Does Trade Integration Contribute to Peace?

We investigate the effect of trade integration on interstate military conflict. Our empirical analysis, based on a large panel data set of 243,225 country-pair observations from 1950 to 2000, confirms that an increase in bilateral trade interdependence significantly promotes peace. It also suggests that the peace-promotion effect of bilateral trade integration is significantly higher for contiguous countries that are likely to experience more conflict. More importantly, we find that not only bilateral trade but global trade openness also significantly promotes peace. It shows, however, that an increase in global trade openness reduces the probability of interstate conflict more for countries far apart from each other than it does for countries sharing borders. The results also show that military conflict between countries significantly reduces not only bilateral trade interdependence but also global trade integration. The main finding of the peace-promotion effect of bilateral and global trade integration holds robust when controlling for the natural and geopolitical characteristics of dyads of states that may influence the probability of military conflict and for the simultaneous determination of trade and peace.Trade, Globalization, Military conflict, Peace, War

Does Trade Integration Contribute to Peace?

This paper investigates the effect of trade integration on military conflict. Our empirical analysis,based on a large panel data set of 290,040 country-pair observations from 1950 to 2000, confirms that an increase in bilateral trade interdependence and global trade openness significantly promotes peace. It also suggests that the effect of trade openness varies depending on the geographical proximity of countries. The peace-promotion effect of bilateral trade integration is significantly higher for contiguous countries that are likely to experience more conflicts. The analysis shows, however, that an increase in global trade openness reduces the probability of conflict more for countries far apart from each other than it does for countries sharing borders. The results also show that military conflict between countries significantly reduces not only bilateral trade interdependence but also multilateral trade integration. The main finding of the peace-promotion effect of bilateral and global trade integration holds robust when controlling for the natural and geopolitical characteristics of dyads of states that may influence the probability of military conflict and for the simultaneous determination of trade and peace.Trade; Globalization; Military conflict; Peace

(Asymmetric) tariff driven foreign direct investment: evidence from Korean firm-level data

This study examines the effects of identified industry tariff shocks on firms’ outward foreign direct investment (FDI) into their destinations. Using rich Korean firm-level data for 2010–2018, the study decom poses multinational enterprises’ (MNEs’) FDI flows to examine the number of subsidiaries (extens ive margin) and average FDI for individual subsidiaries (intensive margin) in the destination. New evidenc e of tariff-driven FDI indicates that the tariff reduction shock (significant tariff decreases) lowers the nu mber of existing subsidiaries, but does not significantly influence the average FDI volume for existing subsidiaries. In addition, more productive firms investing in developing countries lower the number of existing subsidiaries more in response to tariff decrease shocks, implying that productive MNEs reallocate resources into selective core subsidiaries when a significant tariff decrease occurs

The Diffusion of Development: Along Genetic or Geographic Lines?

Why are some peoples still poor? Recent research suggests the possibility that some societies may be poor due to their genetic endowments, which are found to be a significant predictor of development even after controlling for an ostensibly exhaustive list of geographic and cultural variables. We find, by contrast, that the impact of genetics on living standards is not robust to the inclusion of basic controls for climatic similarity

International Reserves for Emerging Economies: A Liquidity Approach.

The massive stocks of foreign exchange reserves, mostly held in the form of U.S. T-Bonds by emerging economies, are still an important puzzle. Why do emerging economies continue to willingly loan to the United States despite the low rates of return? We propose that a dynamic general equilibrium model incorporating international capital markets, characterized by a non-centralized trading mechanism and U.S. T-Bonds as facilitators of trade, can provide an answer to this question. Declining financial frictions in these over-the-counter (OTC) markets would generate rising liquidity premiums on U.S. T-Bonds. Meanwhile, the higher liquidity properties of the U.S. T-Bonds would induce recipients of foreign investments, namely emerging economies, to hold more liquidity, that is U.S. T-Bonds, in equilibrium. The prediction of our model is confirmed by an empirical simultaneous equations approach considering an endogenous relationship between OTC capital inflows and reserves holdings

Through the Looking Glass: A WARPed View of Real Exchange Rate History

Commonly used trade-weighted real exchange rate indices are computed as indices-of-indices, and thus do not adequately account for growth in trade with developing countries. Weighted Average Relative Price (WARP) indices solve this problem but do not control for productivity differences, as developing countries are observed to have lower price levels via the Balassa-Samuelson effect. In this paper, we remedy these problems in two ways. First we propose a Balassa-Samuelson productivity adjustment to Weighted Average Relative Price indices (BS-WARP). Secondly, we introduce a Weighted Average Relative Unit Labor Cost index (WARULC) for manufacturing and show that this measure does a much better job predicting trade imbalances and declines in manufacturing employment than the IMF's Relative ULC measure created as an index-of-indices. Our series reveal that for many countries currently mired in liquidity traps, relative prices reached historic highs heading into the financial crisis of 2008. We document that in 2002 -- during the surprisingly sudden collapse in US manufacturing -- US relative prices had not been that high relative to trading partners since the worst year of the Great Depression

The Diffusion of Development: Along Genetic or Geographic Lines?

Why are some peoples still poor? Recent research suggests the possibility that some societies may be poor due to their genetic endowments, which are found to be a significant predictor of development even after controlling for an ostensibly exhaustive list of geographic and cultural variables. We find, by contrast, that the impact of genetics on living standards is not robust to the inclusion of basic geographic controls

Through the Looking Glass: A WARPed View of Real Exchange Rate History

Commonly used trade-weighted real exchange rate indices are computed as indices-of-indices, and thus do not adequately account for growth in trade with developing countries. Weighted Average Relative Price (WARP) indices solve this problem but do not control for productivity differences, as developing countries are observed to have lower price levels via the Balassa-Samuelson effect. In this paper, we remedy these problems in two ways. First we propose a Balassa-Samuelson productivity adjustment to Weighted Average Relative Price indices (BS-WARP). Secondly, we introduce a Weighted Average Relative Unit Labor Cost index (WARULC) for manufacturing and show that this measure does a much better job predicting trade imbalances and declines in manufacturing employment than the IMF's Relative ULC measure created as an index-of-indices. Our series reveal that for many countries currently mired in liquidity traps, relative prices reached historic highs heading into the financial crisis of 2008. We document that in 2002 -- during the surprisingly sudden collapse in US manufacturing -- US relative prices had not been that high relative to trading partners since the worst year of the Great Depression