election?" (CESifo WP)
Replication files
While the trade war was a slaient electoral issue in the 2020 US Presidential election -- voters rewarded Trump for local protection and punished him for foreign retaliation -- the issue that really cost Trump was undermining the Affordable Care Act (aka Obamacare). Abstract
The trade war initiated by the Trump administration is the largest since the US imposed the Smoot-Hawley tariffs in the 1930s and was still raging when he left office. We analyze how the trade war impacted the 2020 US Presidential election. Our results highlight the political salience of the trade war: US trade war tariffs boosted Trump's support but foreign retaliation hurt Trump. In particular, the pro-Trump effects of US trade war tariffs were crucial for Trump crossing the recount thresholds in Georgia and Wisconsin. Even more important politically, voters abandoned Trump in counties with large expansions of health insurance coverage since the Affordable Care Act, presumably fearing the roll-back of such expansion. Absent this anti-Trump effect, Trump would have been on the precipice of re-election by winning Georgia, Arizona, Nevada, and only losing Wisconsin by a few thousand votes. These effects of the trade war and health insurance coverage expansion cross political and racial lines, suggesting the mechanism operates through the impact on local economies rather than political polarization.
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Contesting an International Trade Agreement, with Matt Cole (Cal Poly) and Ben Zissimos (U of Exter). Journal of International Economics, 2021, January, 103410.
SMU WP version. CESifo WP version.
A new political economy framework that models conflicting lobbying interests and ratification uncertainty surrounding Trade Agreements and showcases novel international political externalities. Abstract
We develop a new theoretical political economy framework called a `parallel
contest' that emphasizes the political fight over trade agreement (TA)
ratification within countries. TA ratification is inherently uncertain in
each country because anti- and pro-trade interests contest each other to
influence their own government's ratification decision. As in the
terms-of-trade theory of TAs, the TA removes terms-of-trade externalities
created by unilateral tariffs. But, a TA also creates new terms-of-trade and
local-price externalities in our framework due to endogenous ratification
uncertainty combined with the requirement that each country ratifies the TA
for it to go ahead. Thus, reciprocal TA liberalization fails to eliminate all
terms-of-trade externalities.
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Phase Out Tariffs, Phase In Trade?, with Tibor Besedes (Georgia Tech) and Tristan Kohl (U of Groningen).
Journal of International Economics, 2020, November, 103385.
Replication files
Tariff phase-out cannot explain the delayed increase in trade flows typically observed after FTA formation. Abstract
An important stylized fact in the empirical Free Trade Agreement (FTA) literature is that member trade flows gradually increase over time following an FTA. Baier & Bergstrand (2007) suggest
two explanations: tariff phase-out and delayed pass-through of tariffs into import prices. We examine these hypotheses using 1989--2016 U.S. import growth and product-level data on the tariff
phase-out negotiated under NAFTA and the earlier Canada-U.S. FTA. We do not find evidence supporting either hypothesis. While products receiving tariff cuts do show delayed import growth relative
to products with unchanged tariffs, the delay in import growth does not correspond to delays in the timing of tariff cuts. We also show that tariff cuts are fully and immediately passed through
to U.S. importers as there are virtually no changes in the prices received by exporters either in the short run or the long run. Rather, we find evidence for an important role played by NAFTA
tariff cuts reducing the impact of frictions that, in turn, allow for a spatial expansion of imports across the U.S.
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Tariff bindings and the dynamic formation of Preferential Trade Agreements, with Moise Nken (Ryerson) and Halis M. Yildiz (Ryerson).
Journal of International Economics, 2020, January, 103279.
Tariff binding liberalization has substantial impacts on the nature and extent of PTA formation. Abstract
We show that multilateral tariff binding liberalization substantially impacts the nature and extent of Preferential Trade Agreement (PTA) formation. First, it shapes the nature of forces constraining expansion of Free Trade Agreements (FTAs). The constraining force is a free riding incentive of FTA non-members under relatively high bindings but an exclusion incentive of FTA members under relatively low bindings. Second, multilateral tariff binding liberalization shapes the role played by PTAs in the attainment of global free trade. Initially, tariff binding liberalization leads to Custom Union (CU) formation in equilibrium but in a way that undermines the pursuit of global free trade. However, further tariff binding liberalization leads to FTA formation in equilibrium and in a way that facilitates the attainment of global free trade. Our theoretical analysis also has implications regarding recent empirical discussions over the relative merits of FTAs versus CUs.
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Preferential Trade Agreements: Recent theoretical and empirical developments, with Pravin Krishna (Johns Hopkins). Oxford Research Encyclopedia of Economics & Finance, 2019.
