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American Economic Journal: Applied Economics: Vol. 2 No. 3 (July 2010)

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Freedom Fries

Article Citation

Michaels, Guy, and Xiaojia Zhi. 2010. "Freedom Fries." American Economic Journal: Applied Economics, 2(3): 256-81.

DOI: 10.1257/app.2.3.256

Abstract

Do firms always choose the cheapest suitable inputs, or can group attitudes affect their choices? To investigate this question, we examine the deterioration of relations between the United States and France from 2002-2003, when France's favorability rating in the US fell by 48 percentage points. We estimate that the worsening attitudes reduced bilateral trade by about 9 percent and that trade in inputs probably declined similarly, by about 8 percent. We use these estimates to calculate the average decrease in firms' willingness to pay for French (or US) commodities when attitudes worsened. (JEL D24, F13, F14, L14, L21)

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Authors

Michaels, Guy (London School of Economics)
Zhi, Xiaojia (Guangzhou, China)

JEL Classifications

D24: Production; Cost; Capital, Total Factor, and Multifactor Productivity; Capacity
F13: Trade Policy; International Trade Organizations
F14: Country and Industry Studies of Trade
L14: Transactional Relationships; Contracts and Reputation; Networks
L21: Business Objectives of the Firm

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