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on International Trade |
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Issue of 2026–07–27
27 papers chosen by Nicola Daniele Coniglio, Università degli Studi di Bari “Aldo Moro” |
| By: | Do, Anh; Ganapati, Sharat; Wong, Woan Foong; Ziv, Oren |
| Abstract: | The majority of global trade moves by sea through hub-and-spoke shipping networks. We investigate the returns to being a hub country by analyzing how transshipment activity shapes trade and supply chains. We show that most US imports especially from smaller origin countries are transshipped via key hubs, and transshipment is positively correlated with the hubs product-level trade. Leveraging the indirect shipping network structure to construct an instrument, we find that transshipment increases hubs imports from origins for which they facilitate trade and exports of downstream goods, highlighting their central role in shaping modern global trade and supply chain dynamics. |
| Keywords: | Trade costs; Scale economies; Hubs; Transport costs; Transport networks; International trade; Shipping |
| JEL: | F10 F13 F14 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20731 |
| By: | Alessandro Maravalle; Elena Vidal Muñoz |
| Abstract: | This paper develops a framework to evaluate the potential economic gains from deeper participation in global value chains (GVCs). The approach combines measures of revealed comparative advantage with estimates of value-added distribution along GVCs to identify opportunities for upgrading into higher–value-added production stages. It then quantifies the long-term economic effects of such upgrading using a structural gravity model. The framework is applied to Costa Rica’s electronics sector, a key focus of the country’s strategy to expand its role in the semiconductor value chain. The findings indicate that strengthening Costa Rica’s position within the electronics GVC could lead to substantial long-term increases in exports, output, and real wages. |
| Keywords: | Global Value Chains, gravity model, revealed comparative advantages, trade policy |
| JEL: | F1 F13 F14 |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1874-en |
| By: | Alcalá, Francisco; Romeu, Andres |
| Abstract: | We study whether the global expansion of exports from lower-income economies raises within-country inequality by constructing a country-level index of exposure to the international relocation of production (IRP). Using HS-6 trade data covering approximately 5, 000 products and a comprehensive panel of 168 countries over 1996–2017, the index quantifies the extent to which each country’s initial export basket subsequently became exported by poorer or richer economies. Applying dynamic-panel estimation techniques, we find that greater exposure to IRP toward the Global South significantly increases within-country inequality. The effect is distinct from, and robust to, overall trade openness. For the three largest economies (US, China, and Japan), the exposure to IRP can account for between 20% and 40% of the rise in their Gini coefficients between 1996 and 2017. The effect operates by reducing the income share of the lower-middle and middle groups (10th to 70th percentiles), while increasing the share of the top 10% of earners. Our approach generalizes “China-shock†insights to a broader, multi-country relocation process. |
| Keywords: | Inequality; International trade; Offshoring; Globalization |
| JEL: | D31 F16 F61 O15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20754 |
| By: | Bernstein, Martin; Meyer, Josefin; O'Rourke, Kevin; Schularick, Moritz |
| Abstract: | Do trade dependencies leave countries vulnerable to geopolitical coercion? We study the economic costs of trade and financial sanctions, from 1920 to the present. We first develop a continuous measure of sanction intensity, using bilateral commodity-level data to calculate the importance of specific flows that fall under sanctions. We find that sanctions inflict relatively small costs on average: sanctioning 1% of GDP worth of imports or exports leads to approximately 0.3 percentage points of lost GDP over a 5-year period and a 0.1 percentage point increase in unemployment. However, we show that sanctions are far more costly for countries whose trade is highly concentrated, and for countries that rely heavily on exporting primary commodities. Low income and developing countries appear most vulnerable to trade sanctions, while high income financial centers and some EU countries are among the most exposed to financial sanctions. |
| Keywords: | Financial sanctions; Economic coercion |
| JEL: | F14 F51 F41 F13 H56 D74 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20457 |
| By: | Grossman, Gene M.; Sykes, Alan O. |
