We develop a novel two stage methodology that allows us to study the empirical determinants of the ex post effects of past free trade agreements (FTAs) as well as obtain ex ante predictions for the ...effects of future FTAs. We first identify 908 unique estimates of the effects of FTAs on different trading pairs for the years 1986–2006. We then employ these estimates as our dependent variable in a “second stage” analysis characterizing the heterogeneity in these effects. Interestingly, most of this heterogeneity (∼2/3) occurs within FTAs (rather than across different FTAs), with asymmetric effects within pairs (on exports vs. imports) also playing an important role. Our second stage analysis provides several intuitive explanations behind these variations. Even within the same agreement, FTA effects are weaker for more distant pairs and for pairs with otherwise high levels of ex ante trade frictions. The effects of new FTAs are similarly weaker for pairs with existing agreements already in place. In addition, we are able to relate asymmetries in FTA effects to each country's ability to influence the other's terms of trade. Out-of-sample predictions incorporating these insights enable us to predict direction-specific effects of future FTAs between any pair of countries. A simulation of the general equilibrium effects of TTIP demonstrates the significance of our methods.
We study the incidental parameter problem for the “three-way” Poisson Pseudo-Maximum Likelihood (“PPML”) estimator recently recommended for identifying the effects of trade policies and in other ...panel data gravity settings. Despite the number and variety of fixed effects involved, we confirm PPML is consistent for fixed T and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when T is fixed. At the same time, asymptotic confidence intervals in fixed-T panels are not correctly centered at the true parameter values, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables, which we make available via an accompanying Stata package called ppml_fe_bias.
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Do cross‐border patents promote trade? Brunel, Claire; Zylkin, Thomas
The Canadian journal of economics,
February / Février 2022, Letnik:
55, Številka:
1
Journal Article
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While we would expect that cross‐border patents are used to protect a technology that is made available in another country, that technology could either be produced locally or imported. International ...patent filings could therefore be either complements or substitutes to international trade. This study combines data on patenting and trade for 149 countries and 249 industries between 1974 and 2006 with a “three‐way” panel data model that addresses several biases emphasized in the trade literature in order to provide a systematic analysis of how bilateral trade responds to cross‐border patent filings. We find that cross‐border patents have a positive (complementary) overall effect on the patent‐filing country's exports to the patent‐granting country and no effect overall on imports flowing in the opposite direction. These effects vary substantially across industry groups, with patents promoting significantly more export growth in industries with a high demand elasticity and in industries that are relatively more downstream in supply chains. We also find that patents, once obtained, are associated with increased trade even in jurisdictions with weak intellectual property regimes.
Résumé
Les brevets transfrontaliers favorisent‐ils le commerce international? Les brevets transfrontaliers sont généralement utilisés pour protéger une technologie qui est rendue disponible dans un autre pays, mais cette technologie pourrait y être produite localement ou être importée. Les dépôts de brevets à l'étranger et le commerce international pourraient donc être complémentaires ou substituables. Cette étude combine des données sur les brevets et le commerce couvrant 149 pays et 249 industries entre 1974 et 2006. Nous utilisons un modèle de données de panel à effets fixes « trois voies » qui répond à plusieurs biais soulignés dans la littérature afin de fournir une analyse systématique de l'impact des dépôts de brevets transfrontaliers sur le commerce international. Nous constatons que les brevets transfrontaliers ont un effet global positif (complémentaire) sur les exportations depuis le pays de résidence de l'inventeur vers le pays qui délivre le brevet, et aucun effet global sur les importations circulant dans la direction opposée. Ces effets varient considérablement d'une industrie à l'autre: les brevets favorisent une croissance des exportations significativement plus élevée dans les industries pour lesquelles l'élasticité de la demande est forte, ainsi que dans les industries relativement plus en aval dans les chaînes d'approvisionnement. Nous constatons également que les brevets, une fois obtenus, sont associés à une augmentation du commerce, même dans les juridictions où la protection de la propriété intellectuelle est faible.
Recent work on the effects of currency unions (CUs) on trade stresses the importance of using many countries and years in order to obtain reliable estimates. However, for large samples, computational ...issues associated with the three‐way (exporter‐time, importer‐time, and country pair) fixed effects currently recommended in the gravity literature have heretofore limited the choice of estimator, leaving an important methodological gap. To address this gap, we introduce an iterative poisson pseudo‐maximum likelihood (PPML) estimation procedure that facilitates the inclusion of these fixed effects for large data sets and also allows for correlated errors across countries and time. When applied to a comprehensive sample with more than 200 countries trading over 65 years, these innovations flip the conclusions of an otherwise rigorously specified linear model. Most importantly, our estimates for both the overall CU effect and the Euro effect specifically are economically small and statistically insignificant. We also document that linear and PPML estimates of the Euro effect increasingly diverge as the sample size grows.
Trade-diversion effects of free trade agreements (FTAs) have not been thoroughly examined empirically. Using a novel empirical approach, we confirm that FTAs divert trade away from non-member ...countries and even more so from internal trade (domestic sales) in member countries.
•We identify the trade diverting effects of Free Trade Agreements (FTAs).•We confirm that FTAs divert trade away from non-member countries.•We find that trade diversion is stronger for imports than for exports.•Diversion from internal trade is stronger than diversion from external trade.•Internal trade diversion is increasing in the number of FTAs.
