Simonovska & Waugh: “The Elasticity of Trade: Estimates and Evidence”

Is the elasticity of trade significantly lower than suggested by prior estimates?

Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a new method to estimate this elasticity and illustrate the merits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flow data. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategy would suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models.

Soccer's Lost Boys

Current TV has an episode on youth soccer players in west Africa who migrate in hopes of winning contracts with football clubs in Europe. They risk the dangers and abuses that victims of more traditional human trafficking suffer. The episode is called “Soccer’s Lost Boys.”

HT: Larry.

Soccer’s Lost Boys

Current TV has an episode on youth soccer players in west Africa who migrate in hopes of winning contracts with football clubs in Europe. They risk the dangers and abuses that victims of more traditional human trafficking suffer. The episode is called “Soccer’s Lost Boys.”

HT: Larry.

Irwin on Smoot-Hawley

Via the WSJ, we learn that Doug Irwin is writing a book titled The Smoot-Hawley Tariff and the Great Depression. It’s due next year from Princeton University Press.

While most economists do not hold the Smoot-Hawley tariff responsible for the Great Depression itself, it contributed to a sharp decline in world trade. The tariff slashed U.S. dutiable imports by about 15%, for example. Even worse, it spawned protectionism abroad…

The damage wrought by this tariff had only one silver lining. Ever since, the ghosts of Reed Smoot and Willis Hawley (a Republican congressman from Oregon) have stood in the way of anyone arguing for higher trade barriers. They almost singlehandedly made the term “protectionist” an insult rather than a compliment.

Presumably Professor Irwin’s 1998 REStat paper provides some preview of how he’ll approach the technical portion of the book:

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e., Smoot-Hawley plus deflation).

UEFA vs FIFA

My blogging may be a bit slow through July 11. But here’s Marcus Cole of Stanford Law on nationalism, labor mobility, international organizations, and football:

To the true football fan, the World Cup itself is part of an ideological struggle between two competing corporate goliaths, the Fédération Internationale de Football Association (“FIFA”) and the Union of European Football Associations (“UEFA”)…

FIFA represents the distinctly twentieth century notion that nationhood is the most important and powerful bond between humans. While nations are free to define themselves, individuals, for the most part, are not. FIFA insists upon a competition between nations qua nations, but FIFA does not demand that nations define themselves in a particular way…

UEFA also satisfies some of the thirst for nationalism, sponsoring its own competition between national teams every four years, the European Cup, in the interstices of the World Cup. But UEFA’s real claim to fame is its sponsorship of club competitions, the UEFA Champions League and the UEFA Europa Cup. These two competitions are between club teams, not nations. These clubs are organized, for the most part, on free association and freedom of contract…

FIFA and UEFA are openly critical of each other, and it is no secret that FIFA craves the power and success of UEFA. FIFA has tried to promote its own club competition, the World Club Cup, in which the winners of the various continental competitions around the world participate. This competition is largely ignored however, with virtually no television coverage, even in Europe. Instead, the real football world is focused annually on the Champions League, which every pre-eminent international footballer considers one of the two trophies he must hoist in a successful career. The other, of course, is FIFA’s World Cup.

But UEFA understands what FIFA does not, namely, that freedom works. National teams will never be as good, as entertaining, or as compelling as teams composed of free individuals willingly and contractually cooperating toward one common purpose. Open systems of nationality come closer to the ideal of freedom than closed systems, and the national teams themselves recognize this… The German national team boasts Cacau (a native of Brazil) and Jerome Boateng…

via IELP.

Update: Along related lines, see Emmanuel’s “German football as proof that migration works.”

More evidence from labor mobility lotteries

Michael Clemens:

A quirk in the administrative process for granting temporary skilled-worker visas to the United States in 2007 and 2008 caused the U.S. government to randomize which visa applications it processed. This resulted in an exogenous change in the country of location for those workers. The effect of location on earnings is established by following the winners and losers of the visa lottery in the personnel records of a single major multinational software firm…
Location alone accounts for roughly three quarters of international wage gaps in this occupation. Under plausible assumptions about competition in the industry, and given the near-perfect tradability of the output, these findings suggest large differences in worker productivity caused exclusively by local, nontraded inputs accessible in different countries.