| Abstract: | This paper analyzes the Trump administration’s 2025 “reciprocal tariffs, †imposed under the International Emergency Economic Powers Act (IEEPA) after a declaration of national emergency tied to U.S. trade deficits. We assess both the economic rationale and the legal implications of using IEEPA to raise U.S. tariffs and abandon Most Favored Nation (MFN) treatment. The Executive Order’s claims—that trade deficits have surged, result from a lack of reciprocity, and have caused an “emergency†in manufacturing—rest on economic fallacies. Merchandise trade deficits are long-standing and largely endogenous; tariffs based on bilateral imbalances neither correct unfair foreign practices nor address any true emergency, let alone an ‘unusual and extraordinary threat’ as required by the statute. We further argue that the tariffs fail IEEPA’s requirement that emergency measures “deal with†the asserted threat and that Congress never intended IEEPA to delegate sweeping tariff powers. The episode illustrates the perils of “commandeering the customs†through emergency powers to pursue trade policy by executive fiat. |
| JEL: | F13 K33 F5 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20789 |
| By: | Helpman, Elhanan |
| Abstract: | Foreign trade has significantly contributed to global improvements in living standards, a reduction in global inequality since the mid-1990s, and the lifting of millions out of extreme poverty. These gains were supported by the rules-based international order established after World War II. However, these achievements are now under threat. Escalating trade wars risk not only causing significant economic harm to both the United States and low-income countries, but also exacerbating geopolitical tensions. |
| JEL: | F1 F5 F13 F15 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20596 |
| By: | Egger, Peter; Francois, Joseph; Garcés, Irene; Manchin, Miriam |
| Abstract: | We develop an analytical/empirical framework bridging the decision under uncertainty and recent gravity-based empirical trade literature. We examine the impact of policy uncertainty on services trade, focusing on binding overhang, the gap between market access commitments and actual applied policy). The government’s ability to change policies within this gap yields uncertainty for firms regarding market access. Our findings reveal average Most Favored Nation (MFN) services trade costs ranging from 12.38% for low or medium-income countries to 14.08% for high-income countries, comparable to other regulatory trade barriers. We embed our estimates in a general equilibrium model to quantify the effects of removing market-access uncertainty in services. Results show substantive economic effects on trade and overall economic performance. Globally, we estimate a 0.72% increase in real GDP and a 12.65% increase in services trade volumes from removal of binding overhang. This fits into the range of estimates for deep multilateral and preferential trade liberalization for goods. |
| JEL: | F14 F17 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20538 |
| By: | Rolando Avendano (Asian Development Bank); Hildegunn Kyvik Nordås (Örebro University) |
| Abstract: | This paper studies the drivers of trade in services with a focus on the People’s Republic of China (PRC). It explores how the digital transformation of services has made services more easily tradable across borders and the policies that facilitate or hinder services trade. The paper starts with a descriptive analysis of new data on bilateral trade and sales from foreign affiliate trade statistics (FATS). Using structural gravity, it then studies the impact of regulatory reform on services trade flows as well as foreign affiliates at a granular level. Finally it applies general equilibrium structural gravity to simulate the impact of (i) regulatory reform in the information and communication technology (ICT) sector in the PRC and ii) implementation of the Regional Comprehensive Economic Partnership on trade, sales and output in services across all economies for which data are available. The largest effect stems from regulatory reforms of the ICT sector in the PRC, which benefit all economies. |
| Keywords: | PRC;digital;services trade;policy |
| JEL: | F13 F14 |
| Date: | 2026–07–13 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:023097 |
| By: | Davide Del Prete; Aminur Rahman; Edoardo Tolva |
| Abstract: | This paper examines how transport mode shapes the geography of exchange rate pass-through (ERPT) within Global Value Chains. Using transaction-level customs data from the Bangladeshi garment sector (2018–2024), we exploit the sharp depreciation of the Bangladeshi Taka in 2022 to compare maritime and air-based trade corridors through Chittagong seaport and Dhaka airport. We show that ERPT to exporter prices is incomplete on average and systematically lower in buyer–seller relationships that rely more intensively on air transport. This differential is concentrated in destinations and products where delivery speed is especially valuable, notably European fast-fashion markets. |
| Keywords: | global value chains, exchange rate pass-through, transport mode, Bangladesh |
| JEL: | D22 D43 E31 L14 L22 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12834 |
| By: | Rafael Dix-Carneiro; Brian K. Kovak |
