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on International Trade |
| By: | Allub, Lian |
| Abstract: | The gains from openness to trade and multinational production (MP) depend largely on country size. A large country may attract more foreign firms by closing itself to trade, while a small country may attract a larger amount of MP if trade costs with its neighbors are low because it can be used as an export platform. I develop a model to study these effects, where firms face non-convex decisions of whether to serve a foreign country by exporting from the home country, exporting from a third country, or producing in the foreign country. I calibrate the model separately for South America, and Europe. I find that the gains from openness in Europe are double those in South America, and that the distribution of these gains varies less with size in South America. I also find that MP is more important in explaining the gains from openness in large countries, but the export platform mechanism is more important in small countries. Finally, I find that trade and MP have important implications for the size distribution of firms. |
| Keywords: | Trade, Multinational Production, Bridge Multinational Production, South America, Europe |
| JEL: | F12 F15 F23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:mwp2015/16&r=all |
| By: | Beverelli, Cosimo; Fiorini, Matteo; Hoekman, Bernard |
| Abstract: | We study the effect of services trade restrictiveness on manufacturing productivity for a broad cross-section of countries at different stages of economic development. Decreasing services trade restrictiveness has a positive indirect impact on the manufacturing sectors that use services as intermediate inputs in production. We identify a critical role of local institutions in shaping this effect: countries with high institutional capacity benefit the most from services trade policy reforms in terms of increased productivity in downstream industries. We argue that this reflects the characteristics of many services and services trade and provide a theoretical framework to formalize our suggested mechanisms. |
| Keywords: | institutions; productivity; services; trade policy |
| JEL: | F14 F15 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10834&r=all |
| By: | Rahul Sen (Auckland University of Technology); Sadhana Srivastava (Auckland University of Technology); Don J Webber (University of the West of England, Bristol) |
| Abstract: | The two most populous countries have embarked upon an extensive array of preferential trading agreements (PTAs). This paper examines the impacts of eleven PTAs on China’s and India’s trade creation and trade diversion using an augmented gravity model incorporating zero trade flows. Results suggest that PTAs were net trade creating for China’s exports and imports; the same PTAs were net trade diverting for India’s exports and insignificant for her imports. For both countries, most ASEAN+6 PTAs had created intra- and extra-bloc trade. The partial scope Asia-Pacific Trade Agreement generated the strongest net export creation effect. |
| Keywords: | Trade creation; Trade diversion; Distance; Trade agreements |
| JEL: | F11 F13 F14 F15 |
| Date: | 2015–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:20151507&r=all |
| By: | J. Bradford Jensen (Peterson Institute for International Economics); Dennis P. Quinn (McDonough School of Business, Georgetown University); Stephen Weymouth (McDonough School of Business, Georgetown University) |
| Abstract: | The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy. |
| Keywords: | heterogeneous firms, undervaluation, foreign direct investment |
| JEL: | F1 F23 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp15-15&r=all |
| By: | Durmus Ozdemir (Department of Economics, Yasar University); Mustafa Kemal Gundogdu (Department of Economics, Istanbul Bilgi University) |
| Abstract: | This paper examines the Marshall–Lerner condition under the simultaneity of exports and import flows in the Turkish economy. Due to the high interdependence between ratios of export and import flows to GDP, the traditional version of the Marshall–Lerner condition is not sustained. In the case of Turkey, the long-term estimations of the price elasticities of exports and imports, and the respective cross elasticities, lead us to conclude that currency devaluation would, in the long run, improve the balance of trade. |
| Keywords: | Marshall–Lerner condition, price elasticity, Turkey, export and import flow simultaneity. |
| JEL: | F14 F11 F44 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:yas:dpaper:2015/01&r=all |
| By: | Misato Sato; Antoine Dechezlepretre |
| Abstract: | This paper measures the response of bilateral trade flows to differences in industrial energy prices across countries. Using a panel for the period 1996–2011 including 42 countries, 62 sectors and covering 60% of global merchandise trade, we estimate the short-run effects of sector-level energy price asymmetry on trade. We find that changes in relative energy prices have a statistically significant but very small impact on imports. On average, a 10% increase in the energy price difference between two country-sectors increases imports by 0.2%. The impact is larger for energy-intensive sectors. Even in these sectors however, the magnitude of the effect is such that changes in energy price differences across time explain less than 0.01% of the variation in trade flows. Simulations based on our model predict that a €40-65/tCO2 price of carbon in the EU ETS would increase Europe’s imports from the rest of the world by less than 0.05% and decrease exports by 0.2%. |