We analyze a dynamic, two-country model that highlights the various trade-offs each country faces between current consumption and competing investments in its future productive and military ...capacities as it prepares for a possible conflict in the future. Our focus is on the circumstances under which the effects of current trade between the two countries on the future balance of power render trade unappealing to one of them. We find that a positive probability of future conflict induces the country with less resource wealth to “prey” on the relatively more “prudent” behavior of its larger rival, and more so as conflict becomes more likely. While a shift from autarky to trade always raises the current incomes of both countries, the smaller country realizes the relatively larger income gain from trade and also devotes a relatively larger share of its income gain towards arming. Our analysis shows that the larger country rationally chooses not to trade today when the difference in initial resource wealth is sufficiently large and is more likely to prefer autarky when the probability of future conflict is higher.
We use a novel data set with verified observations of trade-induced layoffs by U.S. firms to study the interaction between firm productivity and trade liberalization as key determinants of firm-level ...job destruction due to trade. We find that patterns of trade-induced layoffs are broadly consistent with the predictions for firm-level employment generated by the Melitz (2003) heterogeneous firms theory – the number of trade-induced layoffs increases with firm productivity for non-exporting firms but decreases with firm productivity for exporting firms. The fact that exporting firms incur trade-induced layoffs at all invites a refined interpretation of the theory. Our findings suggest that exporting firms may lay off some workers who work in production for their shrinking domestic segments, while also engaging in some within-firm reallocation of workers. We also find that, even after controlling for productivity and export status, larger firms lay off more workers due to trade competition.
My graduate research has been organized around two main themes: (i) the causes and consequences of trade integration and (ii) the strategic nature of armed conflict. The expansion of international ...trade over the past sixty years has played a major role is determining the fates of nations, both for better and for worse, and likewise has the potential to shape our futures in ways we need to be able to anticipate. Similarly, the death, destruction, and diversion of productive resources associated with violent conflict continue to present a critical obstacle to shared prosperity. The papers I am presenting as the chapters of my dissertation are representative of the contributions I am interested in making in these important research areas. My research on trade integration spans both the micro-level of what forms trade integration may take as well as higher level concerns about how freer trade will affect both the world economy as well as the individual economies within it. Two chapters of my dissertation, “Beyond Tariffs: Quantifying Heterogeneity in the Effects of Free Trade Agreements” and “Finding the Influence of Communication on Trade” are devoted to this subject. In “Beyond Tariffs”, for example, I show, using NAFTA as an empirical case study, that the effects of free trade agreements on individual nations may not be what we might expect to observe ex ante based on tariffs. Relying solely on tariffs to project NAFTA’s effects not only greatly underestimates the overall welfare increases for all three NAFTA countries—Mexico’s in particular—but also overstates the positive effects of NAFTA on U.S. producer prices. It follows that “heterogeneity” in the effects of free trade agreements, both within and across agreements, may not be well-understood. In “Finding the Influence of Communication”, I investigate whether the sharing of a common language promotes trade in a way similar to trade policy and, if so, what the consequences of increased language learning will be for global trade. Most notably, I find the effect of communication in native languages on trade tends to be underestimated in the absence of controls for communication in non-native languages. Surprisingly, while I find strong evidence for the causal impact of foreign language acquisition on manufacturing trade, I do not find similarly strong evidence for services trade. I also find that, unsurprisingly, adding to the world’s population of English speakers has by far the largest impact on trade of any major world language. Interestingly, however, when I remove all non-language barriers to trade, I find the forces of geography and history may have greatly impeded the relative appeal of Chinese as a competing global language. The third chapter of my dissertation, “The Problem of Peace: A Story of Corruption, Destruction, and Rebellion”, joint with Constantinos Syropoulos, deals with a different kind of question: what are the economic incentives that drive the emergence of destructive conflicts, and of intra-state conflicts (“civil conflicts”) in particular? Specifically, we investigate how the central presence of state (fiscal) institutions in civil conflicts generates unique explanations for the emergence of conflict itself. International trade plays an important role in this chapter as well, but mainly as a backdrop for illustrating the unique trade-offs between “peace” and “welfare” that may arise in this context. It is possible for changes in international prices to move in favor of promoting settlements, but such settlements can be associated with (socially wasteful) increases in arming and/or taxation. We also explore, among other things, how limiting the government’s fiscal capacity may tilt the balance towards peaceful settlement.
We study the incidental parameter problem for the ``three-way'' Poisson {Pseudo-Maximum Likelihood} (``PPML'') estimator recently recommended for identifying the effects of trade policies and in ...other panel data gravity settings. Despite the number and variety of fixed effects involved, we confirm PPML is consistent for fixed \(T\) and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when \(T\) is fixed. At the same time, asymptotic confidence intervals in fixed-\(T\) panels are not correctly centered at the true point estimates, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables, which we make available via an accompanying Stata package called ppml_fe_bias.
A fundamental problem with nonlinear models is that maximum likelihood estimates are not guaranteed to exist. Though nonexistence is a well known problem in the binary choice literature, it presents ...significant challenges for other models as well and is not as well understood in more general settings. These challenges are only magnified for models that feature many fixed effects and other high-dimensional parameters. We address the current ambiguity surrounding this topic by studying the conditions that govern the existence of estimates for (pseudo-)maximum likelihood estimators used to estimate a wide class of generalized linear models (GLMs). We show that some, but not all, of these GLM estimators can still deliver consistent estimates of at least some of the linear parameters when these conditions fail to hold. We also demonstrate how to verify these conditions in models with high-dimensional parameters, such as panel data models with multiple levels of fixed effects.
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