A survey of recent game theoretic and empirical developments in the PTA literature. Abstract
In recent decades, there has been a dramatic proliferation of preferential trade agreements (PTAs) between countries that, while legal, contradict the non-discrimination principle of the world trade system. This raises various issues, both theoretical and empirical, regarding the evolution of trade policy within the world trade system and the welfare implications for PTA members and non-members. The survey starts with the Kemp-Wan-Ohyama and Panagariya-Krishna analyses in the literature that theoretically show PTAs can always be constructed so that they (weakly) increase the welfare of members and non-members. Considerable attention is then devoted to recent developments on the interaction between PTAs and multilateral trade liberalization, focusing on two key incentives: an “exclusion incentive” of PTA members and a “free riding incentive” of PTA non-members. While the baseline presumption one should have in mind is that these incentives lead PTAs to inhibit the ultimate degree of global trade liberalization, this presumption can be overturned when dynamic considerations are taken into account or when countries can negotiate the degree of multilateral liberalization rather than facing a binary choice over global free trade. Promising areas for pushing this theoretical literature forward include the growing use of quantitative trade models, incorporating rules of origin and global value chains, modeling the issues surrounding “mega-regional” agreements, and modelling the possibility of exit from PTAs. Empirical evidence in the literature is mixed regarding whether PTAs lead to trade diversion or trade creation, whether PTAs have significant adverse effects on non-member terms-of-trade, whether PTAs lead members to lower external tariffs on non-members, and the role of PTAs in facilitating deep integration among members.
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Dynamic formation of Preferential Trade Agreements: The role of flexibility. Canadian Journal of Economics, 2019, 52(1), 132-177.
Earlier versions of this paper circulated under title of "Why don’t more countries form customs unions instead of free trade agreements? The role of flexibility"
A trade–off between coordination and flexibility can explain why, in practice, the number of Free Trade Agreements overwhelmingly outweigh the number of Customs Unions. Abstract
In practice, free trade agreements (FTAs) vastly outnumber customs unions
(CUs). Nevertheless, the literature traditionally views CUs as optimal for members
because CU members coordinate external tariffs. I show that a dynamic FTA flexibility
benefit can help explain the prevalence of FTAs: individual FTA members have the
flexibility to form their own future FTAs whereas CU members must jointly engage in
future CU formation. I show how the relative prevalence of FTAs versus CUs depends
on the structure of market size asymmetry across countries and use these predictions to
shed some light on FTA versus CU formation in Europe and South America.
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Are global trade negotiations behind a fragmented world of "gated globalization"?, with Santanu Roy (Southern Methodist University). Journal of International Economics, 2017, 108, 117-136.
Global tariff negotiations can prevent global free trade precisely because they are successful in lowering global tariffs. Abstract
We show that global trade negotiations can prevent global free trade. In a simple model where global tariff negotiations precede sequential Free Trade Agreement (FTA), we show FTA formation can expand all the way to global free trade in the absence of global tariff negotiations but global free trade never emerges when global tariff negotiations precede FTA formation. This result arises precisely because global tariff negotiations successfully elicit concessions from negotiating countries. Moreover, global tariff negotiations can produce a fragmented world of "gated globalization" where some countries form FTAs eliminating tariff barriers among themselves while outsiders continue facing higher tariffs.
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Free Trade Agreements as dynamic farsighted networks. Economic Inquiry, 2017, 55(1), 31-50.
In the presence of multilateral negotiations, Free Trade Agreements prevent global free trade when there are two larger countries and one smaller country, but Free Trade Agreements are necessary for global free trade when there is one larger country and two smaller countries. Abstract
In the presence of multilateral negotiations, are Free Trade Agreements (FTAs) necessary for, or will they prevent, global free trade? I answer this question using a dynamic farsighted model of network formation among asymmetric countries. Ultimately, FTAs prevent global free trade when there are two larger countries and one smaller country but FTAs can be necessary for global free trade when there are two smaller countries and one larger country. The model provides insights into the dynamics of recent real world negotiations and recent results in the literature on the empirical determinants of trade agreements.
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On the different geographic characteristics of Free Trade Agreements and Customs Unions, with Halis M. Yildiz (Ryerson). Journal of International Economics, 2016, 103, 213-233.
A trade–off between coordination and flexibility can explain why all observed Customs Unions are inter–regional yet Free Trade Agreements are both inter and intra–regional. Abstract
Casual observation reveals a striking phenomenon of Preferential Trade Agreements
(PTAs): while Customs Unions (CUs) are only intra-regional, Free Trade Agreements
(FTAs) are inter and intra-regional. Using a farsighted dynamic model, we endogenize
the equilibrium path of PTAs among two close countries and one far country. Rising
transport costs mitigate the cost of discrimination faced by the far country as a CU
non-member and diminish the value of preferential access as a CU member. Thus,
sufficiently large transport costs imply an FTA is the only type of PTA that can
induce the far country's participation in PTA formation. Unlike CU formation, FTA
formation can induce participation because FTAs provide a flexibility benefit: an FTA
member can form further PTAs with non-members but a CU member must do so
jointly with all existing members. Hence, in equilibrium, CUs are intra-regional while
FTAs are intra- and inter-regional.
