Working Papers
Trade Policy and Global Sourcing: An Efficiency Rationale for Tariff Escalation, with Pol Antras, Teresa Fort, and Agustin Gutierrez, October 2022, Revisions requested at Journal of Political Economy Macroeconomics
Exporting, Global Sourcing, and Multinational Activity: Theory and Evidence from the United States, with Pol Antras, Evgenii Fadeev, and Teresa Fort, July 2023, Revisions requested at Review of Economics and Statistics
Working Papers
Trade Policy and Global Sourcing: An Efficiency Rationale for Tariff Escalation, with Pol Antras, Teresa Fort, and Agustin Gutierrez, October 2022, Revisions requested at
Journal of Political Economy Macroeconomics
Journal of Political Economy Macroeconomics
Abstract
Import tariffs tend to be higher for final goods than for inputs, a phenomenon commonly referred to as tariff escalation. Yet neoclassical trade theory -- and modern Ricardian trade models, in particular --predict that welfare-maximizing tariffs are uniform across sectors. We show that tariff escalation can be rationalized on efficiency grounds in the presence of scale economies. When both downstream and upstream sectors produce under increasing returns to scale, a unilateral tariff in either sector boosts the size and productivity of that sector, raising welfare. While these forces are reinforced up the chain for final-good tariffs, input tariffs may drive final-good producers to relocate abroad, mitigating their potential productivity benefits. The welfare benefits of final-good tariffs thus tend to be larger, with the optimal degree of tariff escalation increasing in the extent of downstream returns to scale. A quantitative evaluation of the US-China trade war demonstrates that any welfare gains from the increase in US tariffs are overwhelming driven by final-good tariffs.
Exporting, Global Sourcing, and Multinational Activity: Theory and Evidence from the United States, with Pol Antras, Evgenii Fadeev, and Teresa Fort, July 2023,
Revisions requested at Review of Economics and Statistics
Revisions requested at Review of Economics and Statistics
Abstract
Multinational firms (MNEs) dominate trade flows, yet their global production decisions are often ignored in firm-level studies of exporting and importing. Using newly merged data on US firms' trade and multinational activity by country, we show that MNEs are more likely to trade not only with countries in which they have affiliates, but also with other countries within their affiliates' region. We rationalize these patterns with a new source of firm-level scale economies that arises when country-specific fixed costs to source from, or sell in, a market are shared across all the MNE's plants. These shared fixed costs create interdependencies between a firm's production and trade locations that generate third-market responses to bilateral trade policy changes.
Foreign Demand Shocks to Production Networks: Firm Responses and Worker Impacts, with Emmanuel Dhyne, Ayumu Ken Kikkawa, Toshiaki Komatsu, Magne Mogstad, July 2022, Revisions requested at American Economic Review
Abstract
We quantify and explain the firm responses and worker impacts of foreign demand shocks to domestic production networks. To capture that firms can be indirectly exposed to such shocks by buying from or selling to domestic firms that import or export, we use Belgian data with information on both domestic firm-to-firm sales and foreign trade transactions. Our estimates of firm responses suggest that Belgian firms pass on a large share of a foreign demand shock to their domestic suppliers, face upward-sloping labor supply curves, and have sizable fixed overhead costs in labor. Motivated and guided by these findings, we develop and estimate an equilibrium model that allows us to study how idiosyncratic and aggregate changes in foreign demand propagate through a small open economy and affect firms and workers. Our results suggest that the way the labor market is typically modeled in existing research on foreign demand shocks—with no fixed costs and perfectly elastic labor supply—would grossly understate the decline in real wages due to an increase in foreign tariffs.
Spatial Economics for Granular Settings, with Jonathan Dingel, September 2023, Revisions requested at Econometrica
Abstract
In granular settings in which people choose from a large set of potential residence-workplace pairs, observed outcomes in part reflect idiosyncratic choices. Using both Monte Carlo simulations and event studies of neighborhood employment booms, we demonstrate that calibration procedures that equate observed shares and modeled probabilities perform very poorly in these high-dimensional settings. Parsimonious specifications of spatial linkages deliver better counterfactual predictions. To quantify the uncertainty about counterfactual outcomes induced by the idiosyncratic component of individuals' decisions, we introduce a quantitative spatial model with a finite number of individuals. Applying this model to Amazon's proposed second headquarters in New York City reveals that its predicted consequences for most neighborhoods vary substantially across realizations of the individual idiosyncrasies.
Older Work
Exporting and the Environment: A New Look with Micro-Data, with Aoife Hanley and Sourafel Girma, June 2008
Luck vs. Fundamentals: What determines the spatial distribution of economic activity? with Zi Wang