| Abstract: | This article introduces the evidence and associated modeling frameworks contemporary economists use to understand the effects of trade and trade policy on labor markets, with a particular emphasis on labor-market frictions and adjustment dynamics. The effects of trade shocks differ across industries, regions, and occupations, implying the presence of important adjustment frictions in labor markets, and these effects evolve slowly over time, implying the need for dynamic frameworks rationalizing slow transitions. After reviewing the key insights from this literature, we discuss policies aimed at mitigating costs to workers and ensuring that the gains from trade are shared more equitably. |
| JEL: | F11 F14 F16 F62 F66 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35377 |
| By: | Becko, John; Grossman, Gene M.; Helpman, Elhanan |
| Abstract: | As geopolitical tensions intensify, great powers often turn to trade policy to influence international alignment. We examine the optimal design of tariffs in a world where large countries care not only about economic welfare but also about the political allegiance of smaller states. We consider both a unipolar setting, where a single hegemon uses preferential trade agreements to attract partners, and a bipolar world, where two great powers compete for influence. In both scenarios, we derive optimal tariffs that balance terms-of-trade considerations with strategic incentives to encourage political alignment. We find that when geopolitical concerns are active, the optimal tari¤ exceeds the classic Mill-Bickerdike level. In a bipolar world, optimal tariffs reflect both economic and political rivalry, and may be strategic complements or substitutes. A calibration exercise using U.N. voting patterns, an estimate of the cost of buying votes in the U.N., and military spending suggests that geopolitical motives can significantly amplify protectionist pressures and that the emergence of a second great power can contribute to a retreat from globalization. |
| JEL: | F13 F52 F53 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20571 |
| By: | Bosker, Maarten; Van Den Herik, Else-Marie; Pelzl, Paul; Poelhekke, Steven |
| Abstract: | An increasing number of developing countries are restricting non-renewable natural resource exports to encourage domestic processing, move up the global value chain, and spur local development. This paper studies the local labor-market effects of Indonesia’s voluntary export ban on unprocessed nickel and bauxite in 2014, previously a major source of export revenue. Exploiting plausibly exogenous variation in the timing of the ban, opening of new processing facilities, and the location of Indonesia's mineral deposits, we find that — after an initial dip — major investments in nickel processing increased employment in nickel mining districts. New smelters drove structural change, shifting jobs from agriculture to mining and manufacturing. In sharp contrast, the ban only led to very limited investment in bauxite processing, causing bauxite production and local employment to fall. We also find that nickel processing raised mining employment in Indonesia's coal districts, which provide the main source of energy for nickel processing. |
| Keywords: | Industrial policy; Export restrictions; critical minerals; Local development; Global value chains |
| JEL: | O52 O24 F16 F18 Q3 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20791 |
| By: | Alvarez, Jorge; Benatiya Andaloussi, Mehdi; Maggi, Chiara; Sollaci, Alexandre; Stuermer, Martin; Topalova, Petia |
| Abstract: | This paper studies the economic impact of commodity trade fragmentation. Using a novel production and trade dataset of 48 key commodities, we develop a partial equilibrium framework to identify the most vulnerable commodities to trade disruptions and assess the ensuing economic risks. Trade fragmentation can cause large price changes for many commodities, with minerals critical for the clean energy transition and selected agricultural commodities being the most vulnerable. The economic relevance of commodity trade fragmentation, measured by changes in consumer and producer surplus, varies across countries. However, offsetting effects across commodity exporting and importing countries, imply modest global surplus losses. |
| Keywords: | Commodities |
| JEL: | F11 F12 F14 F15 F17 F41 F42 F43 Q17 Q27 Q37 Q43 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20451 |
| By: | Ali, Nadia; De Giorgi, Giacomo; Rahman, Aminur; Verhoogen, Eric |
| Abstract: | Many countries seek to promote exports by subsidizing market access, but evidence on such efforts has been mixed. We present the first randomized evaluation of a government financial-support program explicitly targeting exports, the Tasdir+ program in Tunisia. The program offered matching grants for fixed market-access costs but not variable costs. Tracking outcomes in administrative data, we find positive effects on exports on average. We find limited impacts on the number of destinations or exported products, which were stated policy targets. The finding that the fixed-cost subsidies expanded exports on the intensive margin but not the extensive margins of destinations or products stands in contrast to the predictions of several workhorse trade models. |
| Keywords: | Trade; Randomized control trial |
| JEL: | O1 F1 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20398 |
