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International Trade

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Marriott Marquis, Torrey Pines 1
Hosted By: American Economic Association
  • Chair: Richard Pomfret, University of Adelaide

Causal Mechanism of Inequality on Civil Conflict: Evidence from a Quasi-Experiment in Trade and Factor-Based Income Distribution

Hye Ryoung Jung
,
KDI School of Public Policy and Management

Abstract

This paper has two aims: 1) identifying the causal impact of inequality on civil conflict through exploiting spatial variation in factor endowment, together with time variation arising from economic liberalization in the early nineties, and 2) identifying the mechanisms used by deprived individuals to mobilize collective violence by combining international census information with ethnic level conflict data. Applying the Heckscher-Ohlin theorem, this paper presumes that labor in land-rich countries has a lower opportunity cost of engaging insurrection as trade expands because trade disproportionally benefits landowners. Based on this assumption, this paper hypothesizes that increase in income inequality, exogenously driven by factor endowment and trade, increases the onset of civil conflict. Moreover, this paper tests a mechanism hypothesis that states that if deprivation occurs along ethnic lines, ethnicity will be a channel to mobilize collective violence. Employing instruments as well as controlling global and country-specific time trends through fixed effects, this paper estimates the causal impact of inequality on conflict in 147 countries from 1988 to 2015. The results indicate that a 10% increase in inequality increases conflict onset by 18 percentage points, amounting to a threefold increase of the sample mean. In addition, this study constructs novel data that combines IPUMS international census data with an Ethnic Power Relations dataset that links to the conflict data of Uppsala Conflict Data Program by matching individuals to 892 ethnic groups using race, mother tongue, religion, and geographical location as well as ethnicity. Exploiting variations across ethnicities, the preliminary findings suggest that a 10% increase in the unemployment rate within the ethnic group increases the probability that the ethnic group initiates armed conflict by 29 percentage points. Therefore, the findings imply that pacification efforts need to coordinate with international trade agreements to protect labor-intensive industries, particularly for land-rich and ethnically diverse developing countries.

Firms and Economic Performance: A View from Trade

Alessandra Bonfiglioli
,
Queen Mary University of London
Rosario Crinò
,
Catholic University of the Sacred Heart
Gino Gancia
,
Queen Mary University of London

Abstract

We use transaction-level US import data to compare firms from virtually all countries in the world competing in a single destination market. Guided by a simple theoretical framework, we decompose countries' market shares into the contribution of the number of firm-products, their average attributes (quality and efficiency) and heterogeneity around the mean. To further explore the role of exceptional firms, we also develop a novel decomposition that separates the contribution of heterogeneity from that of granularity. Our results show that the number of firm-products explains half of the variation in sales, while the remaining part is equally accounted for by average attributes and their dispersion. Quality is the main driver of firm heterogeneity. While individual firms matter, we find that heterogeneity is more important than granularity for explaining sales. We then study how the distribution of firm-level characteristics varies across countries, and we explore some of its determinants. Countries with a larger market size tend to be characterized by a more dispersed distribution of firms' sales, especially due to heterogeneity in quality. These countries also tend to be more likely to host superstar firms, although this is not the only source of higher heterogeneity.

Globally Consistent Creditor Protection, Reallocation, and Productivity

Bo Bian
,
University of British Columbia

Abstract

This paper documents that resource reallocation across firms is an important mechanism through which creditor rights affect real outcomes. I exploit the staggered adoption of an international convention that provides globally consistent strong creditor protection for aircraft finance. I find that country-level productivity in the aviation sector, proxied by average monthly flying hours per aircraft, increases by 12% following the adoption of the Convention. Across-firm reallocation accounts for most of the productivity increase. Productive firms borrow more, expand, and adopt new technology at the expense of unproductive ones. Such reallocation is facilitated by (i) easier and quicker asset redeployment; and (ii) the influx of foreign financiers offering innovative financial products to improve credit allocative efficiency. I further document an increase in competition and an improvement in the breadth and the quality of products available to consumers.

Trade Effects of the New Silk Road

Suprabha Baniya
,
Clark University
Nadia Rocha
,
World Bank
Michele Ruta
,
World Bank

Abstract

This paper takes a first look at the trade effects of China’s Belt and Road Initiative (BRI) on the 71 countries potentially involved. The initiative consists of several infrastructure investment projects to improve the land and maritime transportation in the BRI region. The analysis first uses geo-referenced data and geographical information system analysis to compute the bilateral time to trade before and after the BRI. Then, it estimates the effect of improvement in bilateral time to trade on bilateral export values and trade patterns, using a gravity model and a comparative advantage model à la Nunn (2007), respectively. Finally, the analysis combines the estimates from the regression analysis with the results of the geographical information system analysis to quantify the potential trade effects of the Belt and Road Initiative. The paper finds that (i) the Belt and Road Initiative increases trade flows among participating countries by up to 4.1 percent; (ii) these effects would be three times as large on average if trade policy reforms, such as improvements on border delays, trade agreements and tariff reductions, complemented the upgrading in transport infrastructure; and (iii) products that use time sensitive inputs, and countries that are highly exposed to the new infrastructure and integrated in global value chains have larger trade gains. We address the potential endogeneity between infrastructure and trade in different ways. First, we use an Instrumental Variable (IV) approach, where we employ the physical geography features of transit countries along any trade route as instruments for the bilateral transport time between the trading partners. Next, we eliminate nodal countries and the extractive sector from the analysis. Intuitively, if the goal of the BRI is for China to access larger markets or to secure energy supplies, an analysis focused on transit countries and non-energy sectors should mitigate endogeneity problems.

Trade Liberalisation, Export Quality and Wage Inequality: Evidence from China

Yihong Tang
,
Central University of Finance and Economics
Wenxiao Wang
,
Zhongnan University of Economics and Law

Abstract

This paper explores the impacts of trade liberalization on the wage inequality between skilled and unskilled labor in the presence of endogenous quality choice of firms. We consider two types of trade liberalization: tariff reduction in intermediates and tariff reduction in final goods. We capture the causal effects of input trade liberalization on wage inequality by adopting the firms that are exempted from input tariff as a natural control group. Using the Chinese firm-level production data, we find that input trade liberalization widens the wage inequality of skills and improves the export quality of Chinese firms. We also provide evidence that tariff reduction in the final goods narrows the wage inequality between skilled and unskilled labor, which is associated with lower export quality.
JEL Classifications
  • F1 - Trade