Research
Working Papers
The Empire Strikes Back: The Effect of Historical and Cultural Affiliations on the Allocation of FDI in Eastern Europe
with Alexandra Troidl and Doug Woodward
This paper investigates whether culture and history impacts the spatial allocation of foreign direct investment (FDI). The importance of culture is well documented in both the international business and economics literature; however, the causal impact of culture on the location of FDI has been difficult to determine. In this study, we implement a spatial regression discontinuity design to test for discontinuous changes in investment at the historical border of the Habsburg Empire. There is evidence that the empire had a long-lasting impact on culture, trust, and institutions in its territories. We propose that countries sharing a former affiliation with the empire will be more likely to invest in each other today. The former empire had a border which ran through several present-day countries. Cities located on either side of this historical border have shared common institutions for the last 100 years. This unique setting allows us to identify a cultural effect that is separate from institutions, nationality, religion, and language. The results suggest that there are between 0.24 and 0.32 additional investments per 10,000 individuals coming from Habsburg-affiliated countries in the former empire territories of Romania and Serbia today.
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Incentives, Agglomeration, and the Location of Greenfield Foreign Investment
with Alexandra Troidl and Doug Woodward
This study examines the location of manufacturing foreign direct investment (FDI) in the United States, focusing on taxes and incentives relative to agglomeration as determinants. Using a panel Poisson regression with random effects, we model the probability of site selection in U.S. states and counties. The results reveal that localization and urban agglomeration economies clearly exert the most influence on FDI location. The localization estimate, as captured by the number of domestic manufacturing establishments, has an elasticity of 0.92. Urbanization economies, measured by the area’s wage premium, have an elasticity of 1.31. Among taxes and incentives, the investment tax credit (as a share of value added) is statistically significant, with an elasticity of 1.56. Further analysis reveals that this incentive is only significant in counties that rank in the highest quartile of existing manufacturing agglomeration. In areas falling in the lowest quartile of agglomeration, our estimates indicate that job training subsidies may attract FDI location. The property tax, the job creation tax credit, and research and development tax credit have no measurable effect on the location decisions of foreign manufacturers. In addition, the distance from the foreign-owned plant to a major airport, often overlooked as a determinant in location studies, appears to be attractive.
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Raising the Cost of Doing Business in Lower Income Countries: Trade Agreements with Stringent Multilateral Environmental Regulations
with Bentley Coffey and Patrick McLaughlin
We explore how multilateral environmental regulations may adversely affect trade flows between countries with different incomes. Using the gravity equation, we examine the effect on bilateral trade flows of increases in environmental regulation stringency ratings, taken from survey data covering a panel of 56 countries. We test for significant differences in the effects of the stringency of environmental regulations on exports across countries’ income levels and EU membership. We show that an increase in environmental regulation stringency leads to a dramatic decrease in exports from poorer EU-members; conversely, a similar change in environmental regulation does not appear to significantly affect the exports of richer EU-members. The results are consistent with our theoretical model of the costs of multilateral environmental regulations, which are disproportionately borne by poorer countries due to both the uneven competitiveness effect and the uneven burden of compliance.
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Heinrich Pesch and the Anglo-German Divide in Economics
(Revising to Resubmit to European Journal of the History of Economic Thought)
The Rev. Heinrich Pesch, S.J. was a German economist and social philosopher who was an active scholar from the 1890s to 1920s. His work had a significant impact on a generation of German Catholic social thinkers and particularly the papal encyclical Quadragesimo Anno. His method of social analysis, which he called Solidarism, was informed by Catholic Social Thought, but based on natural law principles that he argued were accessible to all people of good will. This article argues that, although his school of thought did not survive the Nazi and World War II years, many of his ideas had a lingering effect on Economic thought for the German center-right. This influence may be contrasted with the center-right in the English-speaking world, where there was a strong divorce between Christian social thinking and Economics. Consequently, a gap emerged between Economic policy in Germany and Britain, which contributed to some of the divides leading to Brexit.