| By: | Cuong Le Van; Duc V. Le; Thanh Tam Nguyen-Huu |
| Abstract: | This paper examines how a developing country can benefit from trade liberalization. We develop a two-period model, comprising an autarky phase and a globalization phase, and a two-country framework, featuring a developing country and a developed country (representing the rest of the world). Our findings indicate that globalization may disadvantage a developing country when its total factor productivity (TFP) is significantly lower than that of the developed country. However, we demonstrate that the developing country can still achieve gains from trade openness by allocating part of its capital to innovation during the autarky period, thereby enhancing its TFP. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.23861 |
| By: | Ashwin Bhattathiripad; Vipin P Veetil |
| Abstract: | Economic power in international trade is the capacity of one country to impose loss on another by withdrawing from a trading relationship. This paper measures it. A model of the short run represents each trade restriction as a pattern of barred entries in the world matrix of input shares and maps it into a vector of losses by country and sector. The asymmetry between the two countries' losses under the same severance is the measure of power: a gap in substitution, since a buyer's dependence turns on how easily it finds another source and a seller's on how easily it finds another market. When a relationship is barred, buyers lean on alternative suppliers and barred suppliers on alternative buyers already present in the benchmark network, under the ceiling that no producer exceeds its pre-shock scale. The reallocation is a RAS balancing of the disrupted matrix that lets \emph{both sides} adjust together. Across 9, 480 counterfactual severances on the 2022 world input--output network, mutual trade dependence is anything but mutual. The average bilateral asymmetry is 0.6 on a scale that runs from balance at zero to complete lopsidedness at one. The United States holds the favorable side in all its relationships, China in all but one. The same tilt runs far down the hierarchy: a severance with Russia would cost Belarus more than a tenth of its economic activity, but Russia only half of one percent. The asymmetry bears only a weak relation to bilateral trade imbalance but closely tracks whether a country sits at the core or the periphery. Power is a property of network position, not deficits. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.09990 |
| By: | Hup, Mark; de Zwart, Pim |
| Abstract: | How does the expansion of commodity export production impact the skill premium in a developing economy? Drawing on a newly-constructed dataset of regionally-disaggregated production figures and wages, we provide new evidence that agricultural commodity production can increase the skill premium if such production involves extensive local processing. This local processing can be necessitated by the biological features of the commodity. In the case of early twentieth-century Indonesia, coffee beans underwent little local processing. In contrast, sugar cane needed to be processed locally because it deteriorated quickly after harvesting. The production process from sugar cane to highly-refined ‘superior sugar’ was capital- and skill-intensive. We also provide evidence that the capital that enabled this local processing can be seen as North-South capital flows and that value chain upgrading occurred. Using several instruments exploiting exogenous variation in global market prices and local production suitability, we find evidence for a causal effect of sugar production on the skill premium. Whereas increased demand for unskilled workers was easily matched by rising supply, especially in areas well-connected to overland transportation infrastructures, this was not the case for skilled labour, so the skill premium rose. |
| Keywords: | International trade; Skill premium; Wage inequality; Indonesia |
| JEL: | F16 J20 N35 O10 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20459 |
| By: | Joonkyo Hong, Davide Luparello |
| Abstract: | New exporters often adopt new technology, which may reorganize production rather than lift output uniformly, so efficiency gains can land unevenly across inputs. We examine such gains across worker types in Colombian manufacturing, 1981–1991. We develop a model of exporters that measures how efficiently firms use each input and grounds a comparison of new exporters with non-exporters matched on export likelihood. We find that export entry raises the plant-level efficiency of unskilled labor by about 9.4% per year, with no detectable change for skilled labor, implying a 2% annual rise in total factor productivity. We estimate that the two worker types are complements. Exporters thus produce more with relatively less unskilled labor, raising skill intensity. |
| Keywords: | exporting; factor-biased technical change; production-function estimation; skill intensity. |
| JEL: | D24 F14 O33 J24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp26279 |
| By: | Miravete, Eugenio; Moral, Maria |