| Keywords: | energy prices; international trade; carbon taxes |
| JEL: | F14 F18 Q56 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:63634&r=all |
| By: | Swarnali Ahmed; Maximiliano Appendino; Michele Ruta |
| Abstract: | This paper analyzes how the exchange rate elasticity of exports has changed over time and across countries and sectors, and how the formation of Global Value Chains (GVCs) has affected this relationship. Using a panel framework covering 46 countries over the period 1996-2012, we first find evidence that the elasticity of manufacturing export volumes to the Real Effective Exchange Rate (REER) has decreased over time. We then examine whether the formation of supply chains has affected this elasticity using different measures of GVC integration. Intuitively, as countries are more integrated in global production processes, a currency depreciation only improves competitiveness of a fraction of the value of final good exports. In line with this intuition, we find evidence that the rise of GVC participation explains on average 40 percent of the fall in the elasticity and that corrections of the REER for GVC participation do not present the same decreasing pattern in elasticity. |
| Date: | 2015–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/204&r=all |
| By: | Silja Baller |
| Abstract: | This paper presents the most direct test to date of the key welfare mechanism put forward by Melitz and Ottaviano (2008): the best firms increase sales disproportionately when competing in larger markets. I test this prediction in a quality context where the best firms produce the highest quality. The empirical analysis is guided by a quality-augmentation of Melitz and Ottaviano (2008). I capture product quality empirically using a unique dataset containing firm-level quality ratings. The results are in line with the key prediction of the model. I also find a strong positive relationship between a proxy for consumer quality preference and demand for quality which is consistent with the theory. |
| Keywords: | Heterogenous firms;Flexible mark-ups;Market size;Quality;Complementarities |
| JEL: | F12 F14 F15 L11 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2015-14&r=all |
| By: | Alfaro, Laura; Antràs, Pol; Chor, Davin; Conconi, Paola |
| Abstract: | In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antras and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model’s predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm’s propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggests that contractual frictions play an important role in shaping the integration choices of firms around the world. |
| Keywords: | global value chains; incomplete contracts; sequential production |
| JEL: | D23 F14 F23 L20 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10837&r=all |
| By: | Philip Ulrich Sauré |
| Abstract: | This paper highlights a novel mechanism that generates global imbalances. It develops a general equilibrium trade model with one of two countries having a comparative advantage in a sector whose production is characterized by (i) rapid, anticipated demand growth and (ii) large up-front R&D costs. International funding of the accruing R&D costs generates capital inflows in the R&D stage, which are balanced by subsequent outflows. Importantly, sector-level growth does not generate growth differentials between countries, typically regarded as rationales of global imbalances. Additionally, it is shown that a trade surplus can coincide with appreciations of the real exchange rate. I argue that Switzerland's trades surplus, which was driven to record heights during 2010-2014 by pharmaceutical exports, exemplifies this mechanism. Calibrating the model to Swisstrade flows underpins this argument. |
| Keywords: | Unbalanced trade, setupcosts , R&D costs |
| JEL: | F12 F41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2015-11&r=all |
| By: | Mariano Kulish (School of Economics, University of New South Wales); Daniel Rees (Reserve Bank of Australia) |
| Abstract: | The ongoing development of Asia has led to unprecedented changes in the terms of trade of commodity-exporting economies. Using a small open economy model we estimate changes in the long-run level and variance of Australia's terms of trade and study the quantitative implications of these changes. We find that the long-run prices of commodities that Australia exports started to increase significantly in mid 2003 and that the volatility of shocks to commodity prices doubled soon after. The persistent increase in the level of commodity prices is smaller than single-equation estimates suggest, but our inferences rely on many observables that in general equilibrium also respond to shifts in the long-run level of the terms of trade. |
| Keywords: | Bayesian analysis; open economy macroeconomics; terms of trade |
| JEL: | C11 F41 Q33 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2015-11&r=all |
| By: | Yuriy Gorodnichenko; Jan Svejnar; Katherine Terrell |
