International Trade Linkages and Foreign Shocks
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Sergey Nigai, University of Colorado-Boulder and CESifo
Trade Policy and Exporters’ Resilience: Evidence from Indonesia
AbstractHow does trade policy affect exporters’ ability to respond to foreign demand shocks? Using new time-varying data on tariffs and non-tariff measures (NTMs) from Indonesia, this paper shows that in response to a depreciation of the yuan which makes Chinese exports more competitive, firms that face NTMs on their inputs see a much larger drop in their export values compared to firms that do not face any NTMs. The magnitude of this effect depends on the type of NTM and on firms’ characteristics such as their participation in global value chains, size, and product quality.
Import Competition, Trade Credit and Financial Frictions in General Equilibrium
AbstractWe analyze the role of trade credit and financial frictions in the propagation of international trade shocks along the supply chain. First, we show empirically that exposure to import competition from China increased the use of trade credit in the U.S. Then, we use a multi-country input-output trade model with borrowing constraints, trade credit, and endogenous employment to quantify the general equilibrium effects of such increase, characterizing the different channels at work. Borrowing constraints amplify the negative consequences of the China shock on employment, but introducing trade credit reduces these losses by 8%-27%, depending on the tightness of the constraints.
International Transmission of Inequality through Trade
AbstractI quantify the extent of international transmission of inequality through trade linkages. Using firm-level and aggregate data, I find that (i) higher inequality in export markets increases the dispersion of export profits such that (ii) exporting to more unequal countries increases domestic inequality and (iii) trade magnifies the international transmission of domestic inequality shocks. I develop a model that rationalizes these empirical findings. The model relies on a novel theory of consumer targeting in which firms target and serve specific consumer segments in each market. Inequality in export markets shapes the distribution of firms' profits and, therefore, the incomes of individuals linked to them, in turn widening domestic inequality. I calibrate the model and show that consumer targeting and inequality transmission explain a sizable share of the observed levels of the Gini coefficients and income shares of the top 1%. Inequality transmission through trade significantly magnifies the effects of globalization on income inequality.
- F1 - Trade
- F6 - Economic Impacts of Globalization