| Abstract: | The Spanish industrial policy prohibited automobiles imports from 1939 to 1986, when Spain joined the European Union. Despite trading freely with other European countries ever since, Spaniards still show a strong preference for automobile brands with production facilities established in Spain during the autarkic period. We specify a multi-product oligopoly equilibrium model and jointly estimate demand and supply. This rich framework allows us to quantify the current tariff equivalence of these biased preferences induced by an industrial policy phased out decades ago. Our results show that domestic automakers enjoy today a sizable advantage equivalent to an 8.5% tariff, even thirty years after the industrial policy was phased out. This protection is not negligible when compared to the 10.3% import duty applied by the EU. The Spanish experience illustrates the potential benefits and pitfalls of the current European protective policy against Chinese imports. |
| JEL: | F15 L13 L52 L62 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20525 |
| By: | Clausing, Kimberly; Obstfeld, Maurice |
| Abstract: | The year 2025 brought a remarkable shift in the role of tariffs in the US economy, as the Trump administration simultaneously escalated the use of broad tariffs and ensured that Congress enacted large income tax cuts. This fiscal switch has important implications for the US tax system. While maintaining tariff rates at summer 2025 levels would generate large government revenues, such broad tariffs have significant downsides: Efficiency losses would approach one-third of revenues raised, the tax system would be less progressive, and there would be serious tax administration concerns. The fiscal shift also has significant macroeconomic implications, although probably not the intended ones. Broad tariffs generate a large negative supply shock, simultaneously raising prices and reducing macroeconomic activity. |
| Keywords: | Tariffs |
| JEL: | F13 F32 F38 F42 F52 H21 H23 H26 H68 L52 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20677 |
| By: | Ostry, Daniel; Lloyd, Simon; Corsetti, Giancarlo |
| Abstract: | TThis paper provides econometric evidence on how exchange rates respond to tariffs. We construct a new tariff-shock database, which captures tariff-related announcements, threats and implementations by the U.S., China, the Euro Area and Canada between 2018 and 2020, and in 2025. Our shock measure accounts for both the size of tariff rates and their economic relevance. Over the 2018-2020 period, we show that exchange rates reacted to U.S. tariff shocks in systematically different ways depending on retaliation: the U.S. dollar (USD) appreciated if the tariff was imposed unilaterally, but depreciated if other countries threatened to retaliate. In 2025, when nearly all U.S. tariff actions were met with retaliatory threats, the USD again depreciated. In contrast to 2018-2020, however, long-maturity U.S. Treasury yields rose in 2025, instead of fell—consistent with an interpretation of ‘Liberation Day’ as a reserve-currency shock. This may reflect that U.S. tariff actions in 2025 were significantly larger, more frequent and targeted a broader set of countries. |
| JEL: | F13 F31 F51 G15 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20452 |
| By: | Carvalho, Cecilia; Monte, Daniel; Ornelas, Emanuel |
| Abstract: | Motivated by the recent weakening of the multilateral trading system, we examine the sustainability of a rules-based trade regime in a dynamic model in which the leading country chooses the trade regime and leadership evolves over time. We show that a hegemon is required to establish a rules-based regime, but not to sustain it: once in place, such a regime may be upheld even by non-hegemonic leaders that would otherwise prefer a power-based system, especially if they anticipate losing dominance. But a rules-based equilibrium exists only under a delicate set of conditions: the costs of establishing it must be moderate, countries must be sufficiently patient, and leadership turnover must be frequent. In a bipolar state, free-riding and market-power forces pose additional challenges to sustaining rules-based equilibria. We also characterize the trade-offs involved in redesigning the multilateral trading system to preserve its viability. If the leading country becomes shortsighted and threatens to dismantle it, the system must become more efficient, grant greater discretion to the leader, or exclude it altogether. |
| JEL: | F02 F13 F53 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20751 |
| By: | Juhász, Réka; Lane, Nathaniel; Oehlsen, Emily; Perez, Veronica |
| Abstract: | Since the 18th century, policymakers have debated the merits of industrial policy (IP). Yet, economists lack basic facts about its use due to measurement challenges. We propose a new approach to IP measurement based on information contained in policy text. We show how off-the-shelf supervised machine learning tools can be used to categorize industrial policies at scale. Using this approach, we validate longstanding concerns with earlier approaches to measurement which conflate IP with other types of policy. We apply our methodology to a global database of commercial policy descriptions, and provide a first look at IP use at the country, industry, and year levels (2010-2022). The new data on IP suggest that i) IP is on the rise; ii) modern IP tends to use subsidies and export promotion measures as opposed to tariffs; iii) rich countries heavily dominate IP use; iv) IP tends to target sectors with an established comparative advantage, particularly in high-income countries. |
