This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2023
  4. Program
  5. Globalization and Resilience to Economic Disruptions
« Back to Results

Globalization and Resilience to Economic Disruptions

Paper Session

Saturday, Jan. 7, 2023 2:30 PM - 4:30 PM (CST)

Hilton Riverside, Canal
Hosted By: American Economic Association
  • Chair: Pierre-Olivier Gourinchas, International Monetary Fund

International Portfolio Investments With Trade Networks

Vuthanh Chau
,
International Monetary Fund

Abstract

What determines the composition of international portfolio investments remains an open question in international finance. In this paper, I propose a theory of international portfolio choice where trade networks play a key role. I solve in closed form for the optimal equity and bond portfolio investments in a multi-country model with arbitrary global input - output linkages and taste differences. I show that a measure of international demand exposure, called the “International Domar Weights” (IDWs), is key in determining international equity portfolios. The IDWs extend the closed-economy “Domar weights” to the international setting and capture countries’ interdependence through both direct and indirect trade linkages. Using data from the World Input - Output Database (WIOD) and Coordinated Portfolio Investment Survey (CPIS), I apply the framework to a network of 43 major developed and emerging economies and obtain four main results. First, the theoretical network portfolio is a significant predictor and explains almost half of the variation in international bilateral portfolio investments. The significance of the network portfolio is robust to controlling for gravity factors (market capitalization, distance, EU membership, etc.). Second, including the network-based portfolio in a gravity model for assets resolves the puzzle of why distance matters for asset trade at all. Third, indirect trade linkages matter for portfolio determination, highlighting the need to explicitly account for trade in intermediate inputs. Finally, the model predicts both the levels and the changes in equity home bias that have occurred since 2000.

Trade Policy and Exporters’ Resilience: Evidence from Indonesia

Michele Ruta
,
World Bank
Massimilano Cali
,
World Bank
Devaki Ghose
,
World Bank
Angella Faith Montfaucon
,
World Bank

Abstract

How does trade policy affect exporters' ability to respond to foreign demand shocks? Faced with a sudden change in the demand for their goods, exporting firms need to optimally change their inputs and/ or input sources. We test whether a country's own trade policy makes such adjustments harder for firms that rely on imported inputs. We exploit new time-varying data on tariffs and Non-Tariff Measures (NTMs) faced by Indonesian firms and focus on the impact of exchange rate shocks on exports to Japan. In response to a depreciation of the Yuan which makes Chinese exports more competitive, we find that firms that face NTMs on their inputs see a much larger drop in their export values compared to firms that do not face any NTMs. That is not the case for import tariffs on inputs, which do not affect the export response to the shock. This difference is consistent with the (partial) fixed costs imposed by NTMs on imports in contrast to the pure variable costs of tariffs. The magnitude of this effect depends on the type of NTM and on firms’ characteristics such as their participation to global value chains, size and product quality.

Production Network Dynamics and the Propagation of Shocks

Federico Huneeus
,
Central Bank of Chile

Abstract

This paper uses a firm-to-firm transaction dataset to evaluate quantitatively how shocks propagate through production networks when their underlying links are costly to form and adjust. I document a set of facts consistent with adjustment frictions in these relationships. In particular, these links react sluggishly to firm-specific international trade shocks and are unresponsive to small shocks but strongly responsive to large shocks. Guided by these facts, I develop a dynamic general equilibrium model with endogenous production networks where links have adjustment frictions. Solving for the links’ dynamics with a large number of firms is made possible by leveraging the empirical sparsity of firm-to-firm links. To measure the aggregate relevance of these adjustment frictions, I estimate the model using a simulated method of moments and evaluate how international trade shocks during the Great Recession propagated in Chile. Without links’ adjustment frictions, and thus with a totally flexible network, the output losses from these shocks would have been 30 percent lower. The application highlights the relevance that dynamics in firm-to-firm links has not only for firms’ connectivity but also for how aggregate output responds to shocks.

Tale of Two Trade Recoveries: Evidence from the United States

Prachi Mishra
,
International Monetary Fund
Antonio Spilimbergo
,
International Monetary Fund

Abstract

The recovery of trade after the global financial and the global pandemic crises (GFC and GPC) was unexpectedly strong. Focusing on US trade, we document the role of sectoral composition, vertical integration, and trade credit during both crises and recoveries. The sectors which collapsed more were the sectors which rebounded faster, and sectoral composition played a key role during both crises; other factors played little and/or insignificant role.

Discussant(s)
Jing Zhang
,
Federal Reserve Bank of Chicago
Rodney Ludema
,
Georgetown University
Swapnika Rachapalli
,
Princeton University
Robert Koopman
,
World Trade Organization
JEL Classifications
  • F1 - Trade
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook