Almost two weeks late, here are some NBER abstracts that caught my eye:

The Two Crises of International Economics – In this essay, we argue that key assumptions in international macroeconomic theory, though useful for understanding the economic relationships among developed countries, have been pushed beyond their competence to include relationships between developed economies and emerging markets. The Achilles heel of this extended development model is the assumption that threats to deprive the debtor countries of gains from trade provide incentives for poor countries to repay more than trivial amounts of international debt. Replacing this assumption with the idea that collateral is required to support gross international capital flows suggests that the pattern of current account balances seen in recent years is a sustainable equilibrium.

Zeros, Quality and Space: Trade Theory and Trade Evidence – Product-level data on bilateral U.S. exports exhibit two strong patterns. First, most potential export flows are not present, and the incidence of these “export zeros” is strongly correlated with distance and importing country size. Second, export unit values are positively related to distance. We show that every well-known multi-good general equilibrium trade model is inconsistent with at least some of these facts. We also offer direct statistical evidence of the importance of trade costs in explaining zeros, using the long-term decline in the relative cost of air shipment to identify a difference-in-differences estimator. To match these facts, we propose a new version of the heterogeneous-firms trade model pioneered by Melitz (2003). In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms’ heterogeneous cost.

Trade Growth under the African Growth and Opportunity Act – This paper explores whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied to both countries and products, we estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the “endogeneity of policy” critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list as chosen to not include “import-sensitive” products, and despite the general challenges of transaction costs in African countries, we find that AGOA has a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.

Zimbabwe is a disaster:

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

I remember when Zimbabwe’s annual inflation was over 1,000 percent. It’s now in excess of 10,000.

Zimbabwe is a disaster:

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

I remember when Zimbabwe’s annual inflation was over 1,000 percent. It’s now in excess of 10,000.

Zimbabwe is a disaster:

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

I remember when Zimbabwe’s annual inflation was over 1,000 percent. It’s now in excess of 10,000.

Richard Baldwin on the gap between economic theory and practice:

In the 1980s, brilliant young economists like Paul Krugman, Larry Summers, Jeff Sachs and Joe Stiglitz felt obliged to write Brookings or Economic Policy articles, to sit on government panels, to write policy reports, and to send Op-Ed pieces to the Financial Times. At the time, it was part of the definition of a being a leading scholar. It helped you get tenure at Harvard. It also bridged the gap between cutting-edge research and the public debate on trade policy, exchange rates, current account dynamics, etc.

Today’s brilliant young economists are much less interested in participating in the public debate in these ways. I have no empirical evidence to back up this opinion, but I think it is shared by many economists involved in economic policy issues and I had first-hand experience of it during my five years as a Managing Editor of Economic Policy. Young people need publications in good anonymously-reviewed journals; everything else is a luxury…

In the top economic journals, “Policy Implication” sections have fallen out of favour. Including such conjectures in a manuscript is unlikely to raise the probability of publication. Given the natural conservatism of the leading economic journals, there is probably no hope that the journals themselves will encourage authors to draw out the policy implications of their work. In any case, there is a widespread perception that policy analysis is not really the business of scientists. For example, the NBER Working Papers explicitly prohibit policy recommendations. The discussion of research results that does not take place in the journals has spilled over into cyberspace…

One can spend some pleasant hours browsing the various blogs – and even learn a lot from the big blogs, like “Economist’s View”, “New Economist”, ”Marginal Revolution”, and the sites of Brad DeLong, Greg Mankiw, and Nouriel Roubini. But this is not the profession’s response to the Discussion Sections of medical journals. It is more like the collegial coffee-room discussions we used to have when there was time for such things.

Blogs may be too informal to serve as policy discussion sections, but I love hanging out in the coffee room…

Chang:

In pushing for free-market policies that make life more difficult for poor countries, the bad samaritans frequently deploy the rhetoric of the “level playing field.” They argue that developing countries should not be allowed to use extra policy tools for protection, subsidies and regulation, as these constitute unfair competition. Who can disagree?

