Regional Trade Agreements, Unemployment, and the Informal Sector
awarded the CESifo Prize in Global Economy—Distinguished CESifo Affiliate 2015.
What are the welfare and employment consequences of regional trade agreements (RTAs) for developing and emerging countries? Standard quantitative models of international trade which are generally used to assess the impact of RTAs assume full employment and hence abstract from (net) employment effects. This paper presents a quantitative framework to study the welfare and employment effects of RTAs taking into account the key feature of labor markets in emerging economies: A large share of workers is employed in the informal sector which is characterized by low productivity and hence lower wages than those in the formal part of the economy. To illustrate, I apply this framework to a set of 13 Latin American and Caribbean countries to evaluate observed trade liberalization episodes since 1950, taking into account the general equilibrium trade diversion and income effects of RTAs which have been neglected in the literature so far.
What are the welfare and employment consequences of regional trade agreements (RTAs) for developing and emerging countries? Standard quantitative models of international trade which are generally used to assess the impact of RTAs assume full employment and hence abstract from (net) employment effects. This paper presents a quantitative framework to study the welfare and employment effects of RTAs taking into account the key feature of labor markets in emerging economies: A large share of workers is employed in the informal sector which is characterized by low productivity and hence lower wages than those in the formal part of the economy. To illustrate, I apply this framework to a set of 13 Latin American and Caribbean countries to evaluate observed trade liberalization episodes since 1950, taking into account the general equilibrium trade diversion and income effects of RTAs which have been neglected in the literature so far.
A Simple Method to Estimate the Effects of Non-discriminatory Trade Policy within Structural Gravity Models, joint with Mario Larch and Yoto V. Yotov
We propose a simple method to obtain estimates of the effects of non-discriminatory trade policy within the structural gravity model. An important byproduct of our procedures is that they can be used to obtain estimates of the trade elasticity of substitution, which has established itself as the single most important parameter in the international trade literature. We illustrate our approach by using panel manufacturing trade and production data for the period 1996-2012.
The Potential for Trade Sanctions, joint with Mario Larch
Trade sanctions as a policy tool are a contentious issue in international relations due to the large degree of uncertainty about their effectiveness on the target country as well as their potentially harmful effects on innocent bystanders. Target countries differ in their degree of integration into world markets and hence their vulnerability to trade sanctions. Third countries which heavily trade with a target country might suffer from negative effects due to trade diversion effects. We contribute to this debate by introducing structural gravity models to the literature on trade sanctions. These models allow the calculation of counterfactual welfare effects of changes in bilateral trade costs due to e.g. the introduction of trade sanctions against a target country. Welfare effects derived from these models are consistent with a wide class of underlying theoretical models of international trade, see Arkolakis et al. (2012), and have become the industry standard for quantitative trade policy analysis in the international trade literature, see Costinot and Rodriguez-Clare (2013). Importantly, they allow for general equilibrium spillover effects on third countries which are crucial for the evaluation of the effects of trade sanctions. Even though reduced form gravity estimations have been used in the literature on trade sanctions, their potential for the evaluation of counterfactual trade sanctions has been overlooked so far. To gauge the quantitative effects of trade sanctions, we estimate a structural gravity model following Anderson and vanWincoop (2003) for a sample of 173 countries in 2012 and calculate the potential of trade sanctions against any of these countries in terms of welfare losses inflicted on the target country as well as for all of its trading partners by simulating the effects of a full international embargo against the target country. Our results indicate a large degree of heterogeneity in terms of the potential for trade sanctions on target countries as well as innocent bystanders. Interestingly, some countries actually gain from the introduction of a trade embargo due to trade diversion effects.
Work in Progress (working paper coming soon)
The Arms Trade Effects of the Arms Trade Treaty (joint with Laura Márquez Ramos)
The Hidden Gains of Tariff Evasion (joint with Alejandro Riaño and Zheng Wang)
Trade Effects of Regional Trade Agreements with Non-Homothetic Preferences (joint with Mario Larch and Julian Langer)
The Hidden Gains of Tariff Evasion (joint with Alejandro Riaño and Zheng Wang)
Trade Effects of Regional Trade Agreements with Non-Homothetic Preferences (joint with Mario Larch and Julian Langer)