Does trade improve food security? Evidence from colonial India

Evidence describing the relationship between trade and food security one hundred years ago doesn’t translate directly into 21st-century policy recommendations, but this is neat stuff from Dave Donaldson and Robin Burgess:

Our district panel regression results suggest that the arrival of railroads in Indian districts dramatically constrained the ability of rainfall shocks to cause famines in colonial India. On average, before the arrival of railroads, local rainfall shortages led to a significant rise in our index of famine intensity. But after a district gained railroad access the effect of local rainfall shortages on famine intensity was significantly muted.

They’re still working on it:

While these preliminary findings are consistent with railroad expansion mitigating famine intensity by facilitating trade in food the same infrastructure investments may also have intervened in the weather-to- death relationship by facilitating movements of people, capital and famine relief. In future work we aim to gain a fuller understanding of how trade openness can mitigate or exacerbate the impact of weather shocks by building up a complete series of mortality statistics for the period and by analysing data on passenger flows, trade flows, trade imbalances, output, prices and famine relief.

Center for Firms in the Global Economy

Neat: “The Center for Firms in the Global Economy is a research center that aims at analyzing firm behavior in a globalized economy, with a special attention to companies in Europe as well as developing countries. The center primarily produces academic research papers but would take part in international business or public policy oriented projects.”

Woods vs Bhagwati: Freer vs fairer trade

Earlier this month, Oxford’s Ngaire Woods and Columbia’s Jagdish Bhagwati debated the merits of free trade versus fair trade at the Economist. Aaditya Mattoo, Simon Evenett, Kevin Watkins, and Thea Mei Lee also contributed along the way. The motion: “This house believes that making trade fairer is more important than making it freer.”

I think the debate suffered from a proliferation of competing definitions of fairness, a problem noted by Evenett that is inherent to the topic. Such online debates usually produce more questions than conclusions, which makes them useful introductions to an area of inquiry.  This debate might be a good means of motivating an undergraduate class discussion of international trade and global governance.

[Hat tip: Eagleton-Pierce.]

Mithas & Lucas “U.S. Visa Policies and Compensation of Information Technology Professionals”

Management Science, Vol. 56, No. 5, May 2010, pp. 745–765, pdf

We find that after controlling for their human capital attributes, foreign IT professionals (those without U.S. citizenship and those with H-1B or other work visas) earn a salary premium when compared with IT professionals with U.S. citizenship. The salary premiums for non-U.S. citizens and for those on work visas fluctuate in response to supply shocks created by the annual caps on new H-1B visas. Setting lower and fully utilized annual caps results in higher salary premiums for non-U.S. citizens and those with work visas…
Collectively, the presence of salary premiums for foreign professionals even when a visa cap is under-utilized and the fact that H-1B professionals’ salary premiums are more directly affected by H-1B visa restrictions than that of green card holders imply that (1) foreign IT professionals are complements of American IT professionals, and (2) H-1B professionals may be substitutes for each other because a reduction in their supply affects their wages much more than that of green card holders.

We find that after controlling for their human capital attributes, foreign IT professionals (those without U.S. citizenship and those with H-1B or other work visas) earn a salary premium when compared with IT professionals with U.S. citizenship. The salary premiums for non-U.S. citizens and for those on work visas fluctuate in response to supply shocks created by the annual caps on new H-1B visas. Setting lower and fully utilized annual caps results in higher salary premiums for non-U.S. citizens and those with work visas…

Collectively, the presence of salary premiums for foreign professionals even when a visa cap is under-utilized and the fact that H-1B professionals’ salary premiums are more directly affected by H-1B visa restrictions than that of green card holders imply that (1) foreign IT professionals are complements of American IT professionals, and (2) H-1B professionals may be substitutes for each other because a reduction in their supply affects their wages much more than that of green card holders.