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Could tariffs be pro-cyclical?, with Maia Linask (U of Richmond). Journal of International Economics, 2016, 103, 124-146.
Counter to conventional wisdom, we find applied tariffs are pro-cyclical. Abstract
Conventional wisdom says tariffs are counter-cyclical. We analyze the relationship between business cycles and applied tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals this pro-cylicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.
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Domestic political competition and pro-cyclical import protection, with Maia Linask (U of Richmond). Review of International Economics, 2016, 24(3) 564-591.
A dynamic theory of domestic political competition that generates pro-cyclical applied tariffs. Abstract
Governments, especially in developing countries, routinely practice binding overhang
(i.e. setting applied tariffs below binding WTO commitments) and frequently
move applied tariffs for given products up and down over the business cycle. Moreover,
applied tariffs are pro-cyclical in developing countries. We explain this phenomenon
using a dynamic theory of lobbying between domestic interest groups. Applied tariffs
are pro-cyclical when high-tariff interests (e.g. import-competing industries) capture
the government: these groups concede lower tariffs to low-tariff interest groups (e.g.
exporting firms or firms using imported inputs) during recessions because recessions
lower the opportunity cost of lobbying and thereby generate stronger lobbying threats.
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An empirical analysis of trade–related redistribution and the political viability of free trade, with Dann Millimet (Southern Methodist University). Journal of International Economics, 2016, 99, 156-178.
Congressmen are more likely to vote for free trade agreements (FTAs) when trade–adjustment assistance is more generous in their district, espeically if their district is particularly vulnerable to the FTA or they face significant re-election risk. Abstract
Even if free trade creates net welfare gains for a country as a whole, the associated distributional implications
can undermine the political viability of free trade. We show that trade-related redistribution -- as presently
constituted -- modestly increases the political viability of free trade in the US. We do so by assessing the
causal effect of expected redistribution associated with the US Trade Adjustment Assistance program on
US Congressional voting behavior on eleven Free Trade Agreements (FTAs) between 2003 and 2011. We find that
a one standard deviation increase in expected redistribution leads to an average increase in the
probability of voting in favor of an FTA of 1.8 percentage points. Although this is a modest impact on average, we find
significant heterogeneities; in particular, the effect is larger when a representative's constituents are more at risk or the
representative faces greater re-election risk.
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Costly distribution and the non–equivalence of tariffs and quotas, with Maia Linask (U of Richmond), Public Choice, 2015, 165(3), 211-238
Cooperative elimination of rent–seeking under quotas is easier to sustain than cooperative elimination of revenue–seeking under tariffs and, in this sense, quotas are welfare superior to tariffs. Abstract
When governments impose a quota or tariff on imports, it is well known that the resulting
rents and revenues trigger costly rent-seeking and revenue-seeking activities, which are welfare-
reducing and may be economically more significant than the efficiency losses resulting from
the quota/tariff-induced resource reallocation. Repeated interaction among firms can eliminate
wasteful rent- and revenue-seeking expenditures through cooperation. We show that while
aggregate outcomes are equivalent under tariffs and quotas if cooperation arises, the conditions
under which cooperation arises differ by policy. This difference arises because a firm must incur
additional cost to physically import and distribute the goods associated with additional quota
licenses, whereas there is no such cost when it comes to consuming additional tariff revenue.
Thus, quotas and tariffs are non-equivalent. We provide a simple sufficient condition under which
cooperative elimination of rent-seeking under quotas is easier than cooperative elimination of
revenue-seeking under tariffs and therefore a quota is the optimal policy whenever the optimal
policy admits cooperation.
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Revisiting the link between PAC contributions and lobbying expenditures, European Journal of Political Economy, 2015, 37, 86–101
A dataset that decomposes an interest group’s contributions to a Congressional representative across issues and decomposes an interest group’s issue–specific lobbying expenditures across Congressional representatives. Abstract
Unfortunately, data on campaign contributions of PACs (political action committees) in the US does not contain the PACs issues of concern. Additionally, while recent US lobbying data details the issues of concern for an interest group, it does not detail the Congressional representatives lobbied by the interest group. Using the 1997–98 Congressional cycle, earlier work showed PACs engaging in lobbying and campaign contributions account for the vast majority of such political money even though they represent a small minority of all PACs. Using an expanded time period, I show this is a systematic feature of the US political system and how it allows construction of a novel dataset that decomposes representative-specific contributions across issues as well as issue-specific lobbying expenditures across representatives. Further, I show this decomposition can qualitatively affect results regarding the relationship between political money and Congressional voting behavior on trade policy.
