Does exporting raise productivity? Dean Yang et al. use export demand shocks from the Asian financial crisis to instrument for increased exporting and find a big effect:

Between 1995 and 1998, the Japanese, Thai, and Korean currencies depreciated in real terms against the US dollar by 31%, 32%, and 43%, respectively. At the other extreme, the British pound and the US dollar experienced real appreciations against the yuan, by 14% and 7%. Because the exchange rate changes varied so widely, two observationally equivalent firms faced very different export demand shocks if one happened to export its goods to Korea and the other exported to the UK…

For each firm, we construct an exchange rate shock measure specific to that firm, which is the average exchange rate change of a firm’s export partners weighted by the firm’s export destinations in 1995 (prior to the Asian financial crisis). We focus on changes in exports driven by these exchange rate shocks.

Using this approach, we ask whether and how instrumented changes in exports affect measures of firm performance. We find that increases in exports are associated with improvements in total factor productivity, as well as improvements in other measures of firm performance such as total sales and return on assets. Our estimates indicate that a 10% increase in exports causes productivity improvements of 11% to 13%, nearly one-eighth of the mean productivity improvement from 1995 to 2000 in our sample.

The bloggingheads exchange between Peter Singer and Tyler Cowen is brilliant.

Tom Palmer, director of the Atlas Global Initiative for Free Trade, Peace, and Prosperity, is collecting signatures for a petition in support of free trade that will be unveiled shortly before the G20 summit in London.

Mark Koyama notes that manufacturing-driven economies are being hit pretty hard by the financial crisis:

Countries which retained significant manufacturing industries like Germany and particularly Japan are currently suffering the most – even though their banks were cautiously managed unlike much of the Anglo-American financial sector.  Japan’s GDP shrunk at an annualized rate of 12.7 percent last quarter which more or less wipes out the growth that took place between 2003 and 2007.   Since it is very easy to defer purchasing a new mp3 player or car, while expenditures on services are harder to cut back on, the bulk of the fall in aggregate demand has manifest itself in terms of falling demand for manufactured products. Development economists in the 1960s used to advice developing countries that it was dangerous to specialize in a single cash crop like coffee despite what comparative advantage might say because it would leave the entire economy dependent on movements in global prices. Now it appears that economies that have specialized in exporting manufactured are  peculiarly vulnerable in a world where globalization has meant that economic shocks are tightly correlated across countries.

Welcome ECIPE (Razeen Sally, Fredrik Erixon, et al.) to the trade blogosphere.

I apologize for the lack of activity at Trade Diversion recently. Posting should increase after my midterm exams next week.

Pascal Lamy says that protectionism cannot be smart.

William Easterly says that free markets are underappreciated.

“Do not confuse American companies with American jobs.” – Robert Reich

Steven R. Weisman on the history of the term:

[Joan] Robinson was apparently inspired by a card game popular in the 19th century, known as “Beggar-My-Neighbor.” One of the first literary appearances of the game was in the novel Great Expectations, published in 1861. Charles Dickens cited the game as the only one that Pip, the protagonist, seemed to know how to play. Hoyle’s says that “Beggar-My-Neighbor,” a kind of zero-sum game in which your opponent was not only defeated but left penniless, had such other names as “Beat Jack Out of Doors” and “Strip Jack Naked.”

Doug Irwin against “Buy American.”

The NBER Digest summarizes Christian Broda and David Weinstein’s work on international price differences:

Broda and Weinstein find that the law of one price and purchasing power parity, in their absolute forms, hold about as well across borders as within countries. The researchers confirm that the LOP is violated flagrantly in international data, but also across cities within the same country. Thus, for example, the observation that an identical can of soda sells at different prices in different countries is not very informative about border barriers, because prices vary substantially even within borders.