| Abstract: | Our estimates, based on large firm-level and industry-level data sets from eighteen countries, suggest that FDI and trade have strong positive spillover effects on product and technology innovation by domestic firms in emerging markets. The FDI effect is more pronounced for firms from advanced economies. Moreover, our results indicate that the spillover effects can be detected with micro data at the firm-level, but that using linkage variables computed from input-output tables at the industry level yields much weaker, and usually insignificant, estimated effects. These patterns are consistent with spillover effects being rather proximate and localized. |
| JEL: | F2 M16 O16 P23 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21514&r=all |
| By: | Lee, Inkoo; Park, Sang Soo |
| Abstract: | This paper analyzes the role of goods market frictions in accounting for the large and volatile deviations from the Law of One Price in a framework of flexible prices. We draw a distinction between goods market frictions that are required to consume tradable goods (e.g., distribution costs) and those that are necessary for international transactions (e.g., trade costs). We find that trade costs generate LOP deviations by introducing a no-arbitrage band, while distribution costs cause the price to deviate from the LOP by affecting the probability that trade will occur, given the band. We then conduct a Monte Carlo simulation to show that real exchange rate volatility is positively associated with trade costs, but negatively related to distribution costs. This effect depends on the interplay of trade costs and distribution costs, as they work in opposite directions when creating arbitrage opportunities. |
| Keywords: | Distribution costs, trade costs, law of one price, real exchange rate volatility |
| JEL: | F31 F37 |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66470&r=all |
| By: | Kyle Bagwell (Stanford University and NBER); Robert W. Staiger (Dartmouth College and NBER); Ali Yurukoglu (Stanford University and NBER) |
| Abstract: | This paper empirically examines recently declassified data from the GATT/WTO on tariff bargaining. We document eight stylized facts about these interconnected high-stakes international negotiations. We use detailed product-level offer and counteroffer data to examine several questions about trade policy, including whether preferential tariffs were a stumbling block towards liberalization, and whether the relaxation of bilateral reciprocity to multilateral reciprocity aided liberalization. We organize the empirical analysis around a theoretical model of multi-party trade negotiations motivated by the terms-of-trade theory and respecting the institutional features of most-favored-nation status and reciprocity. |
| URL: | http://d.repec.org/n?u=RePEc:sip:dpaper:15-028&r=all |
| By: | Rudolfs Bems; Robert C. Johnson |
| Abstract: | We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs. |
| Date: | 2015–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/199&r=all |
| By: | Maria Teresa Costa-Campi (University of Barcelona & IEB); Jordi Paniagua (Catholic University of Valencia); Elisa Trujillo-Baute (University of Warwick & IEB) |
| Abstract: | This paper studies the effect of energy market integration (EMI) on foreign direct investment (FDI). EMIs diminish energy uncertainty and price volatility in the host country and affect FDI through two channels: first, by harmonizing energy prices and, second, by reducing price dispersion. FDI may, as a result, increase both within and outside the EMI area, through energy stability mechanisms and price mechanisms, respectively. An empirical application on a global dataset including bilateral FDI data, during 2003-2012, using the gravity equation, shows that the integration of Portugal and Spain's electricity market in 2007 increased the amount of FDI's participants. Additionally, a positive increase in FDI from neighboring countries (in this instance, France), albeit lower in magnitude, is observed. |
| Keywords: | Energy integration agreements, foreign direct investment, gravity equation, electricity prices, MIBEL |
| JEL: | F20 F21 F23 Q40 Q43 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2015-18&r=all |
| By: | CREANE, Anthony; MIYAGIWA, Kaz |
| Abstract: | This paper considers the strategic role learning plays on foreign direct investments (FDI) under demand and cost uncertainty. FDI allows a foreign firm to respond more effectively to changing local demand than if it exports. With cost uncertainty, however, FDI has a second effect. Since a foreign firm procures inputs locally as does its home country rival, the problem of learning is transformed from about its private parameter to about the common parameter, which proves harmful in both price and quantity competition. We show that FDI decisions depend on whether the firm faces relatively more demand or cost uncertainty, how differentiated the rival's product is, and to what extent inputs are locally procured. |
| Keywords: | FDI, uncertainty, strategic competition, access mode choice, welfare, oligopoly |
| JEL: | D83 F12 F21 |
| Date: | 2015–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:2015-01&r=all |
| By: | Padilla, Ramón; Gomes Nogueira, Caroline |
