Trade and Growth
Monday, Jan. 4, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Arnaud Costinot, Massachusetts Institute of Technology
International Relocation of Production and Growth
AbstractAbstract Over the last decades, the relocation of production from developed to developing economies have generated notable political unrest in some rich countries and precipitated a certain return to protectionism. Using data on approximately 5,000 products, this paper describes the relocation process between 1996 and 2014 and assesses its impact on cross-country growth. Relocation to developing countries –mostly, but not only, to China– had a significant negative aggregate impact on the low-income countries that were initial exporters of the relocated products. In the case of a country at the first quartile of the income distribution, a one-standard negative deviation of the country's exposure to the relocation process reduced its annual growth by 0.61 percentage points. However, this potentially negative impact on the original exporters of the relocated products was zero or not significant in the case of high-income countries. On average, high-income countries facing increased competition from developing economies changed and upgraded their export baskets, whereas low-income countries in the same circumstances failed to do so.
Globalization and the Ladder of Development: Pushed to the Top or Held at the Bottom?
AbstractWe study the relationship between international trade and development in a model where countries differ in their capability, goods differ in their complexity, and capability growth is a function of a country's pattern of specialization. Theoretically, we show that it is possible for international trade to increase capability growth in all countries and, in turn, to push all countries up the development ladder. This occurs because: (i) the average complexity of a country's industry mix raises its capability growth, and (ii) foreign competition is tougher in less complex sectors for all countries. Empirically, we provide causal evidence consistent with (i) using the entry of countries into the World Trade Organization as an instrumental variable for other countries' patterns of specialization. The opposite of (ii), however, appears to hold in the data. Through the lens of our model, these two empirical observations imply dynamic welfare losses from trade that are pervasive, especially among developing countries.
Specialization, Market Access and Real Income
AbstractThis paper estimates the impact of foreign sectoral demand and supply shocks on medium-term economic growth. Our empirical strategy is based on a first order approximation to a wide class of small open economy models that feature sector-level gravity in trade flows. The framework allows us to measure foreign shocks and characterize their impact on growth in terms of reduced-form elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters, and show that the cluster-level growth elasticities can be estimated using high-dimensional statistical techniques. We find clear evidence of heterogeneity in the growth elasticities of different foreign shocks. Foreign demand shocks in complex intermediate and capital goods have large growth impacts, and both supply and demand shocks in capital goods have particularly large impacts on growth for poor countries. Counterfactual exercises show that both comparative advantage and geography play a quantitatively large role in how foreign shocks affect economic growth.
- F1 - Trade
- F6 - Economic Impacts of Globalization