Working Papers

Exchange-rate volatility poses well-documented risks to international trade, yet its effects on the distinct components of global value chain (GVC) participation remain largely unexplored. This paper fills that gap. We are the first to pair GARCH-based volatility measures with a Panel VAR framework applied to GVC-disaggregated trade flows, using the Koopman-Wang decomposition to track foreign value-added (FVA), directly-absorbed domestic value-added (DV), intermediate value-added re-exported to third countries (IV), and re-imported domestic value-added (RDV) across 24 countries and 13 manufacturing industries from 2001 to 2020. Industry-specific real effective exchange rates from Sato et al. (2013) feed a GARCH(1,1) model that provides our primary volatility metric, with rolling-window measures used for robustness. Sector-specific Panel VARs, evaluated through orthogonalized impulse-response functions and forecast-error variance decompositions, show that volatility shocks reduce FVA and RDV more sharply and more persistently than other GVC components. Because FVA and RDV cross borders more frequently than directly-absorbed value-added, exchange-rate uncertainty disproportionately disrupts these links, which is a prediction that our results confirm. Impacts vary sharply across sectors, underscoring heterogeneous exposure along the value chain. Alternative rolling and moving-average volatility measures yield weaker and less consistent results, reinforcing the case for GARCH-based estimation. The findings imply that macro-stabilization policies and wider access to hedging instruments are especially critical for economies whose GVC integration is deepest.

We propose that neighborhoods have a measurable effect on housing prices. In theory, searching for houses by neighborhood can be seen as a heuristic process, reducing the time and effort needed to evaluate a plethora of particular local attributes that are associated with the price premium of the house. To test this hypothesis, we estimate the neighborhood’s fixed effect that picks up the time-invariant quality of the area within the framework of a hedonic housing price model. Our database encompasses more than 50,000 housing market transactions in Charleston, South Carolina. Our regression fits the data extremely well, with the neighborhood fixed effect exerting a pronounced effect on regression results and outperforming significantly alternative local areal units. The fixed effect estimates are ultimately rank-ordered to evaluate their heterogeneous effect on the housing price premium. The analysis reveals that neighborhood fixed effects capture effectively the wide range of house price premiums, from high-priced historic districts and ocean-side communities to low-price, poverty-stricken areas damaged by urban redevelopment. In addition, our approach to using spatial fixed effect estimates as a tool to measure the brand effect of regions can be used to assess the value of regional identity in other contexts like industry location and migration.

The second important contribution we make to the literature is a new method of estimating the Moran’s I in large data sets. Based on our simplified Moran’s I tests, we show that spatial dependence is effectively eliminated when the neighborhood fixed effects are added to the model. This original econometric tool can be applied to a wide range of urban and regional research.

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.

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.

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.

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.