| Abstract: | Foreign direct investment (FDI) by Latin American companies has increased sharply since the beginning of the 2000s. While most investment flows correspond to firms from large economies (i.e. Argentina, Brazil, Chile, Mexico and Colombia), small economies have also witnessed the increasing internationalisation of their domestic companies. This study examines the strategies followed by multinational enterprises (MNEs) from Latin America when they decide to invest in other countries, highlighting differences by sector and issuer-country size. To that end a new database, which comprises quantitative information on the main operations abroad of Latin American enterprises (both greenfield, and mergers and acquisitions) was constructed, based on fDi Markets and Thomson Reuters Datastream. It also investigates the home-country effects of outward foreign direct investment (OFDI) by conducting a case study of Costa Rica through a representative sample of firms investing abroad. |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col031:38914&r=all |
| By: | Partridge, Mark; Dan S., Rickman; Olfert, M. Rose; Tan, Ying |
| Abstract: | Despite the attention given to international trade in discussion of the economic struggles of many U.S. regions, it is unclear whether international trade shocks impact local economies more, or differently than shocks originating within the domestic economy. A challenge in making this discernment is separating trade shocks from common or domestic shocks. Therefore, using U.S. county-level data for 1990-2010, this study carefully constructs shocks to local economies, isolating those arising from international imports and exports to assess whether trade shocks have different effects from domestic shocks. In confirmatory analysis, we also employ a novel combination of IV and matching strategies. We examine a variety of indicators including employment growth, population growth, employment rates, wage rates and poverty rates. The results suggest that international trade shocks have some different effects than overall domestic shocks, though likely less than commonly perceived. We also find that domestic shocks dominate international trade shocks in explaining variation in regional labor market outcomes. |
| Keywords: | International trade; regional growth; labor markets; shocks; population growth; poverty rates, wage rates |
| JEL: | F16 J21 J3 |
| Date: | 2014–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66892&r=all |
| By: | Michael J. Dickstein (Stanford University and NBER); Eduardo Morales (Princeton University and NBER) |
| Abstract: | Much of the variation in international trade volume is driven by firms’ extensive margin decision to participate in export markets. To understand this decision and predict the sensitivity of export flows to changes in trade costs, we estimate a standard model of firms’ export participation. In choosing whether to export, firms weigh the fixed costs of exporting against the forecasted profits from serving a foreign market. We show that the estimated parameters and counterfactual predictions from the model depend heavily on how the researcher specifies firms’ expectations over these profits. We therefore develop a novel moment inequality approach with weaker assumptions on firms’ expectations. Our approach introduces a new set of moment inequalities—odds-based inequalities—and applies the revealed preference in- equalities introduced in Pakes (2010) to a new setting. We use data from Chilean exporters to show that, relative to methods that require specifying firms’ information sets, our approach generates estimates of fixed export costs that are 65-85% smaller. Counterfactual reductions in fixed costs generate gains in export participation that are 30% smaller, on average, than those predicted by existing approaches. |
| Keywords: | Export participation, demand under uncertainty, discrete choice methods, moment inequalities |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:sip:dpaper:15-026&r=all |
| By: | Paul Missios (Ryerson University); Kamal Saggi (Vanderbilt University); Halis Murat Yildiz (Ryerson University) |
| Abstract: | In a game of endogenous trade agreements between three countries, we show that while the pursuit of customs unions (CUs) prevents global free trade from emerging as a coalition-proof Nash equilibrium, the pursuit of free trade agreements (FTAs) does not. This result reflects the relatively flexible nature of FTAs: whereas each FTA member can independently undertake further trade liberalization with respect to the non-member, CU members must do so as a group due to their common external tariff. By diverting members' exports away from the non-member, both types of trade agreements induce the non-member to voluntarily lower its import tariffs. |
| Keywords: | Free Trade Agreement, Customs Union, Hub and Spoke Agreements, Free Trade, Optimal Tariffs |
| JEL: | F1 |
| Date: | 2015–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-15-00012&r=all |
| By: | Nakada, Yoshiaki |
| Abstract: | Batra and Casas (1976) claimed that ‘a strong Rybczynski result’ arises in the three-factor two-good general equilibrium trade model. In subsequent comments, Suzuki (1983) contended that this could not be the case. Among his comments, Suzuki found that the set of three equations holds for the Allen-partial elasticity of substitution under the assumption of perfect complementarity, and he applied these to his analysis. In the following, I demonstrate that these are impossible, hence his dissenting proof is not plausible. |