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Published Articles
The Impact of Chinese Imports on Indian Wage Inequality
with Kaveri Deb
Published in Indian Journal of Labour Economics 2020
GitHub page with data files The paper seeks to address the growing inequality in wages between skilled and unskilled workers and between male and female workers in India due to a growing import surge from China. The study on wage movements of skilled versus unskilled workers helps us to understand how imports from India’s largest trade partner have contributed to relative factor returns in the country’s most abundant factor of production. The consideration of wage divergence between male and female workers helps us in determining how significant China’s trade is in addressing gender inequality in India’s labour market. Our analysis reveals that the import surge from China has minor effects on the growing wage difference between skilled and unskilled workers. However, the effect of the Chinese import surge on wage divergence between male and female workers is significant. The existing literature on the effects of international trade on India labour market is largely silent on the considered aspects.
Early Intervention in College Classes and Improved Student Outcomes
with John Gordanier and Chandini Sankaran
Published in Economics of Education Review 2019
This research investigates the effectiveness of an early academic intervention in Principles of Economics courses at a large public university. After the end of the fourth week of classes, students who fell below a 70% threshold on a performance measure, or had an attendance rate below 75%, were referred to the university's Student Success Center for additional academic support. A referral consisted of students being informed of their status and being given optional assistance in course specific skills through tutoring, as well as training in general skills like time management and study skills. Using a regression discontinuity framework at the referral threshold, we find that the performance intervention improved student scores on common questions on the final exam by 6.5 to 7.5 percentage points for students at or near the performance threshold. The gains are particularly large for students who entered college with below average math placement scores. These results indicate that low-cost light-touch interventions may significantly affect student academic performance.
Endogeneity Bias and Growth Regressions
Published in Journal of Macroeconomics 2017
GitHub page with simulation files The problem of regressor endogeneity stemming from reverse casuality is one that has plagued economists working in the field of empirical economic growth for some time. This paper attempts to address the relevant magnitude of this issue in the context of growth regressions based on the Solow growth model. The paper develops a method of running Monte Carlo simulations that allows us to generate simulated data that match the moments of observed real-world data typically used in such regressions while simultaneously allowing us to impose arbitrarily high correlations between the steady-state determinants of the Solow model and the unobserved residual term of the data-generating process. After running simulations that represent a wide sample of the mathematically-possible correlations, we conclude that a between estimator or a random effects estimator will deliver a lower average absolute bias across all coefficients than alternative estimators in almost all of our simulations. Conversely, estimators that use within-country variation will generate lower biases when looking solely at rates of convergence. Furthermore, we conclude that these results are robust when restricting our sample of simulations to several subsets of the assumed parameters and to changing our assumptions about country fixed-effects terms.
RCA Indices, Multinational Production, and the Ricardian Trade Model
with Kaveri Deb
Published in International Economics and Economic Policy 2017
The practice of using Revealed Comparative Advantage (RCA) Indices to determine the flow of goods trade among countries is well established. But an important issue that demands attention is whether the RCA indices reflect the essentials of comparative advantage theory. Deb and Basu (2011) examined the consistency of alternative RCA indices with the Heckscher-Ohlin theory of comparative advantage, leaving scope for re-examination of the indices in the context of the Ricardian comparative advantage theory, which insists on relative factor productivity differences among countries contrary to Heckscher-Ohlin’s relative factor endowment differences. The other issue which has been overlooked in much of the existing literature is the importance of value-added trade. With the growing importance of global production chains, RCA indices based on gross export values may not portray an accurate picture of the underlying comparative advantage of countries. In this context, adjusting the RCA indices to incorporate domestic value-added in exports seems to be quite relevant. This paper explores the consistency of RCA indices based on domestic value-added in exports with the Ricardian theory of comparative advantage using a panel data approach. A brief review on the structures of alternative RCA indices is also provided. The Log-of-Balassa index is found to be the best performer in this empirical examination, although the deficiencies of the index for cross-country or cross-commodity comparison must be acknowledged. The index of Yu et al. (2009) does possess the latter feature but in our study its performance is quite poor and hence its consistency with the Ricardian theory of comparative advantage is questionable.
Electoral Regime and Trade Policy
with John Hatfield
Published in Journal of Comparative Economics 2014
We study how trade protection varies with the electoral rules for legislative representation. In particular, we investigate different hypotheses about why trade policy differs between countries with legislatures elected by a plurality election rule in single member constituencies and legislatures elected by a proportional, or party-list, rule. Our results, which are in line with the existing literature, show that countries with list-PR systems tend to have lower trade barriers than countries with majoritarian systems. We expand on this literature by looking at the mechanisms through which this correlation can be explained. Our findings indicate that, contrary to existing theory, neither constituency size nor party strength are important when explaining this correlation. Country size does matter, but does not explain the whole of the correlation.