Well, we all should, if we want to build an international system that promotes economic development. A level playing field leads to unfair competition when the players are unequal. Most sports have strict separation by age and gender, while boxing, wrestling and weightlifting have weight classes, which are often divided very finely. How is it that we think a bout between people with more than a couple of kilos’ weight difference is unfair, and yet we accept that the US and Honduras should compete economically on equal terms?

Sports contests are zero-sum games; economic exchanges are not. I would be surprised to read a sports metaphor that provided more economic insight than confusion. Metaphors like competitiveness are dangerous. Economists like Chang shouldn’t use rhetoric that compares economies and athletes, and free-marketers should be chastised for introducing ‘level playing field’ metaphors too.

The thesis of Bryan Caplan’s The Myth of the Rational Voter, in the briefest terms and paraphrasing Mencken, is that the common people know what they want, and democracy gives it to them good and hard. As Caplan explains it, in the realm of trade policy, steel tariffs are imposed not because clever lobbyists fight to reap concentrated benefits at the (dispersed) expense of the general public, but because average people (and the median voter) like steel tariffs. That’s why the president holds a press conference to announce new protectionism, rather than quietly erecting barriers that favor special interests.

Caplan’s story is very different from the most popular political economy model of trade policy — Grossman & Helpman’s “Protection for Sale.” That model abstracts from much of the political process and applies contract theory (see “Protection for Sale Made Easy“). In short, the lobbies present the government with contribution schedules that induce the government to do what the lobbies want the government to do. The government’s objective function is some linear combination of social welfare and political contributions. The result of lobbying is that governments care too much about producer profits and thus impose tariffs. The model’s predictions are borne out empirically to some degree. Moreover, investigations also find a positive correlation between the size of contributions and tariff levels.

So which story better explains reality? Do lobbies or public opinion trigger protectionism? Are there data that would allow us to distinguish between the two hypotheses, given that they both predict protection?

A synthesis of the two would be Jagdish Bhagwati’s distinction between downstream directly unproductive profit-seeking (DUP) activities – rent-seeking taking place in response to an existing distortion, such as lobbying for a quota allocation – and upstream DUP activities that aim to create distortions. The broad contours of trade policy – a country’s aggregate openness – may be determined by public opinion or the median voter, while the specific manifestations of protection are sufficiently insulated from public perception that they are largely determined by an inside-the-Beltway lobbying process.

Empirically testing this suggested synthesis would be difficult, however. If firms lobby rationally and know that they are constrained by public opinion, then we should expect them to largely engage downstream DUP activities, foregoing upstream DUP activities rendered impotent by the democratic process. But classifying real-world lobbying activities as upstream or downstream may be impossible, making the test hopeless.

Other suggestions for tackling this topic?

Echoing Julian Sanchez’s argument against compensating globalization’s losers, Alex Tabarrok writes:

Imagine that transportation costs fall so that Joe buys his shoes from China. Why do lower transportation costs impose an obligation on Joe to compensate Mary, a U.S. shoe maker? If transportation costs rise (say because the price of oil increases) does Mary have an obligation to compensate Joe?…

Of course, I understand that we might have to compensate the losers from globalization because without compensation they won’t allow us to trade… It might be expedient… but is this justice?

Echoing Julian Sanchez’s argument against compensating globalization’s losers, Alex Tabarrok writes:

Imagine that transportation costs fall so that Joe buys his shoes from China. Why do lower transportation costs impose an obligation on Joe to compensate Mary, a U.S. shoe maker? If transportation costs rise (say because the price of oil increases) does Mary have an obligation to compensate Joe?…

Of course, I understand that we might have to compensate the losers from globalization because without compensation they won’t allow us to trade… It might be expedient… but is this justice?

Echoing Julian Sanchez’s argument against compensating globalization’s losers, Alex Tabarrok writes:

Imagine that transportation costs fall so that Joe buys his shoes from China. Why do lower transportation costs impose an obligation on Joe to compensate Mary, a U.S. shoe maker? If transportation costs rise (say because the price of oil increases) does Mary have an obligation to compensate Joe?…

Of course, I understand that we might have to compensate the losers from globalization because without compensation they won’t allow us to trade… It might be expedient… but is this justice?