| Keywords: | three-factor two-good model; Rybczynski result; perfect complementarity; Allen-partial elasticity of substitution; general equilibrium. |
| JEL: | C68 D5 F11 |
| Date: | 2015–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66755&r=all |
| By: | Maëlan Le Goff; Sara Salomone |
| Abstract: | Migrants’ remittances to developing countries have significantly increased and turn out to be the second largest source of finance for developing countries after foreign direct investment. Besides, the composition of international migration flows has also changed being characterized by a growing feminization and brain drain. In reviewing the literature on remittances, this survey shows that to fully estimate the role of remittances as a lifeline for developing countries the two above recent phenomena cannot be ignored. Indeed, using an original dataset on bilateral remittances and estimating a gravity model in which the gender and the skill dimensions of the migrants are taken into account, we find that both are positively associated with annual remittances received by origin countries. In particular, the main effect seems to be driven by skilled female migrants which presumably represent an important loss in terms of human capital in the perspective of a developing country. |
| Keywords: | International migration;Remittances;Brain Drain |
| JEL: | J16 F22 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2015-15&r=all |
| By: | Joëlle Noailly; David Ryfisch |
| Abstract: | This paper presents novel empirical evidence on the internationalization of green R&D by multinational firms (MNCs), as measured by patents data. Using data on inventors’ addresses for the set of 1,200 MNCs firms patenting in green technologies over the 2004-2009 period, we find that about 17% of green patents result from MNCs R&D investments conducted outside their home countries. MNCs tend to locate their foreign green R&D activities in other OECD markets and in China, in particular in lightings and solar technologies. The empirical analysis reveals that the probability of conducting green R&D abroad increases with the host country’s stringency of environmental regulation, market size and (green) R&D intensity. Also, relatively lower wages for scientists and engineers, and stronger protection for intellectual property rights in the host country increase the likelihood for MNCs to offshore green R&D. The paper concludes by discussing the policy implications of this changing global innovation landscape. |
| Keywords: | Energy; R&D; Multinationals; Globalization. |
| JEL: | Q4 Q55 O33 |
| Date: | 2014–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:gii:ciesrp:cies_rp_33&r=all |
| By: | Mitsuru Igami (Yale University) |
| Abstract: | This paper uncovers a novel pattern of offshoring and market structure in a high-tech industry, and proposes a simple oligopoly model to explain it. Specifically, the hard disk drive industry (1976-98) witnessed massive waves of entry, exit, and the relocation of manufacturing plants to low-cost countries, in which shakeouts occurred predominantly among home firms and almost all survivors were offshore firms. I build and estimate a dynamic offshoring game with entry/exit to explain these facts, and then investigate the relationship between offshoring and market structure as well as the impacts of hypothetical government interventions. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:713&r=all |
| By: | Bruce A. Blonigen; Thomas J. Prusa |
| Abstract: | The majority of the world’s countries have antidumping (AD) statutes in place, hundreds of AD actions occur annually across these countries, and AD criteria and procedures have been codified in the General Agreement on Tariffs and Trade and its successor, the World Trade Organization. AD’s unique characteristics along with its high incidence of use make it a particularly apt policy for studying numerous trade theories and political economy models. We review the economics literature on dumping and antidumping activity, with particular emphasis on the evolution of the literature and the most recent contributions. We also point the reader to resources and rich data available to study AD, as well as our thoughts (in a concluding section) on where scholars should next focus their attention in this literature. |
| JEL: | F13 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21573&r=all |
| By: | Giray Gozgor (Department of Economics and Finance, Dogus University, Istanbul); Priya Ranjan (Department of Economics, University of California-Irvine) |
| Abstract: | This paper constructs a simple theoretical model to study the implications of globalization for inequality and redistribution. It shows that when globalization increases inequality, a policymaker interested in maximizing the sum of welfares of all agents increases redistribution. Empirically, the paper examines the effects of globalization on inequality and redistribution in a panel data set of 140 countries for the period from 1970 to 2012. It finds that both inequality and redistribution have been increasing with globalization. The results are robust to the inclusion of many different controls and the exclusion of outliers. |
| Keywords: | Offshoring; Globalization; Income inequality; Redistributive policies |
| JEL: | D63 H11 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:151601&r=all |