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WORKING PAPERS
Local labor market effects of the 2002 Bush steel tariffs, with Ding Liu (Southern Methodist University). R&R at AEJ: Policy.
The Bush steel tariffs of 2002 substantially and permanently depressed local employment in steel-consuming industries. Abstract
President Bush imposed safeguard tariffs on steel in early 2002. Using US input-output tables and a generalized difference-in-difference methodology, we analyze the local labor market employment effects of these tariffs depending on the local labor market's reliance on steel as an input and as part of local production. We find the tariffs did not boost local steel employment but substantially depressed local employment in steel-consuming industries for many years after Bush removed the tariffs. These large and persistent negative effects were concentrated in local labor markets that had low human capital or were strongly specialized in steel-consuming industries.
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US Inequality in the 1980s: The Tokyo Round Trade Liberalization and the Swiss Formula, with Andrew Greenland (North Carolina State) and John Lopresti (William & Mary).
R&R at Review of Economics and Statistics.
A novel IV to identify the impact of tariff liberalization on trade and labor market outcomes when policymakers set tariffs endogneously. Abstract
Against a backdrop of sharply rising inequality, the Tokyo Round of the GATT resulted in a 1.6 percentage point reduction in average US tariffs -- larger than CUSFTA, NAFTA, and the liberalization accompanying the granting of PNTR to China. We construct a novel IV based on the so-called ``Swiss formula'' that governed Tokyo Round tariff liberalization to provide the first evidence of its effects on imports and inequality. Instrumented tariff reductions explain 17\% of the within-industry rise in income inequality between skilled and unskilled workers between 1979 and 1988. This effect is largest in more technology-intensive industries, suggesting a complementarity between trade liberalization and skill-biased technological change. We also show that tariff liberalization in upstream industries produced a shift away from labor more broadly and towards intermediate inputs. Finally, we show that policymakers dampened the observed impact of tariffs on inequality by assigning smaller tariff reductions to industries more reliant on low-skilled labor.
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The GATT vs inflation: Tokyo drift, with Andrew Greenland (North Carolina State) and John Lopresti (William & Mary).
Inflation erosion of specific tariffs during the 1970s generated more tariff liberalization and greater welfare gains than the Tokyo Round liberalization of tariffs in the 1980s. Abstract
Despite the negotiated tariff liberalization in the 1979 Tokyo GATT Round, the US aggregate tariff rate drifted upwards over the following decade. In stark contrast, the aggregate tariff rate fell sharply in the years prior to the Tokyo Round despite no legislated changes in US tariff policy. We shed light on these puzzling dynamics by reconstructing the US tariff code annually between 1972 and 1988 and document a two-phase liberalization. From 1972 to 1979, inflation eroded the ad valorem equivalent rate of specific tariffs -- which account for up to 35\% of tariff protection in our sample -- resulting in an ``accidental'' liberalization. Between 1980 and 1988, a change in the composition of US imports masked a four percentage point reduction in legislated tariffs resulting from Tokyo Round GATT negotiations. To emphasize the aggregate importance of specific tariffs in this era, we embed them in a simple CES framework and extend existing hat algebra techniques to incorporate specific tariffs. Our counterfactual analysis shows the inflationary erosion of specific tariffs yielded greater welfare gains than the GATT-mandated phaseout of legislated tariffs.
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WORK IN PROGRESS
Trade Restrictiveness Indices 2.0, with Massimilano Cali (World Bank), Aufa Doraset (World Bank) and Laura Puzzello (Monash University).
Plurilaterals and the pursuit of global free trade, with Lasha Chochua (Bielefeld University) and Gerald Willman (Bielefeld University).
Contesting the environment, with Matt Cole (Cal Poly) and Ben Zissimos (U of Exter).
Structural transformation and labor mobility over the life cycle, with Masha Brussevich (IMF) and Mike Sposi (Dallas Fed).
The changing nature of protection and its consequences for welfare: Evidence from Indonesia, with Massimilano Cali (World Bank), Aufa Doraset (World Bank) and Laura Puzzello (Monash University).
Lobbying for tariff phaseouts in US bilateral Free Trade Agreements, with Shushanik Hakobyan (IMF) and Tristan Kohl (U of Groningen).
Routine biased technological change rather than Chinese import competition drives job polarization in US local labor markets. Abstract
While job polarization characterizes US non-tradable and tradable service sectors, anti-job polarization characterizes the US tradable goods sector. Abstract
The complete network may not obtain when endogenously determining which players form a link in a given period even though the complete network arises when pairs of players are randomly selected to form a link in each period. Abstract