Trade Frictions, Policy, and Firm Dynamics in a Globalized Economy
Paper Session
Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)
- Chair: Wisarut Suwanprasert, Middle Tennessee State University
Border Frictions in a Time of Covid
Abstract
This paper explores the evolution of border frictions to international trade over time during the Covid-19 pandemic. Using a gravity model of bilateral trade, including internal trade flows, it estimates the effect of Covid-19 related travel restrictions on international trade flows at a quarterly frequency, alongside a set of traditional geographic variables. It finds significant explanatory power for the role of travel restrictions, especially in the initial phases of the pandemic when restrictions were being tightened, and some evidence on an overhang effect which unwound as restrictions loosened. It finds relatively limited changes in effects of contiguity and distance over the same period.The Economics of Sanctions: Understanding the Role of Third Countries
Abstract
This paper studies the role of third countries in shaping the dynamics and effectiveness of economic sanctions. Drawing on recent empirical evidence, we document new stylized facts that highlight the extraterritorial effects of sanctions—specifically, how third-country responses influence trade patterns and the strategic behavior of both senders and targets. To explain these findings, we develop a three-country general equilibrium trade model with endogenous sanction threats, strategic interaction, and private information about outside options. The model captures how third-country policies affect bargaining outcomes and the probability of sanctions being imposed. Our framework provides a rationale for the use of seemingly self-harming sanctions and explains why countries with stronger allies are more likely to act as senders and less likely to be targets. The analysis offers new insights into the political economy of sanctions and underscores the importance of third-country behavior in determining their success or failure.Trade Theory with Behavioral Agents
Abstract
In this paper, I develop a theoretical framework to analyze gains from trade and optimal tariffs in the presence of behavioral biases. The theoretical results center on the behavioral wedge, a sufficient statistic which captures distortions induced by a broad class of behavioral biases. I present three main theoretical results. First, I show how behavioral biases can either dampen or amplify the welfare gains from trade and, in some cases, even generate welfare losses. Second, I characterize optimal tariffs in this context and show how they can be used to correct distortions arising from behavioral biases. Third, I characterize optimal behavioral nudges and show how they may be used to manipulate the world’s terms of trade. Finally, I discuss the potential role of behavioral biases in shaping public support for the 2018 China–United States trade war and Brexit.Product Entry Via Acquisitions
Abstract
Targeted acquisitions of products by larger firms with preexisting scale for large logistical networks can introduce products to new markets. From the perspective of the acquired firm, such acquisitions may enable a “leap-frogging” of the productivity thresholds required for export to other markets (as discussed in Melitz 2003 in the international export case) allowing firms that could not otherwise export to do so. In this paper, we quantify the productivity gains implied by acquisition, investigate the entry effects in other markets, and estimate a structural consumer demand model to assess the resulting welfare impacts. We also investigate the acquiring firm’s behavior, particularly noting the competitive implications of different types of mergers (of complementary or substitute products).Discussant(s)
John Lewis
,
Bank of England
Ohyun Kwon
,
Drexel University
Wisarut Suwanprasert
,
Middle Tennessee State University
Minuk Kim
,
Bryn Mawr College
Manho Kang
,
Georgia Institute of Technology
JEL Classifications
- F0 - General
- F1 - Trade