The Return of Convergence in the U.S. States
with Janice Boucher Breuer and John McDermott
Published in Applied Economics Letters 2014
We analyze convergence of per capita income across the US states for the period 1929–2011. We find that absolute convergence was in evidence early, but it broke down around 1978. It appears to have returned in 1990, although more weakly than before. We use two standard metrics to evaluate convergence: (1) σ-convergence, a reduction in the SD of state per capita income and (2) β-convergence, the fact that poor states grow faster than rich states.
Trade Restriction Indices and U.S. Trade Policy
Published in Applied Economics Letters 2012
The proper way to measure differences in trade protection across countries and economic sectors has been a vexing problem for economists studying international trade. Based on research by Anderson and Neary (2005) and Kee et al. (2009), this article proposes the use of Trade Restriction Indices (TRIs) when studying US trade policy. TRIs can potentially solve several problems related to measuring the restrictiveness of trade policy. To this end, this article creates a data set of TRIs for US imports by sector at several different levels of aggregation using the Harmonized Tariff Schedule (HS), the North American Industry Classification System (NAICS) and the Standard International Trade Classification industry coding systems.
U.S. Import and Export Elasticities: A Panel Data Approach
Published in Empirical Economics 2012
GitHub page with generated estimates This article describes the creation of a new dataset on sectoral-level import and export elasticities in the U.S. between the years 1978 and 2001. It proposes the use of panel data techniques as a means of generating import price indexes, and then using them to measure trade elasticities while instrumenting for the endogeneous variables. In particular, it provides a dataset listing trade elasticities for a broad range of sectors at the North American Industry Classification System 4-digit, and 6-digit and the Harmonized Tariff System 6-digit, and 10-digit levels of industry aggregation. These results are compared to previous estimates in the literature. The resulting estimates can be used in a wide-range of applications in empirical studies of international trade policy, particularly in analyzing the welfare effects of international trade.
Protection with Many Sellers: An Application to Legislatures with Malapportionment
Published in Economics and Politics 2011
What effect, if any, does legislative malapportionment have on international trade protection? This paper argues that in malapportioned legislatures, such as the U.S. Senate, industries become over‐represented in a legislature if they are disproportionately located in small constituencies. As a result, industries that are disproportionately located in smaller constituencies are likely to receive greater protection from international trade. To argue this point theoretically, this paper develops a new model, combining legislative bargaining and a model of lobbying to study trade protection while allowing for a legislature with multiple legislators and differently sized constituencies. We then test the predictions of this new model using tariff votes from the U.S. Senate in the late nineteenth and early twentieth centuries and a panel of tariffs and non‐tariff barriers to trade in the U.S. in the 1990s. Considerable support is found for the model's predictions. Industries concentrated in states where the population is low receive greater protection from imports.
A Monte Carlo Study of Growth Regressions
with Romain Wacziarg
Published in Journal of Economic Growth 2009
GitHub page with simulation files Using Monte Carlo simulations, this paper evaluates the bias properties of estimators commonly used to estimate growth regressions derived from the Solow model. We explicitly allow for measurement error, country-specific fixed effects and regressor endogeneity. An OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. Fixed-effects and the Arellano–Bond GMM estimator overstate the speed of convergence under a wide variety of assumptions, while the between estimator understates it. Finally, fixed effects and Arellano–Bond bias towards zero the slope estimates on the human and physical capital accumulation variables, while the between estimator and the Blundell–Bond system GMM estimator bias these coefficients upwards.
Small States, Big Pork
with Romain Wacziarg
Published in Quarterly Journal of Political Science 2007
Using data on authorizations from the 2005 Highway Bill, we show that the legislative allocation of pork barrel spending by US state (measured by the value of transportation earmarks per capita) greatly favors smaller states. We exploit the difference between two versions of the bill: the version that was passed by the House and the compromise version passed in conference committee. Our empirical results provide strong evidence in favor of theories of legislative malapportionment.