| JEL: | O25 L52 C38 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20333 |
| By: | Tinnefeld, Franziska; Wagener, Florian |
| Abstract: | We develop a multi-region, multi-sector Romer-type dynamic partial equilibrium model of endogenous growth. We calibrate on equally sized regions North, East, and South, based on data from Germany, Poland, and China. We compare the effect of trade block formation on innovation outcomes. Integration leads to aggregate increase in both product and process innovation, resulting in aggregate welfare gains. These are concentrated in North: the research sectors of East and South collapse. Our findings explain data from eastern European countries, as well as current R&D policies in China that are designed to avoid downstream lock-in. |
| Keywords: | Industrial Organization, Research and Development/Tech Change/Emerging Technologies |
| Date: | 2026–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:404836 |
| By: | Massimo Morelli; Gianmarco I. P. Ottaviano; Tommaso Sonno |
| Abstract: | The Arab Spring made evident the dangers of democratization of information for incumbent governments, prompting regulatory changes that helped digital platforms gain power. We document a set of political favors (tariff sparing) for US tech manufacturing in 2018, but the rise of platform revenues does not depend on such favors: digital platforms may benefit from tariffs even when they are not protected and their customers are not protected. In an open economy with ad valorem commissions on the tariff-inclusive consumer price, platform revenue rises with the tariff if and only if demand elasticity is below one in absolute value. |
| Date: | 2026–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2199 |
| By: | Diodato, Dario; Hausmann, Ricardo; Schetter, Ulrich |
| Abstract: | We revisit the well-known fact that richer countries tend to produce a larger variety of goods and analyze economic development through (export) diversifcation. We show that countries are more likely to enter ‘nearby’ industries, i.e., industries that require fewer new occupations. To rationalize this finding, we develop a small open economy (SOE) model of economic development at the extensive industry margin. In our model, industries differ in their input requirements of non-tradeable occupations or tasks. The SOE grows if profit maximizing frms decide to enter new, more advanced industries, which requires training workers in all occupations that are new to the economy. As a consequence, the SOE is more likely to enter nearby industries in line with our motivating fact. We provide indirect evidence in support of our main mechanism and then discuss implications: We show that there may be multiple equilibria along the development path, with some equilibria leading on a pathway to prosperity while others resulting in an income trap, and discuss implications for industrial policy. We finally show that the rise of China has a non-monotonic effect on the growth prospects of other developing countries, and provide suggestive evidence for this theoretical prediction. |
| Keywords: | Industrial policy; Structural change; Poverty trap; Economic complexity; Export diversification; Economic convergence; Product Space |
| JEL: | F43 O11 O14 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20576 |
| By: | Yu (Jasmine); Hao; Jinge Li |
| Abstract: | China's electric-vehicle (EV) sales share rose from about 1% in 2015 to roughly 45% in 2024. We evaluate this technology transition with an equilibrium differentiated-products model of the Chinese auto market, and quantify both its attribution and its welfare and reallocation consequences. Every yuan of 2024 EV subsidy delivered about 3.38 yuan of private surplus, but this surplus accrued asymmetrically. Per-capita consumer-surplus loss from subsidy removal is about five times larger in Tier 1 than in the Rest tier; about half of the aggregate welfare loss operates through indirect Wright's-law learning rather than the direct cash transfer; and EV-native firms (BYD, Tesla, New Forces) retain 16-27% of their 2024 EV business under subsidy removal while traditional state-owned manufacturers retain only 11%. A Shapley decomposition into six channels -- Quality, Variety, Battery, Subsidy, Residual, and Market -- attributes the historical 2015-2024 rise primarily to product-quality gains (+45.49%), choice-set expansion (+14.81%), and battery-cost decline (+8.20%). The Subsidy block is negative (-13.63%) because direct purchase subsidies were phased down, not because subsidies reduce demand: a separate counterfactual that removes the 2024 subsidy entirely lowers EV share by 23-33%. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.27924 |