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Firms, Trade and Globalization

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Point Loma
Hosted By: American Economic Association & Committee on the Status of Women in the Economics Profession
  • Chair: Nina Pavcnik, Dartmouth College

Financial Globalization and the Growth-Stability Trade-Off

Tianyue Ruan
,
National University of Singapore

Abstract

Financial markets that were once confined by country borders have been gradually opened for cross-border capital flow. The liberalization of trade in financial assets is often called “financial globalization.” Theoretical models propose several channels through which openness to international financial flows can increase economic growth including global risk-sharing and efficient flow of capital to productive projects. However, there is little robust empirical evidence of a positive link between financial openness and economic growth. This study investigates how financial openness affects the conditional distribution of GDP growth, capturing the potentially highly nonlinear and asymmetric association. I document that in a panel of industrial and developing countries, financial openness is associated with a higher conditional median as well as lower 5th and 25th conditional percentiles of GDP growth, implying that financial globalization brings about a “growth-stability” trade-off by promoting economic growth at the cost of a higher probability of a crisis. Furthermore, I pay special attention to the set of initial conditions that prior studies have identified to affect the impact of financial openness to growth, including trade integration, financial sector development, institutional quality, and quality of domestic macroeconomic policies. I provide a quantitative assessment of how initial conditions are unobserved or potentially mis-measured by widely-used “standard” measures by comparing the estimates obtained from panel quantile regressions and country-by-country quantile regressions.

The Long and Short (Run) of Trade Elasticities

Nitya Pandalai-Nayar
,
University of Texas-Austin
Christoph E. Boehm
,
University of Texas-Austin
Andrei A. Levchenko
,
University of Michigan

Abstract

Using the US Census firm-level data over the period 1992-2016, we identify aggregate, location-specific, and idiosyncratic plant-level shocks using an extension of the methodology of di Giovanni, Levchenko, and Mejean (2014). We then provide estimates of the contribution of idiosyncratic shocks to GDP fluctuations at the US county level and the overall US economy. Our main finding is that, paradoxically, idiosyncratic shocks account for a much greater share of the aggregate US fluctuations than of the fluctuations at the local level. We explore the correlation structure of locality- and firm-level shocks across space that can account for this finding.

Trade, Jobs, and Worker Welfare

Erhan Artuc
,
World Bank
Paulo Bastos
,
World Bank
Eunhee Lee
,
University of Maryland

Abstract

We develop and estimate a dynamic general equilibrium model of labor mobility with endogenous number of choices. In our model, trade shocks impact worker welfare not only through wages, but also via the number of job opportunities available to workers in different sectors and regions. Our framework combines the advantages of dynamic models of labor mobility and reduced-form estimation methods. First, we use a Bartik-type instrument to estimate causal impacts of export shocks on wages, employment and labor mobility, using detailed employer-employee panel data for Brazil. Second, we employ the same empirical strategy to estimate structural equations for the different components of the trade-induced change in worker welfare. Third, we use our model and the estimated structural parameters to perform counterfactual policy simulations. The structural IV estimates reveal that the job opportunities channel accounts for a sizable share of the gains in worker lifetime welfare following a positive export shock.

Does Capital Scarcity Matter?

Racha Moussa
,
International Monetary Fund
Anusha Chari
,
University of North Carolina-Chapel Hill and NBER
Peter Blair Henry
,
New York University and Brookings Institution

Abstract

This paper quantifies the welfare impact of a permanent increase in the level of per capita income brought about by a temporary increase in the growth rate of GDP per capita following financial globalization in the form of capital account liberalization. In the immediate aftermath of liberalization, and under a range of assumptions, welfare differences between the financially-autarkic and integrated-equilibrium consumption paths are large. Yet when using infinite horizon consumption streams to compute welfare gains, the difference between the two consumption paths is small. The results suggest that a finite horizon framework may be more appropriate and policy-relevant for evaluating the welfare consequences of financial globalization policies that induce temporary growth effects but have a permanent impact on the level of per capita incomes.
Discussant(s)
Yan Bai
,
University of Rochester
Kalina Manova
,
University College London
Nina Pavcnik
,
Dartmouth College
Ina Simonovska
,
University of California-Davis
JEL Classifications
  • F6 - Economic Impacts of Globalization
  • F1 - Trade